Gear up for euro

This week saw debut trading in euro, a currency backed by 11 European economies. Even as it is said to challenge the US dollar's supremac...

This week saw debut trading in euro, a currency backed by 11 European economies. Even as it is said to challenge the US dollar8217;s supremacy in the international markets, it failed to attract the Indian exporter, who continues to quote for orders in dollars. In its early days, the currency is emerging stronger than the dollar. But I feel the currency will take at least three to six months to adjust itself.

Trade with the EU accounts for 19 per cent of India8217;s external trade. Therefore, the currency offers several advantages to exporters who trade with EU-11 countries. But importers in India who import goods from these 11 countries and re-export their goods to countries other than the 11 countries will not require the euro. They will still use the dollar.

The new currency is especially a boon for Indian exporters who frequently travel to these 11 EU countries. The traveller will save on at least 3 per cent foreign exchange since the hassles of changing currencies while entering a different country have beendone away with. This would also save a lot of time and make things simpler.

At present, Indian traders export 60 per cent of their goods and services in US dollars. Whatever has been exported till December 31 will fetch only US dollars. This month onwards, Indian traders can export in any currency, including euro. They will have to negotiate business with these 11 countries accordingly if they want to switch from dollar, Deutsche mark or French franks to euro.

For India, the euro will mean elimination of the intra-euroland hedging cost, and more competitive banking services in euroland. The new currency will help Indian banks in having an efficient position-tracing for EU-11 currencies. Moreover, the supporters of the EMU feel that euro will lead to a better functioning single market, low level of interest rates, low inflation and currency stability.

The euro will further strengthen as an invoicing and reserve currency around the world. However, the possibility will depend upon the stability of the euroand the success of the European Central Bank ECB in monitoring the economic decisions of its member states. It also remains to be seen that with the expansion of the European member countries, whether the central banks of all nations will change over in favour of the euro with larger reserves than those of the US dollar. The survival of the euro also depends on the political platform of the European nations.

Even though there is no compulsion to use euro during the transition period up to January 1, 2002, I feel that bankers, customs, the RBI, ECGC, and all other concerned agencies should gear themselves up and start holding seminars, workshops, training programmes for their staff and develop software for the euro. Our computer programmes and software is in the Indian rupee and in US dollars. I don8217;t see anything new happening for the next two months. And unless proper software is not developed, the switch to euro will not be easy.

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The Indian financial year is from April to March. Since our year willend in March 1999, I apprehend that no exporter or bank will switch until March for receivables. They will have to open a new account for that. Trade in euro will start gradually because everyone has to adjust their prices according to the currency. Trading in euro will gather momentum after April 1999. For now, traders are waiting and watching.

The author is President, Federation of Indian Export Organisations