News Release
Practical Issues Arising from the Euro June 1999
04 June 1999
The eleventh edition of the Bank's practical euro guides is being published today. This is the first since the launch of the euro at the beginning of the year.
John Townend, the Bank's Director for Europe, said: "We will continue to publish Practical Issues to demonstrate the market expertise about the euro available in London. There is already a significant amount of euro activity in the financial markets here and London-based firms - from all over the world - are well placed, given the success of their technical preparations, to take advantage of the strategic euro market developments in store.".
Content of the June 1999 edition
The Bank's intention in this and future editions is to focus on two main themes: first, euro developments, drawing on the depth and breadth of expertise available in the London market to describe and explain them; and second, preparations for possible UK entry at a later stage, giving particular attention to the financial sector and its role in relation to the real economy.
Euro developments
Chapter 1 (pages 8-13) gives a brief assessment of the conversion weekend at the end of last year, and the immediate aftermath. The conversion weekend was one of the biggest logistical operations that the London market has ever undertaken, and could hardly have been a greater technical success.
Chapter 2 (pages 14-18) assesses London's position as international financial centre for the euro. The available data, and other evidence directly from market firms, show that London has been maintaining its market share since the launch of the euro. Market firms are clear about the factors that will determine whether they maintain and increase their commitment to London in the future. They can be summed up in the word 'competitiveness'.
Chapter 3 (pages 19-43) describes briefly the monetary policy operations of the Eurosystem, before discussing the structural changes taking place in the euro money and foreign exchange markets, and debt and equity capital markets, and in particular:
- the increase in corporate bond issuance in euro; and
- market expectations of further portfolio rebalancing of equities from national to pan-euro area or pan-European holdings.
Chapter 4 (pages 44-71) is concerned with the euro infrastructure. Since the launch of the euro, there has been a major change in the wholesale payment landscape in Europe. Banks are able to choose between a large number of competing euro payment routes. The key points are:
- Given its complexity, TARGET has functioned remarkably well. Inevitably, there have been some teething problems, but these are being addressed. UK and other user groups have suggested a number of ways of making further technical improvements to the system, which the ECB is currently considering.
- No technical issues have been raised about CHAPS euro. There is a high level of satisfaction with the service provided. CHAPS euro has accounted for a significant proportion of euro payments.
- The large number of different euro payment systems makes life more difficult for bank treasurers, both in identifying their liquidity position during the day and in minimising their overall liquidity needs. The Chapter contains a number of suggestions designed to encourage the market as a whole to implement best practice.
- The euro is also acting as a catalyst for change in the settlement infrastructure, and exchanges, in Europe. Some reasonable alternative ways of achieving cross-border consolidation are described, although it is not yet clear what the outcome in practice will be.
Chapter 5 (pages 72-75) contains a brief review of some recent surveys on the use of the euro in the UK economy beyond the City, including by the Bank's 12 regional Agents. These surveys show that there has been very little use of the euro to date in the UK, outside wholesale financial markets in the City.
Preparations for possible UK entry
The final Chapter looks to the practical preparations for possible UK entry. As explained in the Government's Outline National Changeover Plan, the Bank has worked with the City to identify the changes that would be necessary to convert the sterling financial markets to euro. These are set out in the Report published here. The Chapter also reviews the changeover experience so far in first-wave countries focusing on the financial sector.
Notes for Editors
Over a three-year period, the Bank helped the City to prepare for the launch of the euro, including by producing, and circulating widely, ten editions of Practical Issues . Since the launch of the euro, the Bank has continued to monitor practical issues arising from the euro. This is the eleventh edition. We plan to continue publishing Practical Issues on a semi-annual basis in future.
