EC says Cyprus on track for euro changeover

In the last few months Cyprus has achieved considerable progress on the practical changeover preparations and seems generally well prepared for the introduction of the euro. With a view to enabling businesses, in particular retailers, to give change exclusively in euro as from €-day, the Central Bank and banks should continue their efforts to convince businesses of the need for being sub-frontloaded. The communication activities on the euro should be further strengthened with a view to increasing the support for the euro, notes the European Commission in its sixth report on the practical preparations for the enlargement of the euro area.

The introduction of the euro in Cyprus implies that a population of about 775 000 will take part in the changeover from the Cyprus pound to the euro. In order to replace the currency in circulation in Cyprus pound with euro cash, 60.7 million euro banknotes (worth EUR1.19 blnn) and 395 million euro coins (worth EUR100.26 mln) are necessary, according to the estimates of the Central Bank of Cyprus (CBC).

In line with the European Central Bank’s decision that new euro-area entrants can borrow the necessary volumes of euro banknotes from the Eurosystem and pay them back after the changeover with euro banknotes produced by their own supply arrangements, the CBC received the euro banknotes from the Bank of Greece in the course of October.

The Cypriot euro coins were produced by the Mint of Finland, following a public call for tenders. Mass production started once the Council had decided, on 10 July 2007, that Cyprus can adopt the euro on 1 January 2008. About 60% of the coins arrived by mid-October via container shipments, while the remaining 40% are expected to be delivered by the end of November.

 

Euro kits

The CBC estimates that approximately 80% of the value of the euro banknotes which will be introduced into the Cypriot economy (i.e. 48.4 million banknotes, worth approximately EUR950 mln) will be supplied to the banking sector before €-day, as well as 64% of the value of euro coins (i.e. 251.2 million coins, worth approximately EUR64 mln).

As part of the sub-frontloading operation, 40 000 pre-packed euro coin kits (starter-kits) for businesses (worth EUR172 each) as well as 250 000 mini-kits for the general public (worth EUR17.09 each) will be on offer as from 3 December 2007. Simple packaging of the kits has been chosen to ensure that the coins will be used for payments and not retained as collector items.

In addition, since 1 November, some banks exchange Cyprus pounds into euro banknotes for their customers at the conversion rate and without exchange charges, so that the public can prepare for payments in euro as from €-day.

Most of the euro banknotes will be channelled into circulation through ATMs. Approximately 550 ATMs are operated by credit institutions in Cyprus, virtually all within the banks’ premises which allows for their immediate refilling. Some large banks have announced that they implement the conversion of their ATMs in the evening of 31 December. At least 70 % of the ATMs will be converted to dispensing exclusively euro banknotes at the latest by 1.00 a.m. on €-day, while the remaining 30% will be converted by noon on the same day.

Under normal circumstances, all ATMs together serve for approximately 170 000 withdrawals with a total value of around EUR 22 mln per week (on average, data from 2006).

During the first weeks after €-day, ATMs will dispense EUR10 and 20 banknotes only, with a view to reducing the amount of change which retailers have to give in cash transactions. For the same reason, banks have committed to distribute only low denomination banknotes at their counters in a first period after €-day (primarily EUR5, 10 and 20, maximum EUR50 banknotes).

 

Return of national cash

As regards the return of national cash, the CBC intensified its campaign encouraging citizens to use hoarded national cash or to deposit it with banks in October 2007. The CBC estimates that by the end of this year 80.9 million national banknotes and 472.7 million national coins will be in circulation. It is expected that most of these banknotes and about half of the coins will sooner or later be returned to the CBC.

Banks will exchange Cyprus pound banknotes and coins into euro free of charge until 30 June 2008, for amounts up to CYP 1 000 per customer and per transaction in the case of banknotes, and up to CYP 50 in the case of coins. The CBC continues to exchanges national banknotes until ten years after €-day, and coins until two years after this date, free of charge.

 

Cheques; POS terminals

About 25 million cheques are being used per year in Cyprus. Since cheques denominated in Cyprus pound and dated after 31 December 2007 will not be valid, banks have started supplying their customers with cheque books in euro, which are being used already now.

The approximately 19 000 point-of-sale terminals (POS) operated in Cyprus pound will be switched to the euro on 1 January 2008. Those POS which are, for example, working at restaurants and hotels and should keep accepting card payments through New Year’s eve, will change over immediately at 00:01 a.m. on €-day.

 

How well prepared?

According to a Eurobarometer survey held in September 2007, virtually all enterprises

(97%) had started preparing for the changeover; most of them had done so as from April 2007 (88%).

More than 9 out of 10 enterprises are aware that prices have to be displayed both in euro and in Cyprus pound since September 2007, and the large majority of enterprises do not experience any particular difficulties in fulfilling this obligation. Concerning enterprises’

pricing policy, 17% of the businesses mentioned that they will adjust their prices mostly downwards (3% in January), while only 3% will mostly adjust upwards (16% in January). Moreover, the percentage of those who will exactly apply the conversion rules without further adjustments increased from 28% in January to 51% in September.

According to the latest Eurobarometer, still 74% of respondents in Cyprus fear prices increases on the occasion of the changeover to the euro. This constitutes only a slight change compared to the situation in April 2007, when 78% shared this concern.

The dual display of prices in Cyprus pound and euro became mandatory for enterprises on 1 September 2007. Its implementation is carefully monitored by five Euro Observatories established throughout the country which send more than 100 inspectors to each retail outlet on a regular basis.

With a view to informing consumers, lists of retail outlets offering the least expensive products are being published once a month. In addition, the Cyprus‘ Consumer Association carries out and publishes market surveys, analysing the price developments of about 80 000 items in 11 000 retail outlets. First results from the period of July to September 2007 indicate that the prices of about 80% of the products remained stable or decreased, while price increases of different degrees were observed for the remaining 20% of items. The Association intends to publish cases of significant price increases in the media, along with the reasons for the price increase given by the retailer concerned.

The latest Eurobarometer survey confirms that the support for the euro is increasing in Cyprus albeit from a low level: some 44% of the respondents stated that they are personally very or rather happy that the euro will replace their currency (up from 40% in April 2007 and 32% in September 2006).

It appears fair to assume that the ongoing communication campaign in Cyprus is instrumental to increase the support for the euro. Other factors confirm this: 67% of the respondents felt quite or very well informed which is a huge leap forward from  previously 47% (April 2007) and 39% (September 2006). Similarly, the familiarity with some key features of the euro and EMU has further improved.