ADOPTION OF THE EURO IN LITHUANIA
Main tasks for the Bank of Lithuania
When acceding to the European Union, Lithuania assumed the
obligation to adopt the euro in the future, which would allow the country to
enjoy the benefits of the single currency of the European Union. Having assessed
the benefits of the euro and the need for a comprehensive preparation for the
currency changeover, the Bank of Lithuania considers 1 January 2007 to be
the most acceptable date for the adoption of the euro in Lithuania.
The choice of the date is also based on Lithuania’s
participation in Exchange Rate Mechanism II (ERM II) for two years, following
which the European Commission and the European Central Bank should publish
convergence reports in the middle of 2006 on Lithuania’s economic, legal
and institutional readiness to adopt the euro. Given a positive assessment, the
Council of the European Union should take a decision regarding the exact date of
the adoption of the euro in Lithuania as well as the final and irrevocable
exchange rate of the litas and the euro.
Based on these assumptions, the Bank of Lithuania has planned
what main tasks have to be undertaken while preparing for the adoption of the
euro. The Board of the Bank of Lithuania approved a detailed action plan on 23
December 2004.
The Bank of Lithuania will co-ordinate its main tasks to be
carried out for the adoption of the euro with other institutions, it will be
flexible in its assessment of the situation, will take decisions that are most
favourable with respect to the state and, where necessary, will adjust the
planned actions.
I. PREPARATION FOR THE ADOPTION OF THE EURO
Legal framework
1. In the first half of 2005 the Bank of Lithuania
will draft the Law on the Adoption of the Euro in Lithuania to be
submitted to the concerned institutions and organisations for discussion. Having
taken into account their remarks and proposals, the Bank of Lithuania will
submit the draft law to the Government of the Republic of Lithuania. The Bank of
Lithuania will propose to pass the Law on the Adoption of the Euro in Lithuania
as soon as possible in order to set favourable conditions for public
institutions, businesses and the population to prepare for the currency
changeover.
In the opinion of the Bank of Lithuania, the draft Law on the
Adoption of the Euro in Lithuania should contain the following main provisions
concerning the adoption of the euro:
1.1. the principles of conversion into the euro of the
balances on the accounts of the population and enterprises with banks, balance
sheets, securities, shares, social and other allowances, including those
relating to the rounding up of converted amounts;
1.2. the duration of the period of dual circulation of the
litas and the euro;
1.3. regulation of the process of litas withdrawal from
circulation;
1.4. the period of dual price display (in litas and euro) on
the labels of goods, bills for services, expression of wages and salaries and
pensions in two currencies, as well as other aspects of this requirement;
1.5. the obligation for public institutions to amend the
legal acts within their respective areas of regulation relating to the currency
changeover (on social allowances, taxes, accounting, etc.).
2. In combination with the draft Law on the Adoption
of the Euro in Lithuania, and taking into account its provisions, necessary
amendments to the Law on the Bank of Lithuania, Law on the Credibility of the
Litas, Law on Money, Law on Foreign Currency in the Republic of Lithuania and
other laws will be prepared or proposals on their recognition as invalid will be
submitted. Furthermore, an analysis should be undertaken to establish whether
certain provisions of the Constitution of the Republic of Lithuania need to be
amended.
Logistical and organisational
preparation
1. By the end of 2006 the Bank of Lithuania will
procure the necessary stocks of euro banknotes and coins and will be prepared to
satisfy the requests of domestic commercial banks for frontloading with euro
banknotes and coins. The Bank of Lithuania will be closely co-operating with
commercial banks on the flexibility of their working hours during the changeover,
adaptation of ATMs, familiarization with banknotes and coins, and other
organisational issues relating to customer service.
2. Subject to the decision by the Council of the European
Union on the date for the adoption of the euro in Lithuania in the middle of
2006, the Bank of Lithuania will propose that the provision of the Law on
the Adoption of the Euro in Lithuania imposing an obligation to display prices
for goods and services, wages and salaries, pensions and other allowances in
both the litas and the euro should be effective immediately. Prior to the
decision on the adoption of the euro in Lithuania by the Council of the European
Union, this statutory provision, in the opinion of the Bank of Lithuania, could
be of recommendatory nature.
3. By 31 December 2006 the Bank of Lithuania will
develop and prepare the organisational and technical infrastructure necessary
not only for the direct adoption of the euro but also for full integration in
the euro area. Among the major tasks is preparation for executing monetary
policy operations of the European Central Bank, developing an interlinking
mechanism between the national payment system and the euro area payment system
TARGET, organisation of the accounting and statistical reporting of the Bank of
Lithuania according to the European Central Bank requirements and restructuring
the financial assets managed by the Bank of Lithuania.
Public communication and cooperation
with Lithuanian and European Union institutions
1. In preparation for the adoption of the euro the Bank of
Lithuania, in cooperation with the concerned institutions, will launch a public
information campaign covering different aspects of the currency changeover in
Lithuania in order to ensure transparency in the adoption of the euro, to create
favourable conditions for the Lithuanian population for an adequate and timely
preparation for the changeover to the single currency of the European Union.
2. In preparation for the changeover to the euro, the Bank of
Lithuania will initiate a wide dialogue with different public institutions in
Lithuania and the European Union and business organisations, will welcome their
opinions on these issues and take them into account in its activities; it will
also co-ordinate the setting up and the activities of various working groups or
the establishment of other forms of co-operation. At the same time the Bank of
Lithuania will emphasise the importance of independent preparation by other
public institutions and business representatives for the adoption of the euro.
3. The Bank of Lithuania will take into consideration the
experience of the countries of the euro area in adopting the euro and the
recommendations of European Union institutions.
II. ADOPTION OF THE EURO AND EXCHANGE
OF THE LITAS TO THE INTO EURO
1. The expected date for the adoption of the euro, if such
will be the decision of the Council of the European Union, is Monday, 1
January 2007. On that day the euro would become legal tender to be
mandatorily accepted in Lithuania.
2. On 1 January 2007 enterprise balance sheets,
obligations and agreements of institutions, enterprises and individuals, and all
litas accounts of the population with banks would be converted to the euro in
accordance with established procedures.
3. According to the preliminary estimates of the Bank of
Lithuania, for two weeks – until 14 January 2007 – the euro would be
legal tender, but payments for goods and services would also be acceptable in
litas (dual circulation period). From 15 January 2007 the euro would
become the only legal tender.
4. The Bank of Lithuania will propose for commercial banks to
exchange litas banknotes and coins into the euro free of charge for a period
from 3 to 6 months following the adoption of the euro. Later, commercial
banks could still exchange litas into euros for a certain period of time, but a
commission for the service could be charged.
5. The exchange of the litas into the euro by the Bank of
Lithuania will be free of charge for an unlimited period at the cash
offices of the Bank of Lithuania in Vilnius, Kaunas and Klaipeda.
Questions and Ansewers
What exchange rate will the euro be
adopted at?
The position of the Bank of Lithuania is that the fixed
exchange rate regime and the rate of the litas and the euro that had existed at
the time of joining ERM II will also be appropriate at the time of the adoption
of the euro in Lithuania.
Benefits of the adoption of the euro
The adoption of the euro will completely abolish any exchange
rate risk between the national currency and the euro, and the Lithuanian
financial market will become part of the common financial market of the euro
area. This will remove the need for currency exchange in settlements with the
main trade partners in Europe, cut borrowing and transfer costs, and encourage
investment and trade relations. The use of the euro by all main trade partners
of Lithuania will make price comparisons easier, which, in turn, will promote
sound competition, abolish price movements determined by exchange rate
developments. These and many other factors should contribute to faster economic
growth in Lithuania, creation of new jobs and, ultimately, prosperity rising to
EU levels.
Requirements for EU Member States
seeking to adopt the euro
The Maastricht Treaty sets the following convergence criteria
for EU Member States seeking to adopt the euro:
- Inflation may not exceed average inflation in three EU
Member States with the lowest level of inflation by more than 1.5 percentage
points. Such price stability must be long-term.
- The deficit of the general national budget may not exceed 3
per cent of the Gross Domestic Product (GDP) or must rapidly and consistently be
approaching this level.
- Public debt may not exceed 60 per cent of GDP or should be
sufficiently and consistently diminishing.
- Long-term interest rates on Government securities (GS) may
not exceed average long-term interest rates on GS in three EU Member States with
the lowest level of inflation by more than 2 percentage points.
- The country’s national currency must be stable and stay
within the set fluctuation band against the euro (± 15%) for at least two years
of participation in ERM II.
At least once in two years or upon a request from a Member
State that has not adopted the euro, the Commission or the European Central Bank
(ECB) prepares reports on a Member State’s progress in meeting the convergence
criteria and presents these reports to the Council of the European Union.
On a proposal from the Commission, the Council of the European Union, after
consultation with the European Parliament and discussions in a meeting of the
European Council, decides whether the Member State meets the criteria
established in the Maastricht Treaty.
Exchange Rate Mechanism II (ERM II)
ERM II is an exchange rate policy system of euro-area
countries and EU Member States that have not adopted the euro. The main feature
of the system is the central rate between the national currency of a country
that has not adopted the euro and the euro, and the allowed exchange rate
fluctuation band of ±15 per cent around the central rate. The central rate of a
country participating in ERM II must be appropriate to its economic fundamentals
and ensure competitiveness.
The role of the Bank of Lithuania
after Lithuania’s accession to the EU and the adoption of the euro
The Bank of Lithuania will remain the central bank of
Lithuania. The key change that occurred was that the Bank of Lithuania became a
member of the European System of Central Banks (ESCB), comprising the ECB and
the national central banks of all the EU Member States.
The membership of the ESCB results in closer cooperation in
adopting decisions on the Bank’s operating procedures, in the fields of
statistics, accounting, etc. The Chairman of the Bank of Lithuania participates
in the work of the General Council of the ECB enjoying the rights of full
membership, whereas the Bank of Lithuania participates in the activities of
various committees; however, as long as the euro is not adopted in Lithuania, it
will not participate in establishing and implementing the single monetary policy.
The Bank of Lithuania has transferred the initial amount of the required
contribution to the ECB capital.
After the adoption of the euro in Lithuania the Bank of
Lithuania will acquire voting rights in the Governing Council of the ECB, a key
function of which is establishment of single monetary policy in the euro area.
At the same time the Bank of Lithuania will pay the total required contribution
to the ECB capital and will transfer part of foreign reserves to the ECB.
However, the Bank of Lithuania will continue acting as the country’s central
bank ensuring that decisions adopted by the ECB are implemented in Lithuania.
