European Monetary Union (EMU) will exist on 1 January 1999, although the UK, Sweden and Denmark have chosen to opt out. Irrespective of the on-going political debate, whatever happens to EMU in this country, UK firms will have to support it. Why? Well, EMU will result in a new currency, the Euro. Any UK company making international transactions will have to be able to deal with this new currency. IT systems will have to support it. The currency conversion is governed by European Union (EU) regulations. These apply to all EU countries, irrespective of whether the national currency is the Euro. In the UK, companies and banks must apply these EU rules when converting currencies. Simply put, in order to deal with currency from countries participating in EMU, the currencies must first be converted to Euros and all conversion rates must be expressed as denominations of the Euro. Another factor is that conversion rates must be expressed to six significant digits. The Bank of England says that even though the UK will not initially participate in the single currency, many UK companies will need to adapt their accounting systems to record receipts and payments in Euro. This will be straightforward for those with multi-currency systems. Some companies may also wish to adopt the Euro as their base accounting currency, especially if a large part of their sales is to a Member State that is "in". They would then probably also wish to file accounts in Euro. There should be no difficulty about this, since Companies House already accepts accounts in currencies other than Sterling where there is good commercial reason. The timing of any switch would be for the company itself to decide. However, firms with subsidiaries in the Euro area should note that a number of EU Member States will not permit publicly filed accounts to be Euro-denominated until after 1 January 2002, when Euro banknotes and coins are introduced. The Bank of England warns that EMU will cause substantial changes in the trading environment for many businesses, even while the UK is "out". Companies may need to modify their strategies and business processes, with correspondingly wide-ranging effects on their IT needs. Companies need to consult other parties, including suppliers and major customers, about their likely use of the Euro, and plan carefully. Many will need an experienced and well resourced project team to handle a highly complex and difficult network of tasks. Failure to prepare is a very risky strategy; preparing well could provide competitive opportunities. One problem that the Bank predicts is that some bank systems may not be able to accommodate the six significant digits required for currency conversion under EMU. Here it advises that all individual systems need to be reviewed to identify any technical constraints, allowing sufficient time for system alteration. Another problem concerns exception limits, such as when someone spends over their credit limit, it may not convert to nice round Euros. The Bank notes that some banking systems use normal-round Sterling limits like #1,001 to signal the need for special action. This signal would disappear on conversion to Euros, so all banks would need to review such practices. As an aside, the Bank of England notes that credit cards like Visa and MasterCard convert all monetary amounts via the US dollar, which is against EU regulation. However, Visa and MasterCard are working to address the restriction. In a paper entitled Getting ready for EMU, Mark Vaughn, principal consultant at Rand Information Systems, wrote that EMU will have serious implications for accounting and reporting. Vaughn believes that in order to support EMU, companies will need to make substantial modifications to their existing accountancy systems. Vaughn also predicts that many international organisations will begin accounting in Euros from 1999, and this will inevitably have a trickle-down effect on suppliers and partners. EMU is naively seen as a similar problem to the Year 2000 computer bug. However, the situation is exponentially more complex. While the Year 2000 is well understood, since it involves how applications cope with two-digit years, EMU-compliance is largely misunderstood and dogged by political uncertainty. According to Vaughn, EMU reaches to the heart of business processes. While Year 2000 is concerned with date changes, EMU conversion is architectural. The introduction of the Euro will have huge implications for merchant banks which trade in European government bonds since, from January 1999, French and German bonds will be denominated in Euros. Vaughn said that while the banks will undoubtedly have their IT ready for the big changeover, their clients, such as insurance and pension fund firms, may not be as ready. He said that the IT systems of these companies will also need to hold bonds in Euros rather than Deutchmarks or Francs. Another area where the Euro could cause problems is in some city trading systems. Vaughn noted that some systems use currency fields to determine which currency they are using. For instance, FFR after a number denotes a French Franc. Since all currencies are stated in terms of Euros, trading systems need to use another means to determine what exactly they are dealing with. Speaking about how IT can handle EMU, Vaughn says: "Coping with EMU is like peeling an onion. There is layer upon layer to consider. You may start small doing something with an IT system, without fully understanding the implications." Systems Union's Lindsay Gasser, is a member of the BASDA's (Business and Accounting Software Developers Association) working group on EMU. In a white paper, she outlines a number of the major challenges for business software. Software needs to handle conversions at fixed rates and handle rounding differences. There is also a need to convert historical data and produce documents in either national currency or the Euro. Gasser also says that software should be able to report simultaneously in Euros, national and transactional currencies. She notes that software must allow for the base currency of the system to change. Matching transactions in different currencies is another major challenge. Along with these, Gasser also believes that a business system should maintain dual pricing structures; price invoices in a mixture of currencies and value inventory in multiple currencies. She identifies three approaches business software can take to handle the Euro. The first is parallel books, where data is held in one-base currency and later copied and converted by a batch process to another. The user thus ends up with two separate sets of data, one in Euros and one in national currency. The second approach is at-the-gate conversion, where the data is stored in only one currency. Instead of physically copying and converting, on-line converters are provided at critical points such as data entry, query and reporting, which convert values in either currency on the fly. Finally, there is what Gasser describes as dual-base currency. Here, both values are held in the same data files. Values are converted on entry and are then available for query and reporting. HM Treasury reflects many of these views. In a paper entitled EMU - Practical Information for Business, it describes how it sees UK businesses being affected by EMU. In some businesses, IT systems controlling accounts, stock control, prices and payroll (for example) may be linked. In others, they are separate. HM Treasury says that there is no single solution to changing IT to handle the Euro. Companies that have considered implications for IT, stress the importance of early evaluation rather than assuming the task to be straightforward. This is all the more important, given the long lead-times in some cases, and the closeness of changes needed for the millennium date change.
Retail is another sector which will be affected considerably by the introduction of the Euro in 1999. If the UK stays out of EMU then retailers will still need to handle cash transactions in Euros. This is likely to result in the introduction of dual-currency ePOS systems. If the UK enters EMU, retailers then need to operate in two currencies. Clearly the introduction of the Euro in January 1999 will have a profound effect on UK businesses, and they will need to adapt or change their IT to handle monetary transactions involving Euros. Although buying in or replacing IT is a option, companies should also consider outsourcing. According to some industry watchers, it is likely that companies will soon be sprouting up who will be able to act as brokers for the Euro. They will be able to take invoices in Euros and convert them to Sterling, and convert Sterling payments in Euros. While the UK's position on EMU is still confused, the government does see a need for UK companies to handle it. In December 1997, Chancellor Gordon Brown announced the formation of Euro Preparations Unit (EPU), a government unit designed to help businesses prepare for the UK's possible entry to EMU. Among the areas that the unit will be advising is how EMU will affect IT systems. TACKLING IT FOR EMU Radwan Khader, product manager at Systems Union, says that any company which has operations in Europe will be most affected, followed by companies which have dealings with European firms. These companies will need to take EMU very seriously, and be ready now rather than play catch-up later. Khader says to start today, looking at the particular business environment and IT set up, and identify what needs to be addressed and work out timescales. As a project, EMU needs to be given a high level of exposure, such as at IT director level. The next thing is to look at the actual IT systems likely to be affected. Hardware is largely unaffected by the introduction of the Euro. However, no keyboard exists which has a key legend for the Euro currency sign. Nor are there any printer fonts which can print the Euro symbol, which is rather amusing given that a new currency is being introduced next year. The Chancellor's advisory group for EMU will be publishing its findings this week. Rob Wirszycz, director general at CSSA, is sitting on this advisory group and says the number one piece of advice is that companies of all sizes need a strategy of how to deal with the Euro. They need to look at various scenarios and episodes. What will they do when they get their first Euro invoice? Wirszycz advises companies to contact their banks to see if the bank can handle the Euro. "Avoid making changes for the Euro, but have a plan in place so you can make a change quickly," he says. Above all, he says companies should avoid having a dual-currency system. He notes that there are a huge number of very pragmatic solutions which can help avoid dual currency, such as spreadsheet macros to support with conversions. Mark Taylor, director of consulting at Microsoft, advises businesses to take a holistic view of their business, and follow their business processes. If software is bought in, then check with the supplier for compliance with the Euro. For companies looking to fix their existing systems, Taylor notes that there is a current shortage of IT skills, and companies should look to replace their IT systems rather than update. He advises companies to look closely at the cost benefits of buying new systems rather than upgrading. A new IT system will benefit from enhanced functionality. The risk with fixing an existing system is in integration testing. If updating existing IT is the only practical option, then testing is key. Ian Meakin, product marketing manager at CompuWare, believes that as in any major undertaking, 50% of the project should be devoted to testing. His advice to companies going down this road is to take what they already know from the Year 2000 problem. MORE INFORMATION - EMU HELPLINE
The British Computer Society has produced a document entitled Preparing for the Euro - a practical guide for professionals and business managers - with the assistance of the Bank of England. This guide is aimed at general management and IT specialists in businesses of any size. It provides advice and practical tools, designed to help businesses analyse rigorously the impact of EMU on their systems and plan and project manage the necessary work. The Commission (DGXV), has issued a draft paper on Preparing Information Systems for the Euro. The paper offers guidance on the kind of IT changes EMU is likely to require, and on strategies for implementing them. It also discusses the main technical problems involved. EMU - Practical Information for Business. This booklet explains to businesses what Economic and Monetary Union (EMU) means for them. Published in July 1997, it can be read on-line at www.hm-treasury.gov.uk./pub/html/docs/emubus/main.html.
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