Joint communiqué on the determination of the irrevocable conversion rates for the euro
In accordance with Article 109l (4) of the Treaty, the irrevocable conversion rates for the euro will be adopted by the Council, upon a proposal from the Commission and after consultation of the European Central Bank (ECB), on the first day of Stage Three, i.e. on 1 January 1999.
With a view to guiding markets in the run-up to Stage Three, the Ministers of the Member States adopting the euro as their single currency, the Governors of the Central Banks of these Member States, the European Commission and the European Monetary Institute (EMI) have agreed on the method for determining the irrevocable conversion rates for the euro at the starting date of Stage Three.
The current ERM bilateral central rates of the currencies of the Member States which, on the first day of Stage Three, will adopt the euro as their single currency, will be used in determining the irrevocable conversion rates for the euro. These rates are consistent with economic fundamentals and are compatible with sustainable convergence among the Member States which will participate in the euro area. The central banks of the Member States adopting the euro as their single currency will ensure through appropriate market techniques that on 31 December 1998 the market exchange rates, recorded according to the regular concertation procedure used for calculating the daily exchange rates of the official ECU, are equal to the ERM bilateral central rates as set forth in the attached parity grid.
The procedure agreed upon by all parties to this Joint Communiqué will ensure that the adoption of the irrevocable conversion rates for the euro will by itself, as required by Article 109l (4) of the Treaty, not modify the external value of the ECU, which will be replaced on a 1:1 basis by the euro. The attached annex provides detailed information on this procedure. The final official ECU exchange rates calculated accordingly and released on 31 December 1998 will be proposed by the Commission for adoption by the Council on the first day of Stage Three, i.e. on 1 January 1999, as the irrevocable conversion rates for the euro for the participating currencies.
In compliance with the legal framework for the use of the euro, once the irrevocable conversion rate for the euro for each participating currency has been adopted, it will be the only rate which will be used for conversion either way between the euro and the national currency unit and also for conversions between national currency units.
ERM bilateral central rates to be used in determining the irrevocable conversion rates for the euro
|DEM 100 =||BEF/LUF 100 =||ESP 100 =||FRF 100 =||IEP 1 =||ITL 1000 =||NLG 100 =||ATS 100 =||PTE 100 =||FIM 100=|
|BELGIUM/ LUXEMBOURG: BEF/LUF||2062.55|
DETERMINATION OF THE IRREVOCABLE CONVERSION RATES FOR THE EURO
1. Why can only bilateral rates be announced?
Article 109l (4) of the Treaty provides that the rates at which the euro will be substituted for the currencies participating in the euro area will be adopted at the start of Stage Three of the Economic and Monetary Union, i.e. on 1 January 1999. The adoption of the irrevocable conversion rates for the euro shall by itself not modify the external value of the official ECU. Likewise, Article 2 of the Council Regulation of 17 June 1997 on certain provisions relating to the introduction of the euro stipulates that every reference in a legal instrument to the official ECU shall be replaced by a reference to the euro at a rate of one euro to one ECU. Therefore, the irrevocable conversion rates for the euro have to be identical to the value of the official ECU expressed in units of the participating currencies on 31 December 1998.
Since the ECU is a currency basket, which includes the Danish krone, the Greek drachma and the pound sterling, it is not possible to announce before the end of 1998 the irrevocable conversion rates at which the euro shall be substituted for the participating currencies. However, it is possible to announce the bilateral rates of the currencies participating in the euro area which will be used on 31 December 1998 in computing the exchange rates of the official ECU and thus in computing the irrevocable euro conversion rates for these currencies.
2. Bilateral rates which will be used in determining the irrevocable conversion rates for the euro
For currencies participating in the euro area, the current ERM bilateral central rates will be used in calculating the final official ECU exchange rates which will be adopted by the Council as the irrevocable conversion rates for the euro on the first day of Stage Three, i.e. on 1 January 1999. The table attached to the Joint Communiqué contains those rates. In order to avoid minor arithmetical inconsistencies stemming from inverse calculations, it only includes one bilateral rate for each pair of currencies, which will be relevant for the procedure to be followed on 31 December 1998, as described below.
3. Calculation of the exchange rates of the official ECU on 31 December 1998
To calculate the exchange rates of the official ECU on 31 December 1998, the regular daily concertation procedure will be used. According to this procedure, the central banks of the Member States communicate the representative exchange rate of their respective currency against the US dollar.
Three steps can be identified.
Step 1: Determination of the EU currencies' concertation exchange rates against the US dollar
At 11:30 a.m. (CET), the EU central banks, including those with currencies which are not components of the ECU basket, provide to each other in the context of a teleconference, the US dollar exchange rate for their respective currencies. These exchange rates are recorded as discrete values lying within the market bid-ask spreads. While, as a rule, the discrete values are equal to the mid-points of the bid-ask spreads, the EU central banks, as is allowed by the current concertation procedure, will take into account the need to ascertain exchange rates expressed with six significant digits, like for the pre-announced rates. The bilateral rates between the euro area participating currencies obtained by crossing the respective US dollar rates recorded by the EU central banks will be equal to the pre-announced ERM bilateral central rates, up to the sixth significant digit. The EU central banks participating in the euro area stand ready to ensure this equality, if necessary, through the use of appropriate market techniques.
Step 2: Calculation of the exchange rate of the official ECU against the US dollar
The rates as recorded by the EU central banks are thereafter communicated by the National Bank of Belgium to the Commission, which uses them to calculate the exchange rates of the official ECU. The USD/ECU exchange rate (expressed as 1ECU=xUSD) is obtained by summing up the US dollar equivalents of national currency amounts that compose the ECU.
Step 3: Calculation of the exchange rates of the official ECU against the EU currencies participating in the euro area.
The official ECU exchange rates against the EU currencies are calculated by multiplying the USD/ECU exchange rate by their respective US dollar exchange rates. This calculation is performed for all EU currencies, not only the ones which are components of the ECU basket.
These ECU exchange rates are rounded to the sixth significant digit. Exactly the same method of calculation, including the rounding convention, will be used in determining the irrevocable conversion rates for the euro for the euro area currencies.
For illustrative purposes, the calculation of the official ECU exchange rates vis-à-vis all EU currencies on 31 December 1997 is shown below.
The calculation of the official ECU exchange
|Step 1||Step 2||Step 3|
|Amount of national currency units in the ECU basket (a)||USD exchange rate on 31 December of 1997 (b)||Equivalent in dollars of national currency amount (c) = (a):(b)||ECU exchange rates (d) = (USD/ECU)*(b)|
|USD/ECU 1.1042128 *|
@ The dollar exchange rate for the GBP and IEP is the number of dollars per currency unit rather than the number of currency units per dollar. Column (c) is therefore calculated for each of these two currencies by multiplying the value in column (a) by that in column (b); and column (d) by dividing the dollar equivalent of the ECU (i.e. USD/ECU) by the rate in column (b).
* There is a difference of one unit (i.e. 1.1042128 instead of 1.1042127) in the last significant figure because the dollar equivalents of national currency amounts are shown after rounding to the 7th decimal place, whereas an unrestricted number of digits is used for computation purposes.
In compliance with the legal framework for the use of the euro, once the irrevocable conversion rate for the euro for each participating currency has been adopted, it will be the only rate which will be used for conversion either way between the euro and the national currency unit and also for conversions between national currency units. Owing to rounding, the implicit bilateral rates which could be derived from the euro conversion rates may not always correspond, up to the last (sixth) significant figure, to the pre-announced ERM bilateral central rates referred to in this Joint Communiqué.