ALTHOUGH some of the Kenmare School of Economists may find it hard to credit, the euro - the single currency for Europe - is coming. In business terms, it is coming soon - from January 1st, 1999.
The single currency will happen on schedule because there is an enormous political commitment behind it. Other member states are striving to get their public finances in order in order to qualify.
The introduction of the new currency will be the most substantial and all pervasive change in Irish financial and business life since, the establishment of the Irish State 75 years ago. It will be more extensive and demanding than decrimalisation or metrication. The time scale for its completion is very short.
To date, the debate on the single currency has been almost entirely in relation to political aspects and macro economics. Now, it is time for the practical business effects to be examined.
The conversion rate between the member currencies in EMU and the euro will be irrevocably fixed with effect from January 1st, 1999. From the same date, the Central Bank will borrow only in euros. Increasingly from that date the new currency will be used in financial and business dealings in the participating States. Some of Europe's leading companies have already indicated their intention to account in euros from an early date.
The plan is that euro banknotes and coins will start to circulate by January 1st, 2002. These notes and coins will be legal tender. Within six months of their introduction, they will be the only legal tender in the participating member states. The year 2002 seems a long way away, but it is closer to us now than 1990 is.
The new currency will effect every business and individual. It will require changes in computer systems, cash registers, petrol pumps, vending machines, ticket dispensers and ATM machines. It will have an effect on pricing policy, sales and purchase contracts, invoicing, accounting records, direct and indirect taxation and many other aspects from treasury management to exchange risk.
One euro will be equal to one ecu. At the current exchange rate, The Irish Times should cost 1.088 euro; is there a risk that The Irish Times will take a 1 per cent rounding benefit and charge us 1.10 euros? In the sterling area, will The Irish Times continue to sell (without VAT) at 75p or will it be 0.95 euros?
For many businesses, long established price points will change. Dual price displays may be necessary for a period. The programme of public education will have to be more extensive than for decimalisation because there will be no unchanged currency unit and there will have to be some rounding of all prices. There must be some potential for inflation as a result. On the other hand, the single currency will make price differences across Europe in cars, magazines and other products more difficult to justify.
The speed and intensity of impact will differ between businesses which are importing and exporting and those which serve only a national or local market. Internationally trading companies may find that suppliers or purchasers will wish to deal in euros from as early as 1999. While currencies within the EMU system will be fixed irrevocably at that stage, there may be significant variations in exchange rates with non euro currencies, such as the dollar and, of far greater significance to Irish business, the pound sterling.
Locally trading businesses may not have exchange rates to worry about, but almost every other aspect of their activities will be affected by the currency change. Most contracts contain prices or monetary amounts of one type or another. Practically every business form contains prices or values. Brochures and price lists will have to change. Payslips for staff and tax records will be reformated.
For small businesses the currency change will be a huge burden. Owner managers will need standard computer packages, clear and straightforward information briefs and checklists of issues and actions to take. For all businesses financial records will have to be adjusted. For many larger businesses, there will be new accounting issues and taxation implications related to the translation of currency gains and losses.
Many businesses are likely to have to make significant investments in new computer software and perhaps hardware. As the currency change will coincide closely with the century end, there will be a considerable pressure on information technology, resources and skills.
All of the changes associated with the introduction of the euro will bear centrally on the financial systems of business. This is the area for where accountants are well trained and qualified. Professional accounting expertise will be essential to manage and advise on all of the business implications of the currency change.
The Institute of Chartered Accountants is co operating with other accounting bodies across Europe to identify solutions to all of the financial and practical problems which business must now begin to address. We are working with FEE, the European Federation of Accountants, in advising the European Commission on the implications of the changeover.
The institute intends to establish a national help desk so that its members can better assist business with the currency project. Cooperative projects will be undertaken with business interests. Government Departments will be helped with their preparations.
Much more needs to be done at national level. Business needs to understand the implications of what is proposed. A great deal of planning needs to be undertaken to change internal systems and procedures and to prepare for changes in customer and supplier relations. Programmes of staff training have to be drawn up.
On current plans, the whole project is to be completed within six years from now. The euro will exist as a business currency a little over two years from now. It will grow in significance and penetration within a relatively short transitional period of three years.
The new currency notes and coins will replace the existing pounds and pennies within a six month period in 2002. Within six years the pound and the penny will no longer be legal tender in Ireland.
