27 Dec. 2001 - 2 Jan. 2002
Issue No.566
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Al-Ahram Weekly Online 27 Dec. 2001 - 2 Jan. 2002 Issue No.566 |
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Here to stay
If you have a few French Francs or Deutschmarks left over from a recent trip, beware... they are about to become worthless, writes Niveen Wahish
By 1 January 2002, many of the millions of euros sitting in the safes of Egyptian banks will be moved to tellers' cash drawers in preparation for the anticipated demand.
source: EC website
While most residents of "eurozone" -- the 12 countries participating in the EU's monetary union, namely all EU members with the exception of Denmark, Britain and Sweden -- have bought euro starter kits, Egyptians have yet to familiarise themselves with the currency.
At the beginning of the new year, people will have the opportunity to exchange any currency they have from the countries comprising eurozone. They could always keep a note or two as souvenirs, but should not expect them to be worth a fortune in a few decades because plenty of other people will probably hang on to a bit of the old money.
Anyone travelling to eurozone during the first two months of the new year will be able to use the national currencies. But by the end of February, all national coins and notes will be withdrawn from circulation for good.
The availability of the euro in coins and notes is the last stage of a three-year process introducing the currency. "The real work was done three years ago," said Adrien Phares, managing director of Credit Agricole Indosuez (CAI). "The accounting system in banks is done and ready." The euro has existed as a 'virtual' currency since 1999, which signalled the beginning of the final phase of the EU's economic and monetary union. The conversion rates for the euro against the participating 12 currencies were irrevocably fixed at that time.
The final cash phase, according to Phares, will not change the fundamentals of the currency. However, it is expected to boost confidence in the euro. "More people will realise that the EU is one economic power," he said.
Confidence in the euro will play an important role in how Egyptians take to using the currency. "The dollar plays a bigger role in Egypt," said Hassan Soliman, deputy vice president for international transactions at the Commercial International Bank. "To take the place of the dollar, the euro would have to prove itself first."
According to Ian Hoskins, of the directorate general for economic and financial affairs at the European Commission in Brussels, a gradual diversification away from the dollar is expected as the euro's role in the international financial system grows in importance.
Nonetheless, Hassan Saleh, assistant general manager at the Nationale Société Générale Bank (NSGB), says that none of his clients with accounts in the 12 currencies that are to be converted to euros has expressed concerns about the change. Some clients were reluctant to convert immediately, preferring to wait until the last minute. "There was no apparent trend to convert to the dollar instead," said Saleh.
On the other hand, Hesham El-Tanbuli who exports to and imports from EU countries, said that the accounts his company kept in Deutschmarks have been changed to dollars.
"At first we were not sure of the status of the euro, but in the coming period we will switch to the euro to accommodate our European buyers," El-Tanbuli said.
In fact, as Jerome Guiraud, managing director of NSGB put it, "At the end of the day, exporters will find access to markets easier if they invoice in euros."
In his opinion, not only exporters should be concerned about switching to the euro. The country's tourism sector, too, might see its customers head for Turkey and Tunisia instead because operators there advertise their prices in euros.
Now that euros are widely available in cash, investors are more confident that the currency is here to stay. "There is no going back," said Guiraud.
Since 1999, people have had to become accustomed to the new currency; the countries of eurozone had intensive awareness campaigns. Price tags on all goods carried the value in the national currency alongside the euro. "Now even the elderly have accepted the idea," said Phares of CAI.
But it is not only individuals in Egypt who are thinking about using the new currency; the government, too, has been urged by financial experts to consider pegging the Egyptian pound to a basket of currencies, that includes the euro, rather than to the dollar alone as is the case now. Those experts emphasise that Europe is Egypt's main trading partner, accounting for around 40 per cent of Egypt's imports and 29 per cent of its exports. The change over to a basket of currencies is an issue that Central Bank of Egypt (CBE) Governor Mahmoud Abul-Oyoun recently said is being considered.
Those who have reservations about pegging the pound to a basket of currencies have often said that were the CBE to have included the euro in its foreign reserves since the currency was introduced in 1999, the reserves would have depreciated by more than 20 per cent because of the euro's decrease in value against the dollar. Advocates of changing the peg to a basket of currencies say that now would be a good time for such a move because the euro has stabilised and is unlikely to decline further against the dollar.
Whether pegging the pound to a basket is favourable or not remains to be seen, but the very existence of the euro has implications for the economies of Mediterranean countries like Egypt.
Hoskins, of the directorate general for economic and financial affairs at the European Commission in Brussels, told Al- Ahram Weekly that the growth stemming from the more favourable trading environment within the EU will reflect on the EU's trading partners. One positive effect will be that growth within the EU will encourage exports among countries that have concluded partnerships with the EU. In Hoskins' opinion, the euro will simplify commercial relations, lower the cost of transactions and the risk of fluctuations to exchange rates. The greater the size of a country's trade with eurozone, stressed Hoskins, the more they will benefit from the changes beginning on 1 January. Egypt's current exports to the EU represent around one per cent of Egypt's GDP.
However, non-EU Mediterranean countries should be aware that there is potential for negative effects too. Since the euro will encourage trade among EU countries, it could become more difficult for third countries to export to eurozone, said Hoskins. "However, this negative effect could be offset in countries where reform agendas enhancing competitiveness are being pursued," he added.
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