Over Lm450m cash in circulation likely to be replaced

The Central Bank anticipates it will have to replace close to Lm430 million of notes in circulation and about Lm20.6 million in coins if Malta changes over to the euro in January next year.

Minted abroad, €1,002 million worth of notes and €47.8 million in coins will have to be shipped to Malta and distributed to commercial banks so that people will be able to exchange their liri notes and coins between January 1 and a year from today.

According to the National Euro Changeover Committee (NECC) it is estimated that the Central Bank will order about 80 million euro notes and 200 million euro coins to meet changeover needs.

When the lira and the euro are used together during the brief dual circulation period immediately after the changeover, the public will be encouraged to exchange the lira into euro at credit institutions and to make payments for goods and services in euro. The lira will continue to be accepted for payment purposes alongside the euro during this period, but retailers and businesses will be required to give change in euro.

An NECC spokesman said yesterday that, given that some denominations of euro notes are close in value to existing lira notes in circulation, it is expected that these euro notes will become direct replacements for their equivalents in value in lira.

"The existing demand pattern for the Lm20, Lm10, Lm5 and Lm2 notes in circulation today will be reflected in the demand for the €50, €20, €10 and €5 notes after January 1, 2008," the spokesman added.

Credit institutions will start accepting the exchange of lira notes into euro notes and coins free of charge after January 1, next year.

The NECC spokesman said the Central Bank estimates that about 95 per cent of the cash in circulation at the time will be "frontloaded" to banks about three months before the changeover date, adding that after March 31, 2008, lira banknotes and coins will remain redeemable at the irrevocably fixed conversion rate at the counters of the Central Bank free of charge for 10 years and two years respectively.

The high amounts of liquid cash per capita in Malta, which people stash away in their homes to evade taxes, has prompted a premature exchange of liri into euro amid fears that the changeover may force people to indirectly expose their undeclared cash when exchanging it in banks. Warning against premature exchange recently, Central Bank governor Michael Bonello said statistics were showing that de-hoarding had started with many choosing to make the transactions on the black market. The bank had indicated that the lira reserves were being lost to an early conversion to the euro, pointing out that the trend was one of the main reasons behind the decision to raise interest rates.

Economists have also been warning that disposing of money that had been dormant for many years would lead to inflation in the property market where people would launder it to get their return in euro.