 |
Al-Ahram Weekly 18 - 24 February 1999 Issue No. 417 
|
||
Published in Cairo by AL-AHRAM established in 1875 |
 |
 |
|
|
Al-Ahram Weekly 18 - 24 February 1999 Issue No. 417
|
||
| Published in Cairo by AL-AHRAM established in 1875 |
|
|
|
Egypt Region International Economy Opinion Culture Features Special Travel Living Sports People Time Out Chronicles Cartoons Letters Banks push euro
By Niveen WahishWith the introduction of the European single currency, many banks are now encouraging customers to convert their holdings of European currencies into euros. However, many investors are yet to be convinced about the new currency.
Ahmed Soliman, dealing room manager at the Suez Canal Bank, says that customers are reluctant to convert their holdings of European currencies into euros. "They wrongly believe that the value of any of the 11 currencies might change against the euro or that those European countries might go back on their decision and decide to keep their national currencies," Soliman says. He points out that the exchange rate of each of the 11 currencies to the euro has been fixed since 1 January 1999.
According to Mounir El-Zahid, corporate banking manager of the Egyptian British Bank, it is inconceivable that members of the single currency might change their minds. "The euro is here to stay," he says.
El-Zahid is concerned about the low demand for conversion to euros. He argues that investors are waiting to see how the economies of the euro zone perform, and whether the euro will maintain its initial strength. (The value of the euro has been around $1.15 since it was launched at the beginning of 1999.)
He believes that any conversion of government reserves into euros would encourage others to hold funds in the new currency.
El-Zahid maintains that there is more confidence in the dollar, especially since the Egyptian pound has been pegged to it for some time. The US economy is perceived as being more stable than the EU economies. "The stability of the dollar is unquestionable," says El-Zahid.
Banks as well as customers need to adjust to the new currency. According to El-Zahid, dealing in euros has led to a drop in banks' foreign exchange income because of the loss of separate commissions on each of the 11 currencies. However, they "stand to compensate lost margins with more transactions."
In an attempt to get customers used to the idea of the new European currency, the Egyptian American Bank (EAB) is now offering a new Certificate of Deposit in euros. According to Shahinaz Foda, executive treasury manager at EAB, the new certificates are each worth 50,000 euros and have a three-year maturity period with six-monthly interest.
Foda says that the aim of the new certificates is to encourage depositors who have accounts in various European currencies to combine them into one euro account. The bank is not, however, encouraging holders of Egyptian pounds or dollars to convert to euros. Such a decision, Foda said, should be based on two factors: First, the interest rate of the two currencies involved. At present, the interest rate on both the dollar (around 4.5 per cent) and the Egyptian pound (around 10 per cent) is higher than that on the euro (around 2.75 per cent). The second factor is the foreign exchange rate which would govern profit or loss resulting from the buying or selling of the currency.
Therefore, Foda advised that customers should take account of where the euro will be heading before making a decision. If European countries succeed and achieve the objectivese they set, the euro will appreciate against the dollar. If not, the euro will prove to be a faliure.
As for the effect of the euro on bank transactions, Foda says that the main problem of the transitional period during which the euro will run alongside the individual currencies, is that banks will be dealing with customers in individual currencies but settling inter-bank transactions in euros. "It's like reading instructions in one language and translating them into another," says Foda. However, she points out that this was foreseen and that all computer systems should by now have been adapted accordingly.
The new euro zone includes Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The United Kingdom, Denmark, Sweden and Greece will remain outside initially.
