We can use the changeover to the Euro or British decimalisation or any other recent developed country as an example.
How exactly does a developed country go about the difficult process of changing currencies?Let’s say you’re running a store in Paris and the country is changing from the Franc to the Euro. Would you be taking payments in Francs and then giving back change in Euros? I assume the store owner would then take the Francs to a bank and then the bank would either give them Euros or deposit them and convert them to Euros in the store’s account? What would a bank then do with the Francs?
How would long term debt be handled? If I owed 50,000 Francs on a 15 year mortgage, how would that be handled?
I just picked Paris and the Franc/Euro as an example, feel free to use any other examples from developed counties.
What prompted this question is that a friend of mine is in Poland and was surprised at the hostility towards the Euro there. Poland isn’t a member of the Eurozone yet and many people he’s talked with are vehemently opposed to it.
As an aside, I do remember from my Economics of developing countries class in college about some examples where developing countries would experience a military coup and the new leader would issue new banknotes with his picture on them and declare the old currency null and worthless. I’m quite sure the procedure is far more complex in developed economies.
first, at one point (I’m feeling too lazy to look up the exact date), exchage rates between all the currencies involved were set and frozen. From that moment on, 1 € equaled exactly 166.368 pesetas period; saying it another way, the peseta was thenforth redefined as the 166.368th part of 1€. Prices had to be shown in both coins.
second, there was one date on which banks started giving out only euro-based coins and bills; accounting moved from the old coins to being in euros. During the transition period you could still use the old coins normally but would get euros back if possible.
eventually, we got to the point where if you find grandma’s old piggy you can still exchange it, but you’ve got to go to the offices of your National Bank: the old money isn’t considered legal currency “for all intents and purposes” any more.
Mentally, there was a period of getting used to the new numbers which started as soon as the prices got double-labeled. People got used to the new numbers for smaller, everyday purchases sooner: big ticket items (homes, cars) took longer for the mental translation to take place.
Any outstanding debts got directly converted using the set rate; the rates were set with amounts of decimals which seemed absurd at first sight but which were relevant for large transactions and amounts. I remember people saying “but, wouldn’t it have been easier to just set 166.666?” “Well, it would’a been easier to remember, but it also would’a meant you would have gotten less euros for your pesetas… which do you prefer?” “…the complicated rate. Yep. Absolutely!”
The old coins and notes were handled and eventually destroyed the same way as any other old coins and notes. Removing old notes and issuing new ones is something national mints do constantly.
From my British experience, hostility to the Euro came from 3 places:
• Patriotism. We have our Great British Pounds Sterling for centuries and you’ll tear them away from our cold dead hands
• Fear of being tied to a huge financial block where an economic disaster in Greece could have a ripple effect on your country, plus the inability to adjust interest rates in reaction to economic fluctuations
• Fear of having to learn a new currency and the financial muddle that could lead you into.
Of course, as you rightly point out, we managed the last point in the UK when our currency went decimel. I was but a baby, so have no memory of the impact.
With the Euro, I can remember that for quite some time, shops would display both prices to help people understand the value of the new currency. I presume the exchange rate was set by each country’s central bank.
Opposition to “the Euro” is not to the coin, but to depending on the Central European Bank. The advantage is one of mobility and of ease of commerce; the disadvantage is loss of sovereignity. Giving that the Central Spanish Bank gives as much of a shit about my person as the Central European Bank, I’ll take the convenience.
British decimalization followed the same process. New coins were introduced several years before the switch, so the populace was used to them by the time everything changed. This eased the transition. They also kept the sizes and colors of coins, stamps, etc. the same before and after the transition.
Yeah, decimalisation was pretty easy since the pound stayed and the 50p was the same as the old ten shillings, the 10p the same as 2 shillings and 5p - 1 shilling. It helped that the GBP is a high value note compared to other currencies. Of course, many shopkeepers took the opportunity to ‘round up’ prices, but it was nowhere as bad as some people made out. If something that was sixpence went up to 3p it wasn’t going to break the bank, and at the other end, all those items priced at an old penny less than a Pound went down in price to 99p.
With the switch to the Euro, there were a lot more price increases. If your coffee usually cost 500 Pesetas, could you divide by 166.368 in your head to work out the equivalent in Euros? The price of a coffee went up to 4½ or even 5 Euros and the cafe owner pocketed the extra profit.
Specific to Europe, keep in mind that prior to the Euro, there was the European Currency Unit (ECU). So even before the Euro, European financial institutions were able to track prices in a common currency. Banks and exchanges already had a foundation for when they implemented the Euro.
For additional reference, there have been several times / several countries wherein protracted inflation or regime change had prompted a decision to nuke the old currency and release new. The old currency was going to become worthless after some window (of varying narrowness) closed.
3€ almost round*, and for that price it better be carajillo+. Did you purposefully pick an easy number? :smack:
3.005060521918911 according to my calculator and using the correct conversion factor (166.386, I’d typoed in the previous post). You can keep the cent…
I also experienced the changeover to the euro, and my overriding impression was how easy and convenient it was (for consumers) and how much planning had gone into it. Price tags appeared in both euros and the national currency something like two years before the euro was actually introduced!
Yes, the euro was introduced on January 1 1999, although the actual notes and coins weren’t circulated until three years later, in 2002.
As **Nava **said, from that date (1/1/1999), all the old national currencies became effectively just names for subdivisions of the euro — their exchange rates were locked together. So for instance when I visited France in 2001, although I was still handing over francs, in practice that 50 franc note was actually a €7.62245… note.
As soon as the exchange rate had been locked in, people’s bank accounts, mortgages etc could be converted to euros: during the transition period I believe they were quoted in both currencies. As I understand it, all online transactions were done in euros right from 1999.
I also lived through the currency change in Spain. I remember one of the rip-offs that occurred during the change. One notable fact was that vending machines were usually charging 100 pesetas (the largest denomination coin) for whatever drink candy bar, ice cream, etc. purchased. When the currency switched over, the same machines were asking the consumer to deposit a 1 euro coin (~166 pesetas) in the machines. It was about the same size coin and many people did not think twice about the change and how they were being ripped off. Many other 100 peseta charges for various items in various places were also changed to one euro.
As other posts mentioned, that hostility is not generally about the practical hassles of adopting a new currency, but worry about national sovereignty and the pre-existing problems of the Euro. Either of which can be debated, or dismissed, but that’s what it is.
Just to note on mechanics though the 7 countries which adopted the Euro after the original transition period (Greece adopted it during the transition period of the original 11 countries) did it faster. The periods for posting prices in both currencies were shorter, Lithuania required that for only 6 months for example, and likewise the total transition much compressed from the 3 yrs of the first 11 countries. Again not that that was a problem particularly in those later countries or that many people in Poland who oppose the Euro would be more inclined if Poland transitioned more slowly. They don’t like the basic idea of the Euro.
But you can see some comparative polling here
Support for the Euro was underwater in Poland by 2016 (latest data here) in contrast to big consistent above water margins in some original 11 countries. Although the Euro’s popularity was underwater in Germany before its adoption. And among later countries it was underwater in Lithuania when adopted in 2015. Nor was it as unpopular in Poland as of 2016 as in long term hold outs like the UK and Sweden, or another prospective adopter Czech Rep.
An interesting alternative - a little over two years ago India decided to flush out the hidden economy by making any large bills worthless. The replaced bigger notes with new ones (500R and 2000R) and anyone who wanted to keep the value of a large amount of their old money had to bring it into the bank (and identify themselves). After a certain date the old big bills were worthless. As usual, the government underestimated things. We were there not long after - after seeing stories of the backpackers from Europe forced to beg (in India!!) because the money they were carrying was suddenly worthless - foreigners were limited in what they could exchange. In Amritsar when we were there it was impossible to find the new bills - Our travel guide was willing to exchange new bills for Canadian currency, since he wasn’t an ATM. Fortunately in Delhi we did find the occasional bank machine that did work and had cash, but every bank machine that did have money was lined up. It seemed to get better as time went on… particularly in the richer areas. But for a while, apparently it was chaos.
The government underestimated because they had hoped people would adopt electronic payments instead of cash.
It was chaos because the relevant czars either didn’t care or fucked up. European countries were able to successfully deliver trucks full of Euro banknotes in advance. And not only were ATMs ready, but people had a reasonable supply of coins available (and vending machines accepted them!)
This has been fascinating and thanks for all the responses. As a follow up, once the exchange rate to the Euro was set, did that eliminate the fluctuation between exchange rates inside the Eurozone?
That was the whole point. The issues that came up later with Greece, Italy and Spain were a direct result of their inability to allow their currency to devalue, and make them more competitive.
I have a distant memory of the change to decimal currency in Australia in 1966. It was relatively easy because only the lower denomination coins were being phased out. Six old pennies were equivalent to five new cents, so coins from 6 pence upwards had exact decimal equivalents, and could still be used alongside their decimal equivalents. You could only spend the old pennies and three-penny coins in multiples of six pence for a short time.
I’m probably of similar vintage and my main memory is of the cartoon character 'Dollar Bill’ developed to help explain how sixpence becomes five cents after we went decimal, with a series of jaunty little television jingles.
Nava’s reply had it all, basically except the need for mass education to make it all work on the day. I’ve also seen a collection of about 30 Dollar Bill matchbox covers.