European monetary and economic union is the most important event for institutional investment in Europe in the post-war period. The adoption of a single European currency will add a new dimension to the free movement of capital and financial services in the European Union. Exchange-rate risk in monetary transactions between the participating member states will be eliminated, leading ultimately to the creation of a unified financial market. This market will be deeper, more liquid and more competitive than those it replaces, offering custodians and their clients new investment opportunities. Just as important, the pressures on EU governments to achieve the economic criteria for monetary union are forcing the liberalization of investment and savings markets across Europe.
For custodians these developments pose a number of short-term technical difficulties. Emu will require the addition of a new currency to core custody systems to enable them to provide global custody services for euro-denominated securities; and, in terms of reporting and accounting, data will need to be reported to clients in either local-currency or euro terms during the transition phase.
These changes will require a significant investment in time and resources.