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Dual pricing initially on voluntary basis

The third Vodafone Economic Forum, organised by the Malta Economic Update, brought attention to bear on the Euro changeover process. Held on 20 June 2006 at the Radisson Baypoint Hotel, the event followed a different pattern to the earlier ones: Joe FX Zahra, Chairman of the National Euro Changeover Committee (NECC) made no speeches. After a lunch, he fielded questions and comments on the process from the floor.
Mr Zahra's main message was clear. "Prepare yourselves," he told the business community. "Maltese businesses have always risen to the occasion, and will do so again."
He emphasized the need for businesses to move early to put all necessary systems in place. "Start now, if you have not started already" he exhorted. "Let us not find ourselves in a state of crisis. Use the time there is to prepare effectively and efficiently for the Euro changeover day!"
Many businesses are, with some justification, worried about the potential cost of the changeover process. Participants in the Forum told the Malta Economic Update in conversation before the event that they believe that Malta's adoption of the Euro is, in the long run, beneficial to Malta and to the business community.
"The problem lie in the changeover process itself," they explained. "It is not yet clear how much the preparations will cost, or what sort of workload it will involve."

IT woes
Among the changes required of companies is an update of their software systems to handle dual pricing. Every company will need to update their IT systems; some, however, will have a bigger job than others. Businesses with older, more outdated systems in particular will face problems.
"It is not simply a matter of bolting a Euro and dual pricing module onto the existing software," one IT consultant told the Malta Economic Update. "In some cases, the company may need to update its entire system, because the older systems are not necessarily compatible with the newer modules. And beyond that, we will have to convert all the data to a new format!"
This may prove to be a difficult process. "It will not always be possible to simply create an automated process to map one dataset onto a new one, in the new format," The Malta Economic Update was told.
With every company looking to update its IT systems to make them Euro-compliant, the worry has to be that this may prove to be a bottleneck, which can only be avoided if businesses plan and begin to update their systems early.
Pricing concerns
Answering questions about dual pricing, Mr Zahra told the Forum that the date of commencement will be announced shortly. "We will begin with a period of voluntary dual price display," he said. "We will encourage businesses to display their prices in both currencies. That will be followed by a period of mandatory dual pricing. Dual pricing will definitely end on 30 June 2008."
Initially, mandatory dual pricing was to be introduced from June 2007. The Government then brought the date forward to 1 January 2007 to complaints from many businesses, worried that the longer period would involve larger costs and that there would not be enough time to prepare adequately. There were also worries that introducing dual pricing so far before the exchange rate for the Euro was fixed irrevocably may tie businesses to prices which would be either too high or too low.
Mr Zahra's announcement represents a fundamental change. This was the first time the idea of a voluntary dual pricing period had been aired. "The NECC does consult and listen to the stakeholders, and we will continue to do so," he said. The next, updated version of the Master Plan for the Euro Changeover is already being prepared.
Mr Zahra emphasized that before the Euro changeover date on 1 January 2008, he is talking about dual display of prices, not dual circulation of currency. "The aim is to get people used to prices in Euros," he explained. "It is not to encourage people to pay in Euros. The Euro will not be legal tender until 1 January 2008."

Foreign currency
Until Malta adopts the Euro, the European currency remains a foreign currency. Foreign exchange charges will continue to apply. Malta's commercial banks have, however, committed themselves to accepting Euro notes deposited by business clients at the irrevocably fixed exchange rate without applying the foreign exchange charges as from 1 July 2007. For personal clients, the banks will exchange Maltese liri for Euros free of exchange charges from 1 December 2007. The Master Plan points out that this does not mean that all charges will be suspended at that point: transfer fees, for example, will continue to be charged.
The NECC retains flexibility in how the regulations are to be applied, Mr Zahra pointed out. In response to comments abut the practicality of requiring retailers selling a very large number of small items - grocers, for example - marking each product with two prices, he told the Forum that it would be possible for other methods to be used. "We will be supplying conversion tables and calculators, and the small businesses of this type will be able to display conversion tables," he said. During the dual pricing regime, the Maltese Lira and Euro prices will have to match exactly, he explained. "That means that if an item costs Lm10, the Euro price displayed will have to be Euros 23.29, assuming an exchange rate of Lm0.429300 per Euro," Mr Zahra said. "If the retailer wishes to round the price down to Euros23 then the Maltese Lira rice will also, after 1 January 2008, have to be adjusted to Lm9.87."

Leading by example
There are guidelines on how prices should be rounded up or down, and how they should be smoothed. On this sort of pricing adjustment, the NECC will leave the decisions to the discretion of businesses, informed by the guidelines. However, Mr Zahra continued, the Government will be persuaded to set an example, by rounding or smoothing charges for its services downwards rather than upwards, where applicable.
"We also need to make it clear that the introduction of the Euro is not in itself an inflationary exercise," Mr Zahra continued. "Research has shown that the impact of the Euro on prices is minimal, leading to an increase of 0.3%."
The perception that the Euro is inflationary is due to a series of price increases in a number of countries, including most prominently Italy, which occurred at the same time as the adoption of the Euro. "Most of the increases were a result of other economic factors which had nothing to do with the Euro and a lot to do with internal politics and other pressures on price levels," he explained.
The actual changeover itself will pose a logistical challenge in itself. "Up to 31 December 2007, ATS will be dispensing Maltese Liri notes. As from 1 January 2008, they will be distributing Euros. They will be preloaded. In the immediate post Euro period, the banks will be exchanging currencies at no charge at all. By 30 June 2008, the dual circulation period will end and we will then be using only the Euro."
A number of bank officials told the Malta Economic Update that this period will involve added costs to the banks, but that they are ready to carry those costs themselves. "To start off with, while we are exchanging currencies we will be holding twice the value of cash we normally have in the branches. If nothing else, we are going to face increased insurance premia!" the Malta Economic Update was told.
To help ensure a smooth changeover, one of the main requirements is that both businesses and the public are aware of what is going on, and of what it means. To this end, the NECC will be conducting an intensive education plan, beginning with schools. Changing a currency is a very big step, but with the appropriate preparations, Malta should find that it need not be too disruptive.

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Andrew Borg Manduca, moderator	Image C Volksbank Malta's Victor Rizzo Giusti listens
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