Are you ready for the euro?
News Analysis: The City is gearing up for a frantic New Year `conversio n weekend'
Friday 18 September 1998
However, this New Year in the City could be one of the busiest ever. Thousands of staff have been cajoled, bribed and bullied into working over the so-called "conversion weekend" when Europe's common currency, the euro, will be officially launched.
The magnitude of the challenge presented by the "weekend" - which will run from Thursday 31 December to Sunday 3 January - is mind-boggling.
When the markets shut for business on the evening of 30 December, bonds issued by the 11 countries participating in the first wave of European Monetary Union will be denominated in 11 different currencies. Shares issued in these countries will also be denominated in local currencies, and these local currencies will be used by both front-office foreign exchange traders and back-office settlements staff.
When markets reopen for business on Monday 4 January, these 11 currencies will be replaced by just one. How prepared is the City for this momentous change?
Compared to our European partners, public awareness of the euro in the UK is relatively low. In France, for example, every shop already posts prices in both euros and francs in an attempt to get people thinking in the new currency before its introduction at the retail level in three years' time. In this country, by contrast, many would be pushed even to name all the EMU participants.
The official line is that this lack of public awareness is not replicated in the City. The latest Bank of England quarterly bulletin on the euro - a detailed assessment on City readiness for the change - finds that major financial institutions are confident about their ability to cope with the conversion weekend.
For the smaller City firms, however, things look a little less rosy. John Townend, who on 1 January becomes the Bank's first Director of Europe, says: "You can be reasonably confident about the main players. But, as in other financial centres, when you look at some of the smaller players you cannot be so sure."
John Rushton, euro expert at PA Consulting, also harbours doubts about the readiness of certain City players, both large and small. He said: "We are working with a number of wholesale financial institutions, and we see a wide variability in preparations.
"Many leading institutions have completed their information technology testing and will be undertaking full-scale simulations in October and November. Others, though, have yet to do detailed conversion weekend planning. These people are running out of time," says Mr Rushton.
One of the most fundamental difficulties about the conversion weekend preparations is the degree of interdependence between financial institutions. Put simply, it is not enough just to worry about your own company's readiness for the euro: you need everyone else to be ready too.
Mr Rushton says: "The City is a highly interconnected place. Although you should be able to contain many problems within institutions, it's hard to guarantee that a problem in one place won't spread elsewhere."
In theory, then, all you need is one glitch in one system somewhere, and there could be chaos in the financial markets when they reopen for business on Monday 4 January. And when you consider that there will be no full-scale rehearsals involving all market participants prior to the weekend itself - although institutions are expected to carry out their own simulations - it starts to look rather worrying.
Where are problems most likely to occur? In its latest euro bulletin, released yesterday, the Bank of England noted that there were particular concerns in the City about the readiness of information providers, fund managers and non-EU firms.
The report reads: "Reference was frequently made [by City firms] to Japanese firms, with some concern that initially they were not sufficiently focused on euro preparations. The concern is now whether sufficient time is left for them to prepare adequately."
These concerns seem to be backed up by a survey released earlier in the week by the National Association of Pension Funds (NAPF). The NAPF said: "Only a quarter of pension scheme administrators surveyed have taken significant action to prepare for the single currency. Half do not see the need for a major exercise before the New Year 1999 conversion weekend." That statistic is likely to have the better-prepared City players quaking in their boots.
So what happens if it does all go wrong? London is a major financial centre - it accounts for around a third of global foreign exchange turnover, for example. If the City struggles to cope with the conversion weekend, the ripples will be felt in all the major financial centres.
Many institutions already have contingency plans in place, although according to Mr Rushton, a significant minority have not bothered. And the Bank of England, together with the Financial Services Authority (FSA), is in the process of identifying the main areas where things could go wrong, and will then draw up an appropriate "Plan B".
Most experts believe that the weekend should proceed without too many glitches, but no-one really knows for sure. As Mr Townend at the Bank says: "This is a hugely complicated project, unprecedented in scale and breadth. I am pretty optimistic, but you cannot guarantee that everything will be 100 per cent problem free."
So when it comes round to the New Year in just over three months' time, the City will holding its breath, crossing its fingers and hoping for the best. There's a chance that even the best-laid plans will go wrong on the night.
- 2 General Election 2015: 14-year-old boy asks Nick Clegg – 'can you kill Katie Hopkins?'
- 3 University student in court for allegedly covering housemates' food in window cleaner and spit
- 4 Ryan Gosling posts tribute to 'Ryan Gosling Won't Eat His Cereal' creator Ryan McHenry
Italian police 'reveal' what Jesus looked like as a young boy
Mysterious 'X-Files' sounds heard miles above the Earth
Garland shooting: Isis claims attack on Prophet Mohamed cartoon contest in Texas as its first action on US soil
Met Gala 2015: Beyoncé manages to out-skimp Rihanna, Miley and Kim Kardashian combined with near-naked ensemble
General Election 2015: Photographic history of Bullingdon Club tracked down - including new picture of David Cameron in his finery
In defence of liberal democracy
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
General election live: SNP suspends two members for disrupting Labour rally
iJobs Money & Business
£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...
£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...
£215 per day: Ashdown Group: Junior Project Manager (website, web application ...
£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...