"Euro Opens Strongly as Traders Spring Into Action"
Paris, Monday, January 4, 1999
By Barry James International Herald Tribune
PARIS - The new European single currency, the euro, opened strongly in
Asia-Pacific currency markets Monday after European central bankers,
having worked through the holiday weekend, had pronounced themselves
ready for the currency's introduction in European markets.
The euro hit trading screens in Sydney at 1800 GMT on Sunday as
Australia became the world's first major market to deal in the new currency. The euro opened at $1.1747, higher than the reference rate of $1.17 given Thursday by the European Central Bank, and at 133.20 yen, slightly stronger than the level of 132.80 yen set by the bank.
Traders also reported opening trades of 70.8 British pence - higher than the reference rate of 70.5 pence - 1.6110 Swiss francs and 1.9190 Australian dollars. Earlier, in the Bombay market, one of the few that was open New Year's Day, the euro closed Friday at $1.1720.
In Tokyo, the euro opened at 133.15 yen, also at 1800 GMT on Sunday -
3 A.M. on Monday, local time - but major trading was not expected to
take place until about five hours later, when most traders were due to return from the New Year's weekend.
The main test of the new currency's strength against the dollar, analysts said, was expected to come Monday in London, which has the largest segment of the $1.5 trillion-a-day global currency market.
The European Central Bank said Sunday that national central banks and
commercial financial operations in the 11-nation euro zone were ready to start trading Monday after one of the biggest and most concentrated
data-entry programs in history.
''Throughout the process of conversion undertaken this weekend by the
European Central Banking System, there has been no report of any incident that could impede the start'' of trading in euros, the bank said.
The central bank, with a staff of fewer than 600, is the pyramid of a system that includes the national banks of the 11 countries adopting the single currency - France, Germany, Italy, Spain, Belgium, the Netherlands, Luxembourg, Portugal, Ireland, Finland and Austria.
While the central bank has the task of setting monetary targets such as interest and exchange rates, the national banks with more than 65,000 staffers were responsible for watching over the transition to the new currency.
National currencies were irrevocably locked into the euro Thursday, turning francs, marks, pesetas, punts, schillings, lire, guilders, escudos and markkaa - which will continue to circulate until the introduction of euro bank notes and coins in 2002 - into subsidiaries of the single currency.
The euro instantly became Europe's largest currency for noncash
transactions, which account for the vast bulk of movements in the money supply. Over the weekend, tens of thousands of computer technicians, secretaries, dealers and brokers worked to convert trillions of dollars of securities into the new currency.
While European finance ministers proclaim that the euro will be a stable and strong currency, too much strength is not entirely welcome news to European economic planners. They fear that if the euro is too strong, it could make it more difficult for Europe's exporters to sell their wares, as a strong currency makes exports more expensive.
In Japan, the U.S. currency is weak anyway, having fallen to about 113
yen, its lowest level since October. Analysts said a successful launch of the euro, drawing investments into Europe, could cause even more headaches for the Japanese bond market, which last week fell to its lowest level in more than a year after the government said it planned to issue a record 31.05 trillion yen ($274.17 billion) in bonds this year The Frankfurt-based European Central Bank said the prospect of a
successful conversion to the new currency was ''a sign of the quality of the preparatory work carried out in the past months and years by the community of central banks and by private operators in the financial markets.''
Although there have been many dry runs, the first day of trading was certain to be a major challenge for financial systems.
Even if the financial system comes through the first day of trading unscathed, it will be several days before market operators will be able to breathe easier. The deputy governor of the Bank of England, David Clementi, warned that commercial banks and financial houses could face ''substantial losses'' because of botched trades or payments sent to the wrong bank.
Jean-Claude Trichet, the governor of the Bank of France, said Sunday that Europe's marketplace was an enormously complex system in which even a small error could be magnified with unforeseen results. Merging 11 economies, he said, was like building a spacecraft in which each complex element had to work not only on its own but as part of an integrated system.
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