March 9, 1998
Change to Euro Currency May Cause Computer
Snafu
By ANDREW ROSS SORKIN
ONDON - Amid the rush to reprogram the world's computers so that they
will function after Jan. 1, 2000, a little-known computer problem looms as large
with a deadline that is even earlier.
On Jan. 1, 1999, the European Monetary Union will introduce the euro, a new
currency that could have serious consequences for the computer systems of
financial institutions and just about any company that deals in foreign currencies
and exchange rates.
Compared with the much-publicized year 2000 problem, which can set computer
clocks back to 1900 instead of recognizing 2000, the euro poses a greater number of
technological problems.
Exchange-rate and tax software will need to be upgraded, financial statements
redesigned, automated teller machines revamped and historical data converted -
and that is just scratching the surface.
"The magnitude of the problem the euro poses is unbelievable," said Nick Jones,
research director of Gartner Group Europe, part of Gartner Group Inc., a technology
advisory and research firm. "In terms of cost to fix, it is comparable with the year
2000."
Gartner Group estimates that it will cost
European corporations, many of which
have operations worldwide, $150 billion to
$400 billion to upgrade their systems. Add
to that the expenses in fixing the millennium
bug, and that cost almost doubles. Jones
said the cost of fixing each line of code is
estimated at $1.10, with billions of lines of
code having to be changed.
"If it takes a coin or if it has anything to do with money at all," said Martha Bennett,
vice president of the Giga Information Group in London, "reality becomes very
uncomfortable."
Nevertheless, it seems many companies may not grasp the reality of the situation.
According to a Gartner Group study, 70 percent of information system professionals
from nonfinancial organizations and 45 percent from financial organizations "felt
that their organizations were not fully aware of the issue."
Compounding that problem is a shortage of available programmers because so
many people are scrambling to fix the year 2000 problem; 47 percent of companies
surveyed by the Gartner Group said they had vacant positions.
The lack of programmers to deal with the two problems simultaneously has drawn
the attention of Alan Greenspan, the chairman of the Federal Reserve. During his
semiannual report to Congress on the economy last month, Greenspan expressed
concern that the euro problem might be delaying the resolution of the year 2000
problem.
"I do know that we at the Federal Reserve are aware of the fact that because of the
tremendous amount of resources moving toward a single-currency implementation
that other resources to confront the computer issues are lacking," he said.
Perhaps the biggest problem facing Europe will be currency conversion. Eleven
nations have signed on for the euro: Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.
The European Monetary Union, which will set the value of the euro against the
currencies of the participating countries, has stipulated that there will be a transition
period from 1999 to 2003.
During that time, financial institutions and other companies will have to be able to
deal with two sets of currencies: the euro and the local money.
This is expected to be a headache because most software packages can handle only
one currency at a time. Moreover, when converting money during the transition
period, the arithmetic is different, and more complicated, than in simply converting
one currency into another.
For example, if you converted a French franc into a German mark today, you would
multiply the franc by another number to get a mark. But under European Monetary
Union rules, during the transition period you would have to convert a franc into a
euro, round the number, and then convert the euro into a mark and round again.
This type of conversion is known as triangulation. Unfortunately, most computer
systems were never designed to handle triangulation.
"Almost every system falls over when it has to do triangulation," Bennett said.
"The computer starts to choke."
The rounding can also lead to a financial
advantage or disadvantage, depending on
which way the number is rounded.
Another problem arises when computers
have to deal with decimal places. For
example, some currencies, like the Italian
lira, have no decimal places, therefore
making Italian systems obsolete. But the
monetary union has said that all systems will have to be able to account for six
significant decimal places, making most systems, which now account for two,
obsolete.
"These may sound like nit-picky little problems," Bennett said, "but each one of
them will kill you."
The rounding of numbers adds to the confusion. Some rounding occurs in every
currency conversion, but a rounded number is inherently less accurate than the
original.
"When you have a company convert their history, the numbers become almost
meaningless because they will never be completely accurate," Bennett added.
Other problems include adding the euro "e" character to font sets, printer drivers
and keyboards. Automated teller machines will have to be overhauled to include the
new character on their screens. Cash registers will have to be upgraded not only to
include the euro character but in some cases to handle two currencies at once.
And some companies plan to convert decades of historical financial data into euros
to chart past, current and future performance.
"Think about it. We're talking about taking all of this information and changing it
all," Jones of Gartner Group said. "It's crazy."
hase Manhattan Corp. realized how complex it was about a year ago, and
today employs 40 full-time staff members and hundreds of part-time workers
to convert their computer systems worldwide. It is estimated that it could
cost multinational banks $100 million to $300 million to update their systems.
"It is certainly a big challenge that is taking an enormous amount of our time and
effort," said Nigel Knight, project manager for the euro at Chase Manhattan in
Bournemouth, England. "Literally every single department will be affected. Sales,
marketing, credit, consulting - everything."
According to Knight, his company will be ready before 1999. "We identified the
problem early on, and we are trying to almost over-engineer it," he said. Chase is
beginning tests on revised conversion software to handle the transition period.
"The transition period adds an extremely complex layer to an already complex
problem," added Knight, who refused to disclose the cost of upgrading the bank's
systems.
Making matters worse, the European Monetary Union
has said that countries can choose when to begin using
the euro during the transition period. The law, known
as "no compulsion, no prohibition," is meant to allow
companies flexibility. However, Bennett said, it does
not ease the situation.
"Regardless of what happens, you have to be able to manage two currencies at one
time," she said. "The bottom line is that 'no compulsion, no prohibition' is
overridden by commercial pressures."
Jones said that some companies have tried to pool their resources by merging their
year 2000 and euro compliance projects.
"There is a tendency to think about them as similar problems," he said. "But on a
fundamental level, they are so different."
He continued: "The year 2000 is one singular problem, with one singular fix. The
euro opens up so many problems. They are more than just technology issues. They
are strategic business issues."
Whatever the solution, it needs to come quickly. With only 10 months before the
introduction of the currency and 11 countries signed up, the race is on to solve the
problem.
"Once you start unraveling the ball," Bennett said, "you can see why it's so big."
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