Welcome to the euro, farewell to the tolar
Speech by José Manuel González-Páramo, Member of the Executive Board of the ECB
Euro Conference – Session:
“The euro and the public at large”
Ljubljana, 15 January 2007
Ladies and gentlemen,
We have come here today to welcome the euro and to say farewell to the tolar, yesterday being the official end of the dual circulation period in Slovenia. But let me first say what a great pleasure is for me to be here in Ljubljana at this conference, celebrating with you. It is indeed a historic occasion for Slovenia and for the other euro area countries.
When covering such a broad topic as the title of this roundtable - “the euro and the public at large” – we inevitably have to think about the physical introduction of the euro. As the previous speakers have already said, looking back on the past two weeks, the euro cash changeover in Slovenia can truly be regarded as a success. A long chain of events and a whole series of activities paved the way for the quick and successful introduction of the new currency. I would like to consider these logistical aspects in the first part of my speech today. I would also like to review the information campaign, which helped to prepare the people of Slovenia for the euro and which accompanied the introduction of the euro banknotes and coins. Finally, in the light of previous experience, some of your fellow citizens here are bound to be worried about the effects of the cash changeover on prices. I will come back to this later by reporting on the estimates of the impact of the cash changeover in 2002 as well as on recent developments with regard to expected, perceived and actual inflation in Slovenia prior to the launch of the euro.
Logistics of the euro cash changeover in Slovenia
Let me first compare the main aspects of the logistics of the euro cash changeover in Slovenia with those of 2002.
In order to establish a smooth operation, the logistics had to be organised well in advance to allow the parties involved to ensure the wide availability of euro cash. For the cash changeover in 2002, some of the national central banks started to procure the required quantities of euro banknotes as early as three years prior to the introduction. Unlike them, Banka Slovenije has borrowed the euro banknotes required for the changeover from the Eurosystem stocks. This scenario was the most favourable option for the initial supply of banknotes, given the very short period of time between the decision to abrogate the derogation, i.e. the formal decision to introduce the euro in Slovenia, and the actual introduction of the currency. The Oesterreichische Nationalbank performed, for geographical and logistical reasons, the physical delivery of the banknotes on behalf of the Eurosystem, based on a bilateral agreement. Banka Slovenije will pay back the ‘borrowed’ banknotes under the 2008 euro banknote production plan. As to the production of Slovenia’s euro coins, which, like the other euro area countries, include a national side, a public tender resulted in a contract being awarded to the Mint of Finland.
As in the 2002 cash changeover, a crucial factor for the success of the euro launch in Slovenia was the frontloading and sub-frontloading of banknotes and coins to banks and other professional target groups (e.g. retailers, cash-in-transit companies and the cash-operated industry). To encourage these parties to become involved, a deferred debiting of the countervalue formed part of this agreement.
A lead time of around two months for the frontloading of coins and of about one month for banknotes was required to ensure that sufficient cash would be widely available from 1 January 2007 and also to permit efficient transportation and logistics.
By the end of 2006, Banka Slovenije had frontloaded to banks 100% of the banknotes and coins needed. This meant that some 41 million banknotes, worth €772 million, and some 250 million coins, worth €83 million, had been delivered. 47% of these coins went into starter kits for retailers and for the general public. A comparison of these figures with the 2002 cash changeover is quite interesting, although of course the scale of the launch and some of the conditions were different: at that time, in volume terms, around 80% of the banknotes and 97% of the coins had been distributed to banks before 1 January 2002.
As a direct service to the general public, the national central banks in the Eurosystem have taken measures to ensure that during the first two months of 2007 tolar banknotes, up to a value of €1,000 for any given party/transaction on any one day, can be exchanged into euro at par value in at least one location in their national territory. Banka Slovenije will exchange tolar banknotes for an unlimited period and coins for 10 years. The other euro area countries made similar arrangements at the time of the 2002 cash changeover.
Ultimately, the success of the launch of the euro depends not only on the cooperation of the professional parties involved, but also on a willing and quick acceptance by the public. Their positive feedback in this respect tells its own tale. The smoothness of the overall process has also been confirmed by the Slovenian media, which has reported on the cash changeover in a positive way.
The preparatory work was done and the supply of euro banknotes and coins was planned and completed early enough to ensure there was no shortage of euro cash. No adjustments were needed to the planned cash changeover scenario, and this confirms the precise planning done by all the parties involved.
The technical preparations too went according to plan: the conversion of of cash dispensers and point-of-sale terminals was completed within 24 hours. Given that around 70% of banknotes are put into circulation via the dispensers, their quick adaptation was a key factor in a smooth changeover. Statistics reveal that cash withdrawals returned to their normal levels during the first week of 2007, clearly indicating a return to ‘business as usual’. The conversion of vending machines has also been completed during the past fortnight.
52 branches of commercial banks were open throughout the country on 1 and 2 January, which were public holidays here, to exchange tolar banknotes and coins into euro. Banka Slovenije was also open. These measures, along with the widespread pre-distribution of euro cash and the fact that retailers gave change only in euro, paved the way for a quick changeover.
On the subject of speed, I’d like to give you an impressive indicator: 24 hours into 2007 the value of euro banknotes in circulation was higher than that of tolar banknotes. It took two weeks to achieve this at the aggregated Eurosystem level in 2002.
Any undertaking as enormous as a currency changeover needs to be preceded and supported by various communication activities. Information provided by the central bank or by the government has a stamp of authority that gives businesses time to plan for the conversion. Communication is also a tool that can shape public behaviour. For example, it was clearly stated that tolar banknotes would not lose their value after the changeover – this announcement minimised the risk of bottlenecks in the cash supply. Obviously, communication should also focus on the product itself – the euro banknotes and coins. This is where the ECB played a supporting role. I would like to say a few words about that now.
In its communication on euro banknotes and coins, the European System of Central Banks has adopted a ‘semi-centralised’ approach. This means that communication activities which are more efficiently carried out, so to speak, ‘at the centre’ are performed by the ECB in coordination with the national central banks. For instance, the ECB prepares and prints information material, while the respective national central bank arranges for its distribution. The general contents and design of the material produced for Slovenia are the result of detailed discussions and exchanges of best practices among working groups in the European System of Central Banks. The working groups consist of central bank experts in the fields of communication and cash matters, such as banknote counterfeiting. We have to bear in mind that communication should not only aim to make the public receptive to the new money but also, and above all, it should inform them in a comprehensible way about the appearance of their new banknotes and coins, and thus help them to distinguish between genuine and counterfeit banknotes.
But how can we be certain that the information material will be favourably received? In order to ensure that the publications catch the public’s eye and that their messages are easily understood by different target groups, all elements of the publications underwent qualitative research in recent years. This involved a variety of focus groups, such as young people, pensioners, housewives, cashiers and others who were asked for their opinions on the publications, including the logo and slogan, and on the presentation of the security features of euro banknotes. They also commented on the use of colours and the pictures showing people in cash handling situations. The slogan “€ OUR money” had already been used in the 2002 information campaign. The slogan is thus an element of continuity, linking the new publications with the earlier ones. This “branding”, which is also achieved by a characteristic layout, gives the material a distinct identity and shows it has been produced by the European System of Central Banks.
Interestingly, the outcome of the research did not vary significantly from country to country. This allowed us to develop common guidelines for the design of the publications. The findings of the research were extremely helpful in the preparation of the information material; and some findings were unexpected. For example, it was interesting to learn that the public favours the colours blue and yellow, that is to say the colours of the European flag, to brand publications on the euro as “European Products”. Concerning pictures, people in everyday ‘cash handling’ situations were preferred to models or actors in artificial settings. In order to take account of cultural differences, a photographic database which shows cash users from – and in – different countries in Europe has been established. Accordingly, the publications for Slovenia show people from this country and aspects of its culture. Having a local touch clearly makes the material more acceptable.
The research also showed that “less information can be better” and that more visuals are favoured. This means that readers should not be overwhelmed with detailed descriptions of all the security features. Accordingly, only four, or a maximum of five, prominent features are communicated in an easy-to-understand manner. Their descriptions are kept simple, yet sufficiently accurate: technical terms have been replaced by simpler descriptions, e.g. “optically variable ink” is now expressed as “colour-changing number”. We have developed two sets of publications, one aimed at the public, with accessible vocabulary, and another one for professional cash-handlers with more comprehensive technical descriptions. In this context, we have produced a “Trainers Guide”, which helps in the training of cashiers in shops, banks and restaurants. The publication contains an interactive CD-ROM allowing users to explore the security features of the banknotes. Similar applications are also available on the ECB website. This interactivity is a popular element and was praised as being one of the best tools for checking if banknotes are genuine.
This brings me to the “tool box” of the campaign, as we call the portfolio of the different publications that have been developed by the ECB, drawing on the many years of experience of the national central banks to communicate on the euro banknotes and coins. In the second half of 2006, the ECB provided various publications to Banka Slovenije. This material focused closely on the products – the euro banknotes and coins. They complemented publications produced by the Slovenian Changeover Board on other important aspects of the cash changeover. The above-mentioned “Trainers Guide” and an abridged version for the trainees have been used in training sessions, a “public information leaflet” has been distributed to households in Slovenia by direct mailing and two different posters have been sent to businesses, chambers of commerce and banks. We have also produced a handy credit-card-size leaflet depicting the euro cash and its security features. It can be tucked into wallets for quick reference.
A wider and targeted distribution of the information material was ensured by involving external multipliers. Already in the information campaign conducted prior to the cash changeover in 2002 we had a very positive experience cooperating with various associations and businesses. Slovenian associations and businesses have been actively targeting specific audiences, namely their clients, members or their staff and were supported by Banka Slovenije and the ECB, with these two institutions providing reproducible material.
Impact of the cash changeover on prices in the euro area and recent developments in Slovenia
Let me now move on to my last topic today. Can we expect the cash changeover to have a significant impact on prices? This is probably at the heart of the fears of some today in Slovenia.
Let me try to answer to this question by referring to the analysis conducted by the Eurosystem and by Eurostat as regards the introduction of the euro banknotes and coins in 2002. According to these studies, the cash changeover had a limited and only temporary impact on consumer prices in the euro area, although this effect may have varied across the euro area countries. The impact was most notable in the first half of 2002, mainly on prices in the services sector, while goods prices seem to have been less affected. Overall, the analysis suggests that the impact of the changeover on euro area HICP inflation in 2002 as a whole was at most 0.3 percentage point. There is also no evidence of any changeover effect on inflation beyond 2002. Of course, the situation in Slovenia is different to the euro area cash changeover in 2002 insofar as this time only one (small) country is affected which already had a stable exchange rate with the euro area. Thus a broad increase in prices in Slovenia would undermine its competitive position vis-à-vis the rest of the euro area. This was different in 2002 as the whole of the euro area at that time introduced the new banknotes and coins. This would argue against a strong impact on prices in Slovenia. In any case, and beyond this short-term impact, the greater cross-border price transparency arising from the changeover to the euro should, over a longer period of time, increase competition and contain price pressures.
One relevant issue here is the possibility of a gap emerging between actual inflation and that perceived by the public. Currently there is a close link between consumers’ inflation perceptions and actual inflation developments in Slovenia as provided by the European Commission’s survey. However, given the widening of the gap between actual and perceived inflation in the euro area after the euro adoption, there is a risk of such a gap also emerging in Slovenia. Inflation expectations started to increase and deviate gradually from actual HICP inflation developments as from the second half of 2005. This trend in Slovenia is similar to the divergence between expected and actual inflation in the euro area in 2001. A possible reason for the discrepancy between inflation expectations and actual inflation developments in Slovenia is a spill-over effect from the euro area consumers’ inflation perceptions after the euro cash changeover. As I have just mentioned, in the euro area a significant and persistent gap between perceived versus actual inflation emerged after the introduction of the euro notes and coins in 2002.
In order to minimise the impact of the cash changeover on inflation, the Slovenian authorities consulted their counterparts in the euro area extensively about their experiences relating to the euro cash changeover. Even though it is difficult to specify “best practice”, some elements have been widely agreed upon, and the Slovenian authorities (together with consumer associations) have taken action accordingly. In particular, they have organised
a long and early dual pricing period, which started in March 2006;
an early and extensive citizen information campaign;
price monitoring teams;
a short phase of dual-currency circulation: 2 weeks.
Hence, the impact of the changeover on inflation should be even smaller than that observed in some other euro area countries. Of course, unusual and unjustified individual price increases could take place. In the face of this inappropriate behaviour, the sovereign consumers should react decisively to their right to choose providers, with the full backing from the Slovenian authorities and consumer associations.
Let me now conclude. The introduction of euro cash in Slovenia represented a highly successful continuation of the 2002 cash changeover. The joint actions of, and cooperation between, all the main players – coordinated by Banka Slovenije and the Slovenian Government – have been of overwhelming importance. Commercial banks, security carriers and the cash-operated machine industry were closely involved in the preparations at an early stage. On this occasion, I should like to express my sincere gratitude to all the parties involved for their efforts. I want also to thank all the partners involved in the preparation and execution of the information campaign for their support and contribution in this historic and crucial step for Slovenia. And, of course, I would again like to very warmly welcome the people of Slovenia to the euro area.