Preparing for the euro

What this currency change may mean to your business

The saying “money makes the world go around” has taken on new meaning. As of January 1, 1999, most European currencies ceased to exist.

The euro is a new monetary unit that, second to the U.S. dollar, will be the most commonly used currency in the world. Presently, 11 European countries (Portugal, Belgium, France, Italy, Luxembourg, Austria, Finland, Spain, the Netherlands, Germany and Ireland) are participating in the launch of this single currency.

The United Kingdom and Denmark have opted to wait before joining the conversion, which will gradually take place over a three-year period ending January 2002. Until then, participating countries can continue using their own currencies at an exchange rate fixed to the euro.

With the euro will come the initiation of a monetary conversion system called “triangulation.” The system requires that a company transferring currency between the U.S. and a euro-participating country must convert the U.S. dollar to the euro and then the euro to the currency formerly used by that participating country and vice versa. The same goes for euro-participating countries doing business with one another.

“The market has established the trading rate between dollars and euros,” says Tim Pfister, a lawyer with Reed Smith Shaw & McClay in Princeton, New Jersey. “But what has now ceased to exist is the floating exchange between national currencies that existed in Europe.”

Businesses can take several key steps to ensure an easier transition:

  • For all transactions with businesses in euro-participating countries, you will be trading dollars for euros. When making a sale or being paid for something by a euro-participating country, you will be paid in euros.
  • Make sure your financial department understands the new exchange rates. Treasurers must understand their currency payment options.
  • Consider purchasing accounting software that will help ease your company into the conversion. SunSystems Version 4.2.5. is euro compliant.
  • Talk to your banker about how to protect yourself from any financial risks that may result from the conversion. Discuss ways to develop future contracts with European businesses.
  • Review any current contracts your company has with a euro-participating country. Steps have been taken within the European Union and certain states in the U.S. to insure against contracts disintegrating as a result of the conversion. You both must determine the possibility of carrying out the term of the contract. Discuss this with your banker and a financial expert.

For more information, visit www. eubusiness.com.

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