Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee, the Committee of the Regions and the European Central Bank — The introduction of euro banknotes and coins — one year after
Date: 2003-02-15
Institutions: European Commission
Subjects: EU statistics, euro, euro area, impact study, inflation, paper money, social analysis

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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN
PARLIAMENT, THE ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE
REGIONS AND THE EUROPEAN CENTRAL BANK

The introduction of euro banknotes and coins — one year after

(2003/C 36/02)

1. EXECUTIVE SUMMARY

Almost one year after the introduction of the euro banknotes
and coins the euro has found its place in the daily life of
Europe's citizens.

African countries, sometimes in connection with the display
of prices in euro.

survey

to the

Eurobarometer

According
conducted in
November 2002, the majority of Europeans feel happy with
the euro. There are five times more persons indicating not
having any problems, compared to those, who indicate still
having some difficulties. The large majority of people quickly
got used to the euro cash: 92,8 % find it easy to handle
banknotes and more
(68,8 %) have no
problems handling the euro coins. The vast majority of
Europeans believe that the number of existing denominations
for banknotes (83,7 %) and for coins (53,5 %) is just right.

than two-thirds

The citizens are now well acquainted with the coins from other
euro area countries. Especially in regions along the borders, in
big cities and in tourist areas, a rising share of the coins in
circulation are of ‘foreign’ origin. The different national faces of
the coins are clearly a source of interest and 92,6 % of the
respondents confirm that they have no difficulties with the
variety of coins. Many citizens have actually started to collect
them. The interest of coin collectors was also directed towards
the 80 ‘genuine’ euro collector coins that were issued during
2002 by different Member States and which are not destined
for regular payment purposes.

The introduction of euro banknotes and coins had an impact
on the use of the euro outside the euro area, not only in
Europe but also in other parts of the world. Among others,
the behaviour of European travellers favours this development:
53 % of
them indicate taking euro cash with them when
leaving the euro area, as opposed to only 16 % taking US
dollars. It appears that payment with euro cash is regularly
accepted in the three Member States outside the euro area
(Denmark, Sweden and the United Kingdom) as well as in
the 12 accession countries, although this practice is usually
confined to the capitals and to tourist areas. Some shopkeepers
In certain areas in the Balkan
even display prices in euro.
region, such as Montenegro and Kosovo, the euro is de facto
used as the local currency, often as replacement for the former
German mark. On the other continents, the introduction of
euro notes and coins also had some impact, although on a
more
French overseas
departments which are geographically located outside Europe
but form part of the EU, and where the euro replaced the
French franc,
the euro is also accepted as a means of
payment in the tourist areas of some American, Asian and

scale. Apart

from the

limited

In some countries, citizens linked the euro changeover to
significant price increases. This perception is actually not
confirmed by hard facts.
In particular, a detailed statistical
analysis of price evolution based on the harmonised index of
consumer prices (HIPC) indicates that the impact of the intro-
duction of euro banknotes and coins on prices ranges between
0,0 % and 0,20 %. Further analysis demonstrates the existence
of a clear gap between perceived and measured inflation; this is
explained by significant price increases of certain frequently
bought goods and services (there are indeed clear indications
that prices have gone up in the service sector, particularly in
restaurants, hotels, bars, etc.), which are more relevant for the
formation of consumers' perceptions.

Whether the introduction of euro cash has influenced the
payment habits of the population is not clear at this stage. A
significant increase in the use of non-cash payments has been
noticed in the course of 2002, but it is difficult to attribute this
shift exclusively to the introduction of the euro. The average
amount withdrawn at ATMs (automatic teller machines) also
seems to have increased.

a

far

the Europeans

currency. While

is underway but

The recent Eurobarometer survey confirms that the ‘mental
conversion’ of
from
completed: 42,2 % of the consumers already calculate mainly
in euro, but this percentage drops to 12,5 % when important
purchases are being made (e.g. a house or a car), as most
people continue to calculate in national currencies for such
important
transactions. Retailers are still using the dual
display of prices, as it is still appreciated by certain categories
of consumers, particularly those who are still calculating in
national
small majority (50,6 %) of
consumers no longer wants shopkeepers to display prices in
old and new currency, 47,2 % still prefer the dual display of
prices. At
it should be recognised that a
continued dual display of prices inevitably delays the mental
changeover to the euro and even risks becoming counterpro-
ductive for a smooth transition. In agreement with Euro-
commerce,
the Commission therefore recommends to
the retail sector to discontinue the dual display by 30
June 2003 at the latest, while informing their customers
well in advance of this change. The same approach is recom-
mended in other sectors where prices and amounts are still
being displayed in national currency and in euro. This is, for
instance, the case on the invoices of certain companies and on
the account statements provided by financial
institutions to
their customers.

the same time,

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THE INTRODUCTION OF EURO BANKNOTES AND COINS — ONE YEAR AFTER

FACTS AND FIGURES FOR THE EURO AREA

OCTOBER 2002

Banknotes

Coins

Total circulation

Total cash in circulation (number)

7,42 billion notes

38,2 billion coins

Total cash in circulation (value)

EUR 320,9 billion

EUR 11,9 billion

Total value as a share of GDP

4,54 %

0,17 %

Per capita figures

Average number per person

24,7 notes

126,5 coins

Average value per person

EUR 1 062,8

EUR 39,4

Most popular euro banknote/coin

Total number (% of total)

EUR 50 (28,8 %)

1 cent (17,4 %)

Total value (% of total)

EUR 50 (33,4 %)

EUR 2 (39,8 %)

Collector coins (*)

Total number of different coins issued

Smallest denomination

Biggest denomination

(*) Collector coin figures refer to the entire year 2002.

80 (30 gold, 50 silver
coins)

25 cents

EUR 400

2. THE CHANGEOVER TO THE EURO: A GREAT SUCCESS

3. BANKNOTES AND COINS IN CIRCULATION IN THE EURO

One year after the introduction of euro banknotes and coins,
the euro has become part of our daily life. The present
communication deals with the various practical aspects of the
euro, in particular the euro banknotes and coins. It follows the
Commission Communication COM(2002) 124 of 6 March
2002, which reviewed the introduction of euro notes and
the single
coins. The economic impact of
currency of the 12 Member States of the euro area,
is not
covered here but is discussed in Commission Communication
‘The euro area in the world economy — developments in the
first three years’ (COM(2002) 332 of 19 June 2002). Finally,
the euro should also be seen as an
the introduction of
Internal
important
Market. The
Internal
Market — 10 years without
reports on the
occasion of the 10th anniversary of this major achievement.

the
forthcoming Communication ‘The

completion of

step towards

the euro, as

frontiers’

the

AREA

3.1. Banknotes

At the beginning of January 2002 the national central banks of
the euro area have put
into circulation approximately 7,8
billion euro banknotes. In the course of the year, the amount
in circulation dropped until spring (7,16 billion) and rose
almost steadily afterwards until the end of October to 7,42
billion (see graph 1 below).

This temporary decrease of notes in circulation can firstly be
explained by a certain degree of prudence during the front-
loading operation in order to ensure a smooth changeover:
most banks and retailers ordered significant reserve stocks,

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since their needs for euro cash were necessarily based on
estimates. Excess stocks flowed back to the central banks
afterwards. Secondly, as retailers had committed themselves
to giving change exclusively in euro, and as many citizens
used retail outlets for exchanging old currency into new

item with a big
currency (sometimes by buying a small
banknote), retailers needed a lot more notes than usual since
incoming national cash could not be recycled and used as
change.

Graph 1

The total value of banknotes in circulation reached EUR 221,5
billion by the end of January 2002 and increased steadily to
EUR 320,9 billion in October. This difference of evolution
between the total number and total value can notably be
explained by the focus that had been put on small denomi-
nation banknotes during the frontloading and dual circulation
period. Apparently more small denomination banknotes than
needed had been issued, and flowed back to the central banks
afterwards.

These figures amounted to 24,7 banknotes per capita in circu-
lation by the end of October, and corresponds to an amount of
EUR 1 062,8 per capita. The total value of banknotes in circu-
lation amounted to 4,5 % of GDP for the euro area as a whole.

Graph 2 shows the breakdown of banknotes in circulation by
denomination in the euro area by the end of October.

Graph 2

is the most common banknote, both in
The EUR 50 bill
numbers and in total value and it represents one-third of the
In most countries it is the most
total value in circulation.
frequently dispensed banknote by ATMs
(automatic teller
machines). This certainly reflects the preference of the cash
users and the size of typical amounts spent for purchases.

almost one-quarter of

The second most common banknote is the EUR 20 bill,
which represents
all banknotes.
However, in value terms the EUR 500 bill holds the second
rank. The two high denomination banknotes (EUR 200 and
EUR 500)
all
banknotes in circulation.

correspond to only 1,5 % and 2 % of

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In some Member States, notably in Italy and Greece, some
public discussion arose about
the need for EUR 1 and
EUR 2 banknotes,
in addition or as a replacement for the
EUR 1 and EUR 2 coins. However, the latest figures from
the Eurobarometer (November) do not at all reflect this need.
83,7 % of
the number of
different denominations of banknotes was just right. Even
78 % of Italians and 68,5 % of Greeks held this view.

the respondents indicated that

Coins in circulation continued to decline until April. Since
then, a steady increase was measured reaching EUR 38,2
billion coins at
In the case of
the end of October 2002.
coins, the evolution in value is similar to the evolution in
Initially, a total value of EUR 13
number (see graph 3).
billion coins was put into circulation in the euro area. The
total reached a low of approximately EUR 11 billion in April
before rising to EUR 11,9 billion at the end of October 2002.

3.2. Coins

At the beginning of the year 2002 the central banks of the
euro area put 40,4 billion coins into circulation. Already
within the month of January, the quantity of coins in circu-
lation dropped significantly to 37,8 billion (see graph below).

The coins issued by Monaco (1/500th of the coins minted by
France), San Marino (EUR 1 944 000) and Vatican City
(EUR 670 000) also form part of the total volume of circu-
lation coins.

Graph 3

The number of coins put into circulation per capita in the euro
area vary widely among euro area Member States, reflecting
different national payment habits. On average, 134 euro coins
per capita were put into circulation in the euro area at the
beginning of the year representing an average value of EUR 43
per person. The total coin value in circulation represents
0,17 % of euro area GDP in October.

The quantity of euro coins in circulation is distributed relatively
evenly among the different denominations. The least wide-
spread coin is the EUR 2 coin, which represents 40 % of the
total value in circulation. The two bi-metallic coins (EUR 1 and
EUR 2) represent 68 % of the value of all coins in circulation.
The small denominations (1- and 2-cent coins) have a share of
they only
16,6 % and 17,4 % respectively.
represent 1,1 % and 0,6 % of the total value.

In value terms,

Graph 4

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Some discussion on the usefulness of the small cent coins arose
in Greece and Italy, in particular on the 1- and 2-cent coins.
The number of coins in circulation per country does not
however produce any evidence that the population does not
use the small coins. For example, the share of the 1-cent coin
in euro area countries ranges from 9,1 % to 21,3 % of all coins.
For the 2-cent coin, the distribution is more equal and varies
between 12,7 % and 18,8 %. In Finland the 1- and 2-cent coins
have a limited use, as a Finnish law stipulates the rounding off
of euro cash payments to the nearest five cents. Therefore the
Finnish Mint produced limited quantities of the two smallest
denominations, which are far below the average issue volume
in other countries.

According to the latest Eurobarometer, the majority of the euro
area population (53,5 %) believes that the number of different
denominations is just right. Finally, it should be kept in mind
that the small coins played an important role in helping to
ensure that price conversions from national currency units
could be done correctly, and at cent level.

3.3. Cross-border flows of euro banknotes and coins

Euro banknotes and coins can be used in the entire euro area;
they are not confined to the country of origin. As a result, euro
banknotes and coins have been ‘migrating’, and euro area
citizens typically possess a mix of euro banknotes and coins
from different Member States in their wallets or purses.

for business, vacation or just

Euro banknotes and coins migrate for different reasons. A first
reason is that citizens travelling abroad take some money with
them, be it
for cross-border
shopping. In addition, banknotes and coins can be transported
across borders during the redistribution process between
national
and retailers.
Foreign visitors and tourists from outside the euro area also
contribute to the migration of the euro. When they order euro
cash from their local bank before starting to travel, it will often
have been bought by their bank in a different country than the
one in which it is eventually going to be spent.

commercial banks

central banks,

their wallets. In this respect, a study by the Austrian Central
Bank reveals that on 10 September 2002, 11,8 % of the coins
in Austria were of German origin, whereas in areas near the
border the share of German coins amounted to 23,4 %.

3.4. Euro collector coins

For many European citizens and foreign tourists,
the euro
circulation coins have become a collector item because of the
many national sides. However, it should be kept in mind that
in many Member States a rich and ancient tradition exists of
issuing collector coins for the purpose of celebrating special
events or symbols of national importance. Like coins destined
for circulation, collector coins are officially issued by the
(face) value and have legal
Member States, have a nominal
tender
rarely used for
payment purposes since their market value is usually much
higher
than their nominal value. Most are made out of
precious metals like gold or silver.

status, although such coins are

This tradition is being maintained and developed, and collector
coins issued by participating Member States are now all
denominated in euro. While euro circulation coins have legal
tender status throughout the euro area, it has been decided by
Member States that euro collector coins will only enjoy legal
tender status in the country of issue. Moreover,
in order to
avoid confusion, Member States had agreed not to produce
euro collector coins during the transitional period (1999 to
2001), as the euro circulation coins had not yet been issued
at that time. Since 2002, most euro area countries started to
issue collector coins denominated in euro. As agreed among
Member States, their technical specifications differ from the
characteristics of ‘normal’ circulation coins in several respects,
in order to avoid any kind of confusion for the public. Out of
the colour, diameter and weight, at least two out of these three
technical parameters, need to be different from those of the
euro circulation coins. In addition, the face value of collector
coins is always different from circulation coins, and the design
of collector coins always differs from the design of euro circu-
lation coins.

The mix of euro banknotes and coins from different countries
will increase over time and possibly reach an equilibrium level,
whereby the coin mix will more or less represent the share of
each country in the total issue volume of the euro area. It is
unclear though at which pace this will happen. However, some
patterns are emerging.
that coins of different
It appears
denominations mix at different rates and that the high-value
coins are more prone to migration. The coin mix also depends
to a certain extent on location. A higher percentage of foreign
coins will typically be found in urban areas, as opposed to
rural ones.
In addition, people living near the border to
another euro area country also have more foreign coins in

By the end of 2002, the total number of euro-denominated
collector coins will amount to around 80, about 30 of them
being gold coins. Most coins have been issued by France,
Austria, Germany and Spain. The face value of these coins
ranges from a ‘quarter’
to EUR 400, while the
(25 cents)
common denominations are EUR 5, EUR 10 and
most
EUR 20. This face value normally neither corresponds to the
metal value nor to the selling price. The market value of these
collector items of course hinges on the issuing volume, which
is usually indicated at purchase and which can vary from very
small volumes (e.g. 99 pieces) to unlimited editions.

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Apart from these official coins, many public and private mints
also produce and sell medals, which do not enjoy the status of
legal tender. In order to avoid any kind of confusion with such
medals,
the Commission has issued a Recommendation to
Member States on the protection of the euro coins. If similar
in size to euro coins, these medals must not be denominated in
euro, nor should they bear the euro symbol, or any design
similar to the euro coins.

3.5. Euro commemorative coins

and face value

Commemorative coins represent another category of coins,
which are also officially issued by the Member States. Such
coins enjoy legal tender status in the entire euro area and
are intended for circulation, although it should be noted that
no euro commemorative coins have been issued so far. Their
technical properties, dimensions
exactly
correspond to those of euro circulation coins. The only
difference is that the design on the national side is replaced
by a special design, which commemorates a special event or
depicts national
landmarks. Usually the issue volumes of
commemorative coins are limited, but sufficiently important
to allow their circulation alongside the ‘normal’ coins.
In
order to allow the European citizens to familiarise themselves
with the different national sides, and to avoid any possible
confusion, it has been agreed among Member States that no
commemorative coins will be issued during the early years
following the introduction of euro banknotes and coins.

3.6. Nickel in euro coins

It is well known that a small fraction of the population is
sensitive to the exposure of their skin to nickel; prolonged
contact can even give rise to certain allergies. Although a
few euro coins still contain some nickel, 85 % of all circulation
coins are now nickel-free. Prior to the euro changeover, 75 %
of the different national coins contained nickel, for instance,
four out of eight coins in Germany, four out of five coins in
Belgium, nine out of 10 coins in France and seven out of nine
coins in Spain contained nickel and many of these coins were
pure nickel coins. The number of coins containing nickel
therefore dramatically decreased. Mainly for security reasons,
the EUR 1 and EUR 2 coins contain a limited amount of
nickel, located mostly in the central part of the coin and not
on the surface of it. The use of nickel makes the euro coins less
prone to counterfeiting and assures the reliable identification of
the coins in vending machines.

reduction of nickel (1) This study, which was conducted under
conditions that reflect the normal handling of coins, proves
that the EUR 1 and EUR 2 coins release only about half as
much nickel as some national coins.

3.7. Euro counterfeiting

In the course of 2002, many banks and foreign currency
exchange offices started training their staff with regard to the
security features of the new banknotes and coins in order to
improve the detection of counterfeits and the fight against
fraud. The Commission and the Member States have set up a
network of institutions for the fight against counterfeiting. In
collaboration with the ECB and Europol, this network assures
the classification of all relevant
information on counterfeit
banknotes and coins.

Indeed,

security features of

the number of counterfeit

Due to the state-of-the-art
the euro
banknotes and coins, euro counterfeiting in 2002 remained
levels considerably lower than the legacy currencies in
at
previous years.
euro
banknotes and coins which have been discovered so far is
extremely small, and, with very few exceptions, stem from
‘amateur’ operations. As far as banknotes are concerned, the
figures released by the ECB for the first half of the year point
to less than 22 000 false euro banknotes, 65 % of them being
EUR 50 banknotes. This figure roughly corresponds to 7 % of
the total number of counterfeited legacy currency recorded by
the euro area national central banks during the same period in
2001;
than one
counterfeit per day has been recorded for every 59 million
banknotes. The number of counterfeit coins is also extremely
low. In the first semester of 2002 only 68 counterfeit coins
were detected, an infinitesimal number compared to the more
than 38 billion coins in circulation.

figure moreover

implies

that

this

less

4. THE CITIZEN AND THE EURO (2)

4.1. Public perception of the euro

According to data collected through the Eurobarometer poll
organised in November 2002, which is based on interviews
with EUR 1 200 persons, the majority of people (51,5 %) in
the euro area indicated having no difficulties at all with the use
of
the euro. This result ranges from 71,7 % in Ireland to
36,5 % in France. Only 9,5 % of the interviewees experience
having a lot of difficulties (for country details see the graph
below). The share of those who have no difficulties at all is
higher among men (57 %)
than among women (46,4 %).
Inversely, the share of those who indicated having a lot of
problems is higher among women (11,8 %) than among men
(7,0 %).

While some confusion arose at the beginning of the year in
relation to the nickel content of the euro coins and its possible
effects upon sensitive users, it has now been firmly established
that euro coins are extremely safe to use, even more so than
most national coins. A recent study presented by Prof. Pierre-
Gilles de Gennes, Nobel Prize winner for physics, confirms the

(1) See Fournier, P-G., Govers, T.R., Fournier,

J. and Abani, M.:
Contamination by nickel and other metals resulting from the
manipulation of coins — Comparison between French francs and
euro, published in: Comptes rendus de l' Académie des sciences:
Physique, Vol. 3 (2002), No 6, pp. 749-758.

(2) The data used in sections 4(1) to 4(5) originates from the latest

Eurobarometer (Flash EB 139, vol. AB, November 2002).

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Question: Nowadays would you say that the euro still causes you a lot of problems, some problems or no difficulties
at all?

Graph 5

4.2. Thinking in euro

In November 2002 42,2 % of respondents calculate most often in euro when they purchase everyday
goods. Conversely, 32,4 % still think more often in national currency when they do day-to-day shopping.
The most adapted seem to be the Irish as 85,5 % of them base their decisions most often on euro
calculations. Rates are much lower as far as major purchases are concerned. For purchases representing
an important amount, e.g. a house or a car, only 12,5 % calculate most often in euro. Here again the Irish
figure (43,1 %) is the furthest above average.

Question: Nowadays when doing your shopping, do you mentally count more often in euro, more often in national
currency or as often in euro as in national currency, (count most often in euro in %)

Graph 6

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4.3. Attitude towards the dual display of prices

The dual display of prices, both in euro and in national
currency, considerably facilitated the changeover to the euro
by allowing consumers to compare and judge prices.
In
November, a slight majority of the interviewees (50,6 %) no
longer wanted shopkeepers to continue with the dual display
of prices. On the other hand, 47,2 % took the opposite view
and preferred a continued dual display of prices. Women
expressed a stronger preference for keeping dual pricing
(50,9 %)
than men (43,1 %). A continued dual display of
prices is a mixed blessing. On the one hand, it helps certain
citizens to adapt to the new currency, but on the other hand it
delays the mental conversion of the population to the euro. In
it could even create some price confusion,
some countries,
particularly if the level of the conversion rate could induce
the consumer into erroneous interpretations. This could be

indebtedness.

the case in some countries and could imply in some cases an
increase in over
In agreement with Euro-
commerce, the Commission therefore recommends gradually
discontinuing dual pricing with a view to making an end to
this practice by 30 June 2003 at the latest. This recommen-
dation also applies to the dual display of amounts on invoices
and account statements produced by banks.

4.4. Satisfaction with the euro

‘rather’ happy that

49,7 % of the euro area citizens consider themselves to be
‘very’ or
the euro has become their
currency. 11,1 % are neither happy nor unhappy, while
38,7 % indicate being quite unhappy or very unhappy.
the approval rate is the
Among the euro area countries,
highest in Luxembourg (84,2 %) and the lowest in Germany
(27,8 %). See chart below for details.

Question: Are you personally very happy or quite happy that the euro has become our currency?

Graph 7

Questions related to the use of banknotes and coins show a
more favourable attitude towards the euro. According to the
latest Eurobarometer (November 2002), the vast majority of
Europeans find it rather easy or very easy to distinguish and
handle the euro banknotes and coins. More than two thirds
(68,8 %) easily handle the euro coins. For the banknotes this
share is even higher (92,8 %). This picture is complemented by
the citizens' positive judgement on the number of different
(53,5 %)
coin denominations. The majority of Europeans
the number of different denominations is just
believe that
is significantly higher for the
right. The rate of approval
banknotes. Here 83,7 % of
the
the respondents think that
right number of different denominations have been put into
circulation.

The arrival of the euro coins also introduced a large variety of
circulation coins because of the different national faces on the
reverse. In total, 120 different euro coins were put into circu-

for
interest
lation. This variety became an issue of great
collectors. 92,6 % of
they have no
difficulties with the different national faces. The overwhelming
majority of the coin users appear therefore to consider the
different national faces are a welcome source of diversity.

interviewees

say that

4.5. Introduction of euro cash favours cross-border trade

and price transparency

The introduction of the euro banknotes and coins strengthens
the integration of markets in the EU. The creation of a single
currency has not only eliminated exchange rate risk and trans-
action cost, it also abolished a psychological barrier to cross-
border trade, since price transparency facilitates comparisons.

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Since the introduction of the euro banknotes and coins, 12 %
of
the European consumers are more interested in buying
goods in another EU country. The share of people who feel
encouraged to buy abroad ranges from 31 % in the Netherlands
to 6 % in Denmark. The figures seem to be higher in the
smaller countries, i.e. Austria (27 %), Luxembourg (22 %) and

Ireland (22 %), where many people are very favourable to
cross-border shopping. On the contrary, the attitude of the
(7 %) changed only very little. The relatively low
Finns
interest of
is not
surprising, as the euro has not been introduced in these
countries.

the British (7 %) and the Danes (6 %)

Question: Now that the euro has been introduced, are you more interested in buying goods abroad/ encouraging the
sale of your products abroad? (YES in %)

Graph 8

The attitude of companies changed even more significantly. On
average 32 % of businesses in the EU-15 indicate that after the
introduction of euro banknotes and coins they are more
interested in selling their goods abroad. Portuguese entre-
preneurs occupy the first position in this respect; 57 % of
them are now more interested in promoting cross-border
the
sales of
Swedish (48 %) and the Austrian companies (47 %). At the
lower end, we find companies from the United Kingdom
(16 %), Denmark (15 %) and Finland (8 %).

followed by the Irish (50 %),

their products,

At the same time, it should be kept in mind that the funda-
mental medium to long-term effect of the introduction of the
euro on prices will be beneficial. The euro will indeed lead to a
much easier comparison of prices across the euro area. This
enhanced price transparency leads to a better functioning of
the single market and a more competitive environment, which
in itself fosters economic efficiency and exerts a downward
impact on consumer prices.

5.1. Development of consumer prices in the euro area

5. THE IMPACT OF THE EURO CHANGEOVER ON INFLATION

In most countries, public concern has arisen about the alleged
impact of the cash changeover on prices. This section looks at
the evidence on this issue and concludes that on the basis of
the available official data, price increases have indeed occurred
the euro cash
in some sectors. However,
changeover on overall consumer price inflation is
rather
limited.

the effect of

After a peak at an annual rate of 3,3 % in May 2001, consumer
prices in the euro area, as measured by the harmonised indices
of consumer prices (HICP), were on a declining trend during
the remaining months of 2001 (graph 9). In January 2002,
when euro notes and coins were introduced in the euro area,
overall HICP inflation registered a noticeable upward jump,
rising from 2,0 % in December 2001 to 2,7 % in January
2002.
its
downward trend and by June it was 1,8 %, the lowest rate in
over two-and-a-half years.

Subsequently,

gradually

resumed

inflation

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Graph 9

5.2. Possible impact of the euro changeover on inflation

Eurostat has published estimates of the inflationary impact of
the euro cash changeover on three occasions this year (1). The
first two studies showed that most of the observed increase in
inflation could be explained by normal
inflation patterns in
most item groups and by some special factors not linked to
the euro, like bad weather affecting fruit and vegetable prices,
increased energy prices,
increases in administered prices and
some significant tax increases on tobacco. This left a range of
0 to 0,16 percentage points (pp) that could be attributed to the
changeover to euro notes and coins.

in the services

However, most studies also point to more significant price
sector, particularly in the services
jumps
related to tourism (hotels, accommodation services) and in
small services to households (repairs, haircuts, etc.), as well
as in certain low-price goods bought frequently (newspapers
and magazines). For example price increases in the sector of
cafes and restaurants correspond to 4,3 % (on a year-to-year
basis), i.e. almost double the general inflation rate (measured by
HICP).

The latest analysis by Eurostat slightly revised the range of the
likely inflationary effect from the changeover in the euro area
to 0 to 0,20 pp. While sometimes using different metho-
dologies and samples, many studies conducted at the Member
State level by the national statistical institutes and/or national
central banks tend to support the results presented by Eurostat.

indication results from the comparison of
the euro area price index with that of

the
A further
evolution of
the
Member States outside the euro area (2). The evolutions are
broadly similar (graph 10), confirming a limited euro cash
changeover effect.

(1) See the annexes to Eurostat News Releases No 23/2002 (28
February 2002), No 58/2002 (16 May 2002) and No 84/2002
(17 July 2002).

(2) This comparison can only provide a rough approximation as it has
drawbacks from a statistical point of view. For example, a host of
different elements entirely unrelated to the euro changeover could
give rise to a given path across countries.

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Graph 10

5.3. The discrepancy between perceived and actual

inflation

associations while severe criticism was voiced in relation to
official price indices in France and the Netherlands.

Many consumers associate the changeover with price increases.
The media have abundantly reported individual cases qualified
as ‘euro profiteering’,
thereby contributing to a feeling of
significant upward effects on prices due to the euro cash
changeover.

The German government convened a meeting with retailers
and consumer associations to address the matter (popularly
referred to in this country as the ‘teuro’ debate, a term
linking the German word teuer (expensive) to euro. In Greece
‘euro-strikes’ were organised by consumer
and Italy national

the respondents in the euro area thought

The latest state of public opinion across the euro area was
survey (1)
reflected in the November 2002 Eurobarometer
that
84,4 % of
prices had been converted rather
to the detriment of
consumers and 10,9 % thought that price rises and decreases
were balanced. Only 2,7 % held the opposite view that prices
were rounded down to the benefit of the consumer.

(1) Eurobarometer Flash EB 139, November 2002.

Graph 11

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food shops (80 %),

Respondents believed that prices had been always rounded up
in small
in services (80 %), cafés and
restaurants (85 %), public transport (55 %), in leisure activities
(movie cinemas,
swimming pools, etc.) vending machines
(62 %) and bank charges 53 %.

cash changeover between perceived and actual inflation (1). As
can be observed in graph 12, this indicator has tracked actual
inflation fairly well in the past, but since the beginning of 2002
it has been rising to unprecedented levels even though actual
inflation has been falling.

The EU Consumer surveys' question on past price trends in the
euro area clearly illustrates the discrepancy that arose since the

(1) Commission services'

‘Quarterly Report on the Euro Area’ July and
September 2002 issues. ECB ‘Monthly Bulletin’, July and October
2002 issues.

Graph 12

(e.g.

cafés

increases

Several explanations exist for the discrepancy between actual
and perceived inflation. The first one is that consumers tend to
form their perception about general inflation on the basis of
price developments of frequently bought goods and services (1).
that precisely those goods and services have
It appears
following the
registered unusually large price
repairs, haircuts,
changeover
the prices of
newspapers and periodicals, etc.). However,
frequently have
other goods and services consumed less
registered more
case of
subdued increases or,
computers or photographic and audio recording equipment,
have actually been falling. In a comprehensive measure such
as the HICP even unusually large price increases in some
product categories can be offset by more subdued price
that have a higher
increases or
weight, but which are bought less frequently by consumers.

falls in other categories

and restaurants,

in the

high proportion of firms changing prices at the turn of the
year. A higher proportion than usual of relative price changes
adds some confusion to the perception by consumers of the
inflationary impact of the changeover. There is evidence that
lends support to this explanation. For example,
in Germany
price comparison collectors noted substantially more price
adjustments than usual for the standard basket of goods and
services consumed by households during the first month of the
changeover (2).
If such price adjustments involved upward
rounding and concerned the items used by consumers to
form their perception, then the discrepancy between actual
and perceived inflation does not come as a surprise.

6. OVERVIEW BY SECTOR

6.1. The Banking industry

A second reason behind the perception of an inflationary
impact stemming from the changeover might be due to the
so-called ‘menu costs’ considerations. The existence of fixed
costs for changing prices could have led to an unusually

In the banking sector, certain small shifts in the behaviour of
the bank clients and consumers have been observed, more
particularly regarding the use of cash and the choice of
means of payment.

(1) See for example J. Walschots (2002) ‘Why does inflation feel so

high?’, CBS Webmagazine, 10 June 2002. http://www.cbs.nl

(2) Deutsche Bundesbank, Monthly Report, March 2002.

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6.1.1. The choice of the means of payment

to an increase

The introduction of the euro seems to have slightly changed
the behaviour of the average customer with regard to the
choice of the means of payment. All available information
in 2002 of non-cash means of
points
payment. Figures from Italy for instance show a rise in debit
card payments by 30 % and for credit cards by 15 %. Similarly,
figures from Finland indicate an increase in the range between
15 to 20 % for credit and debit card payments. Figures for
Belgium also clearly show a rise in non-cash payments of up
to 17 % for debit cards (1). Credit card payments at the same
time increased by 2 %, while charging of electronic purses
soared by 120 % (2). Similarly,
information from Austria
indicates an increase of non-cash payments by 15 %.

The figures mentioned here refer to recent developments in
2002. However, it is not possible to clearly isolate the effect
that is directly related to the euro. It has to be kept in mind
that many other factors influence the choice of the means of
payment, such as campaigns in favour of non-cash payments
or the introduction of modern vending machines accepting
credit cards, debit cards or electronic purses. In addition, as
at the end of 2001 the guarantee mechanism associated to the
eurocheque system was withdrawn, and as banks in some
Member States have
to clients
entirely, this has led to a vast decrease in the use of cheques
across the Community. This could also have boosted other
means of payment. Additionally, the trend to make more use
of non-cash means of payment was already observable before
the introduction of the euro.

stopped issuing cheques

6.1.2. Cash withdrawals at ATMs (automatic teller machines)

Information with regard to the average amount of cash
withdrawn each time indicates an increase at least in several
countries. In Germany for instance the amount withdrawn each
time with credit cards and debit cards belonging to the Maestro
system increased on average by 12,4 %. Similarly, figures from
Italian banks indicate that the average amount increased by 10
to 20 %. One major Belgian bank reports an increase by 9 %.
Figures from France, Austria and the Netherlands also indicate
a slight increase. A possible explanation for this change that
might not be uniform throughout the euro area, are rounding
effects, notably linked to the fact that the new euro banknote
denominations
differ
dispensed
significantly from the previous national denominations. If for
instance
amount withdrawn in Austria was
the typical amount
ATS 1 000 (EUR 72,67)
withdrawn nowadays could be either EUR 50 (ATS 688,02)

through ATMs

in the past,

typical

being

the

the
or EUR 100 (ATS 1 376,03).
rounding to even euro amounts could either yield a decrease
by 31,2 % or an increase by 37,6 %.

example

In this

just

abroad

is not

behaviour of Austrians

With regard to the cross-border withdrawals of cash at ATMs,
the picture is diverse. A slight
increase is reported from
Germany as well as from Belgium. On the other hand figures
from Mastercard Europe (3) show a decrease of cross-border
withdrawals at ATMs. The Austrian public sector banks
report a decrease of withdrawals of 30 % by foreigners in
Austria. The
remained
unchanged. This unclear picture
surprising since
monetary union allows the citizens to travel abroad with
cash and therefore whether there is an incentive to increase
withdrawals at home or abroad depends on the fees that apply.
Consequently there are incentives for both a decrease and an
increase of cross-border withdrawals at ATMs. Both effects
could even out each other. Moreover, on 1 July 2002, the
EU-Regulation on cross-border payments entered into force,
leading to the same level of charges for cross-border and for
national withdrawals, which stood at EUR 4 on average in the
euro area prior to 1 July. For customers who do not pay fees
for domestic withdrawals, there is now an additional incentive
for
to withdraw abroad. For customers being charged, e.g.
domestic withdrawals at ATMs not belonging to their bank,
the same charges will also apply for cross-border withdrawals.
They might still prefer not
to increase their withdrawals
abroad. At this stage it is not yet possible to judge whether
this particular measure led to an increase of cross-border with-
drawals.

6.1.3. Dual display of amounts

In order to facilitate the transition to the euro, the banking
sector availed itself of the dual display of amounts, notably on
account statements. For the convenience of their customers,
many banks have continued to use dual displays during
2002 and some are even considering extending it into 2003.
In some cases, banks have not yet decided on the date for
ending the dual display of prices.

6.2. The retail sector

Because European consumers were eager to use their new euro
banknotes and coins, and moreover wanted to spend their
national currencies, an increase in cash payments during the
beginning of the year was anticipated and was confirmed in
practice. Afterwards, the situation changed and retailers are
now reporting an increase of the share of non-cash payments.

(1) Figure refers to Bancontact/MisterCash transactions.
(2) Figure refers to Proton.

(3) Covering Mastercard as well as Maestro debit cards

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The dual display of prices has greatly contributed to facilitating
the changeover for consumers, both during the dual circulation
period and afterwards. It had usually been foreseen to keep the
dual pricing of goods until the second quarter of 2002, but it
turned out that many consumers appreciate this extra service.
Many retailers have therefore decided to continue dual display
in 2002, which is considered by some as a
of prices
competitive instrument
in the retail sector. Some retailers
indicate having not yet decided on the date of termination of
dual display of prices and intend to keep it in 2003, at least for
total amounts on bills (see also point 4(3)).

6.3. The cash in transit sector

The CIT sector played an important role in the smooth intro-
duction of euro banknotes and coins. The cash centres, which
ensure the counting and sorting of cash, were under heavy
several months, notably due to the quick
pressure
for
backflow of
euro area
legacy currency. Now that
countries share the same currency, the difficulty of carrying
out cross-border transport of cash becomes more apparent
than before. As the relevant rules relating to the transport of
funds vary widely among the euro area countries, since they
have not yet been harmonised, such transports are virtually
impossible to organise.

all

6.4. The Vending industry

The vending industry tried to adapt its vending machines as
soon as possible in order to avoid loss of turnover. Never-
theless, some vending machine operators indicated temporary
turnover losses, sometimes up to 20 %, at the beginning of the
year (1).

Cash-based machines, representing the vast majority of all
vending machines (85 to 95 % in some countries) presented
the biggest challenge, compared to machines operated with
cards or tokens which only needed reprogramming and a
new display of prices. Many vending machine operators used
the opportunity of the euro cash introduction to replace the
validation mechanisms in their machines. For
instance in
France and Germany, 90 % and 70 % of the validation mech-
anisms were renewed. Only the remaining old validators had to
be converted. In Ireland the rate of replacement is 50 % and in
Italy 25 %. The replacement of old validators can be regarded
as an investment for the future, since it increases the reliability
of the machines in properly identifying banknotes and coins (in
particular the new security features) thereby preventing fraud.
On the other hand, the investment in new validation mech-
anisms represents a substantial cost, amounting to EUR 375 to
for the implementation of a
600 per machine. The cost
non-cash system is lower and comes to EUR 400 on average.

(1) All figures used in this section are based on a survey of five euro
area countries (France, Germany, Italy, Ireland and the Netherlands),
which cover 80 % of the market for vending machines.

States

(Belgium,

Luxembourg,

those Member

the
In
Netherlands)
system is
in which an electronic purse
commonly used, many vending machines formerly accepting
coins have been adapted to an electronic purse system. The
quick conversion of parking meters caused some problems to
citizens and to tourists, who usually do not have the respective
local card at their disposal.

The vending industry emphasises that there is no lack of a
particular denomination of coins, and that the quality of the
euro coins is very satisfactory. This confirms that the euro
the demanding requirements of
coins are able to meet
modern vending machine validators,
including coins from
different euro area countries. Typically, vending machines
accept all the coin denominations except the 1- and 2-cent
coins. The pricing is usually done in 5-cent steps. With
regard to price changes due to the euro introduction,
the
picture is diverse.
In order to be able to stick to round
prices, prices were adjusted in both directions.

7. THE ROLE OF THE EURO CASH OUTSIDE THE EURO

AREA

look at

the extent

section takes at

This
to which euro
banknotes and coins have started to circulate and to be used
outside the euro area. It appears that the use of the euro has
been increasing, particularly in non euro-area European
countries. In other continents,
its use is mostly confined to
tourist areas.

The behaviour of European travellers also plays an essential
role in this respect. For example, according to the latest Euro-
barometer, 53 % of travellers from the euro area who travelled
outside the euro area took euro cash with them, compared to
16 % who took US dollars.

7.1. The three Member States outside the euro area

The introduction of euro banknotes and coins has been
followed closely by the pre-ins. According to a survey in
September 2002, in all three pre-in countries, a majority of
the citizens indicates being well or very well informed about
the euro (68 % in Denmark, 56 % in Sweden and 53 % in the
United Kingdom). A majority of the population have already
held euro banknotes or coins in their hands (55 % in Denmark,
56 % in Sweden and 55 % in the United Kingdom), while many
people have noticed products in their country which were
labelled in euro (47 % of respondents had noticed this in
Denmark, compared to 37 % in Sweden and 38 % in the
United Kingdom). A large majority of people in each country
are aware of the fact that the euro makes price comparisons
among countries much easier.

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In Denmark, a high preparedness to accept euro cash is
observable (1). In September 2002, 83 % of Danish businesses
were prepared to accept euro cash from tourists, while 72 % of
those also accept euro payments from Danes. 15 % of those
who accept euro indicated this to their customers by signs and
even 35 % display the total amount in euro next to the amount
in Danish Kronor. The dual display of prices on at least a part
of the assortment is used by 13 % of all euro-accepting busi-
nesses, while 12 % even give change in euro.

In Sweden, a large number of shops, hotels and restaurants, not
only in major cities and particular tourist areas, accept euro
cash payments, although formerly the national European
currencies were not accepted. However, most business only
accept euro banknotes and give change in Swedish Kronor.
More extensive use of the euro is made along the border
with Finland. The remote town of Haparanda, located in the
far north of the country close to the Finnish town of Tornio,
but very far from Swedish settlements, takes a special position.
It has practically switched to the euro. The euro is being
commonly used as a means of payment, and all prices are
displayed in euro. Even the city's budget
for 2002 was
already presented in euro, next
to Swedish Kronor. The
Swedish Trade Federation strongly promotes the acceptance
of the euro in shops by distributing a ‘We accept the euro’
the euro in
sticker. A referendum on the introduction of
Sweden will take place on 14 September 2003.

Also in the United Kingdom, the euro is sometimes accepted
for payments especially in London and in tourist areas. Change
is usually given in British pounds. Occasionally prices are also
realised that price
displayed in euro. 74 % of
comparisons among countries are
rendered easier by a
common currency. In the United Kingdom, 83 % of the popu-
lation feels that the adoption of the euro by 12 EU-countries
was an historic event.

the Brits

7.2. The Accession countries

The introduction of the euro cash has had a certain impact on
the accession countries as well. Being adjacent to the euro area,
a lot of attention has been paid to the euro in the media. Public
opinion is usually very receptive, notably because these
countries are planning to join the euro area at a certain
stage following EU-membership.

It is easy to obtain and exchange euro into national currency at
banks in all accession countries and in most of them it is
possible to pay with euro in shops, hotels and restaurants.
An extra cost is not necessarily charged. In tourist areas one
to the
can also find prices being displayed in euro, next

(1) Figures given in this paragraph refer to a survey conducted by

‘Danish Commerce and Services’.

domestic currency. In Bulgaria and Turkey the use of the euro
is more widespread, sometimes to the extent that it can almost
be considered as a parallel currency, together with the US
dollar.

7.3. The euro worldwide (2)

7.3.1. Other parts of Europe

legal

tender

The Community has concluded monetary agreements in the
past with Monaco, San Marino and the Vatican City, specifying
that the euro is the national currency in these three countries
and has
these
status. Under
agreements, the countries concerned are also allowed to issue
certain quantities of euro coins, which have legal tender status
throughout the euro area. They are not however allowed to
issue euro (or other) banknotes. In Andorra, the euro replaced
the French franc and the Spanish peseta, which formerly
circulated in parallel, as
this country does not have a
national currency.

the terms of

the Republic of Yugoslavia.

The euro is also used de facto in Kosovo and Montenegro, both
of which form part of
In
UN-administered Kosovo, the use and possession of foreign
currency was legalised in September 1999. This region was a
largely cash-based economy which relied mainly on the
German mark before 2002. At the beginning of 2002 the
Banking and Payments Authority of Kosovo (BPK)
imported
EUR 413,3 million in banknotes and EUR 5,5 million in
coins in order
to facilitate the changeover, while private
banks imported another EUR 142 million to Kosovo. The
BPK also made special efforts to smooth the changeover in
the Serbian enclaves in Kosovo, where the Yugoslav dinar
continues to be used as a means of payment. A positive side
effect of the euro changeover was the strengthening of the
banking system, as many citizens deposited their money in
bank accounts during the changeover.
the
euro also replaced the German mark, which had been
adopted as a means of payment in 1999. Unlike in Kosovo,
the euro there has legal tender status.

In Montenegro,

In the rest of Europe, the euro has acquired an even stronger
role than the original German mark, which it has now replaced
as a means of payment. Euro cash can be easily obtained and
exchanged into local currency.
shops, hotels,
restaurants etc. accept euro as a means of payment, not neces-
sarily at any significant extra cost. In many countries, especially
in the Balkans and eastern Europe, the euro as well as the US
dollar are commonly used for transactions and can be regarded
as parallel currencies. Consequently, prices displayed in euro
can be found, especially in tourist areas.

In general,

(2) The information in this section was gathered by a questionnaire on
the role and acceptance of the new currency in countries outside
the euro area, which was answered by the European Union
Delegations abroad.

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7.3.2. Africa

Due to close historical links with certain European countries,
the market share of the euro for international transactions is
significant
in some parts of Africa, particularly in those
countries where the domestic currency is linked to the euro
by a fixed exchange rate regime. This is the case in all
countries belonging to the CFA-zone, i.e. the Central African
economic and monetary union (CEMAC) and the West African
economic and monetary union (WAEMU) as well as in Cape
Verde.
In these countries the public interest in euro-related
matters is much higher than in the other countries.

The impact of the euro changeover on Africa in general
is
limited. Euro cash cannot be easily obtained or exchanged
into local currency in Africa, especially since some countries
apply exchange restrictions. Usually, euro banknotes and coins
can only be found at major banks and airports, although less
easily than US dollars. It is however possible to pay with euro
in most countries. Dual display of prices is only used in some
tourist areas in a few African countries such as Cameroon and
Egypt.

The island of Reunion located in the Indian Ocean is an
overseas department of France and has therefore officially
introduced the euro. Mayotte, a French island in the Indian
Ocean has the status of a ‘collectivité territoriale’ and also
introduced the euro officially as it was formerly using the
French franc.

7.3.3. America

exceptions are

The entire American continent is strongly US dollar oriented.
This did not change after the introduction of the euro cash. In
most countries it is not even easy to exchange euro into local
currency or to receive euro at banks. Consequently, the euro is
rarely accepted as a means of payment in hotels or restaurants.
The
the Dominican Republic, Cuba and
Surinam, the latter being a former Dutch colony, where euro
payments are normally accepted at some extra cost and where
prices are also being displayed in euro in tourist areas. The
adjacent territory of French Guyana, which is part of France
and hence fully operating in euro, may also explain the special
situation of Surinam. The euro is furthermore being used in all
French overseas departments which geographically belong to
the Caribbean,
i.e. Guadeloupe and Martinique. St. Pierre-
et-Miquelon, an archipelago located in the North Atlantic off

the Canadian coast, which has the status of a French ‘collec-
tivité territoriale’, has also adopted the euro.

7.3.4. Asia and Oceania

In the Middle East the euro introduction had a very limited
impact. Euro cash can be obtained more or less easily and
is possible to use the
exchanged into local currency.
currency as a means of payment
in shops, hotels and
restaurants in certain countries. In Israel the use of the euro
is somewhat more common. Although not permitted officially,
it
tourism-related areas at no
significant extra cost.

is accepted in the major

It

In the rest of Asia, the euro changeover partly had a more
significant impact. In the vast majority of Asian countries, euro
cash can be obtained and exchanged into local currency, unless
restricted by foreign exchange legislation. In some countries,
for instance in Thailand, South Korea and Laos, the euro is
widely accepted as payment in shops, restaurants and hotels
usually at no significant extra cost. Albeit rare, the dual display
of prices can be found in certain Asian countries, such as
Thailand and the Philippines, especially in the tourist areas.
In those cases where a second means of payment is more
widely used next to the domestic currency,
it is mostly the
US dollar or the currency of a neighbouring country. As
Asia is mainly US dollar oriented, the euro does not play a
significant
transactions.
Nevertheless the euro raises the attention of the media to a
certain extent. Especially in Japan the attention paid to the
exchange rate of the euro is high.

role as a means for

international

in Oceania.

in the French overseas

Euro cash can be easily exchanged into local currency
In general, no foreign currency
everywhere
circulates in parallel to the domestic currency as a means of
payment. As a general rule, it is not possible to pay with euro
in shops, hotels and restaurants. The situation is somewhat
such as New
different
Caledonia and French Polynesia. As these territories use the
CFP frank, which has a fixed parity vis-à-vis the euro, there
is a natural interest in the euro and euro payments are often
accepted in hotels, restaurants and shops. Australians and New
in general, see the euro favourably, as an alter-
Zealanders,
native to the American dollar on international markets,
thereby reducing the countries' dependence on the American
currency.

territories