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Skip Navigation LinksHome :: Back Issues :: Spain’s central bank prepares for E-day

July 2001

Spain’s central bank prepares for E-day





       
A growth in bank note forgery is what most worries Spaniards about the introduction of a new currency. The euro could easily become a counterfeiter's dream if Spain's central bank does not take sufficient action to alert businesses and the public. The Bank of Spain (Banco de España) believes it has done so.
The problem for the Bank for Spain - and other European central banks - is that to prevent false bills being accepted the public needs to be educated about the euro notes, so that people learn to recognise the new currency and can identify fake notes. On the other hand, to release too much information before the euro is actually in circulation is an invitation to counterfeiters to adjust their printing machines and start producing fake notes well in advance. There is a clear trade-off.
To deal with these competing interests, the Bank of Spain has decided to circulate information about the notes, and finally the notes themselves, gradually to different organisations. Small representative groups in banks, large chain stores and other big Spanish organisations, like the state train company, Renfe, are first to see them - they are currently being shown bills with one side printed so they can get to know their characteristics and pass this information on to their companies from September 1 2001 to prepare them for circulation on January 1 2002. Euro bills have already been printed - 70% of production had taken place by the end of April - but the notes won't actually leave the Bank of Spain until September 1, when distribution to the banks and large commercial distributors will begin. On December 1 2001 small commercial firms and the hotel trade will also receive the euro notes. No one will be permitted to circulate them, though, until January 1 2002 and all will be obliged to sign a contract with the Bank of Spain to this effect.
For now only general visible details of the notes are known by the public: they will be in contrasting colours and in different sizes - in ascending order of value - and will have special tactile features to help the blind and partially sighted recognise them. From September 1 the Bank of Spain will unveil the final design of the new notes and begin an extensive education campaign so that people are aware, at least, of visible security elements on the bills, like the classics: a watermark and metallic strip. The central bank says that the euro notes will have at least as many security elements as the peseta - the current Pta 5,000 note has 11 different security strips, codes and numbers to identify it. There are plenty of non-visible characteristics which machines will recognise, but these won't be revealed until the end of the year. Releasing information beforehand wouldn't help the general public, only the counterfeiters.
Small businesses will have no greater problems spotting fake euro bills than they currently do recognising fake pesetas, says the Bank. "Nearly all shops already have some kind of machine for checking pesetas," says a Bank of Spain spokesperson. Presumably shops will be able to buy a similar machine for euros - but these obviously cannot be produced until after the euro has been introduced and surely then can't all be distributed simultaneously.
The Bank is advising the public not to accept any euros before January 1 2002 and even then to accept bills only from banks initially, until they are familiar with their characteristics. However, from January 1, all commercial organisations are obliged to give change in euros. In the early days of the euro this is likely to prove a port of entry for fake notes into the Spanish economy.
Aware that its preventative measures may not be enough, the Bank of Spain also plans to set up a special centre of analysis for counterfeiting with a database to amass technical and statistical information on false euro notes. The black economy in Spain is traditionally very large, estimated at anything between 10% and 23% of GDP by the European Commission. Not all of this can be put down to drug or mafia-related activity or even fraud, as Spain also has a flourishing market in so-called devil accounting to avoid payment of taxes.
The introduction of a new currency raises concerns over what will happen - and what has already happened - to these large quantities of un-declared pesetas, wherever they come from. There is no specific eurozone-wide law on changing money into euros.
The Bank of Spain has decided that from January 1 onwards Spaniards will be able to exchange their pesetas free of charge in any bank until June 30. If, however, someone wants to change more than Pta500,000 ($2,690) they will need to show identification. If they try and change more than Pta5 million the bank will notify the Bank of Spain's money laundering and financial offences prevention commission agency, Sepblac.
Thus, if you have seriously large sums of undeclared pesetas you only have a short time to get rid of them, and this, according to some analysts, helps account for rocketing property prices seen in Spain's tourist areas over the last two years.
"Two years ago people knew that the euro was really going to happen. That's when real estate prices started to rise. It's not just a coincidence, it's a good way of cleaning money," says Antonio Villaroya, a Merrill Lynch analyst. "There might be a short-term inflationary effect in the euro transition because of this."
Villaroya plays down, however, suggestions of a euro-weakening effect of people changing dirty money into dollars now to change back into euros later. Spanish tax authorities have said they are not taking any special measures to deal with euro-related money laundering. Sepblac has not, as yet, carried out any research into a link between money laundering and the introduction of the euro.
The physical distribution of the euro notes to the commercial banks around Spain could also present opportunities for criminal activity. Scaremongers are predicting armed holds-ups of euro-stocked convoys leaving the Bank of Spain on January 1. The reality is a little less exciting. Distribution starts on September 15 2001 so the notes will leave bit by bit from the 53 central bank branches throughout Spain. "It will be no different from how pesetas are currently distributed," says a central bank spokesperson.






If you don’t fully understand an instrument, don’t buy it. If you would not buy for yourself a specific product, don’t try to sell it. If you don’t know very well your customers, don’t lend them any money. If you do all these things, you will be a better banker, my son

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