Cyprus’s road to euro adoption Presentations to secondary school students

Contents 1.Money: functions and forms 2.The Central Bank of Cyprus 3.Cyprus’s road to euro adoption 4.The withdrawal of the Cyprus pound and the adoption of the euro 5. Euro notes and coins

1. MONEY: FUNCTIONS AND FORMS

Notes Coins Deposits Money: functions and forms What is money?

Before the appearance of money, people exchanged goods and services with other goods and services (barter) Significant transaction costs but also practical constraints (e.g. bread, shoes, haircut) Forms of money Money: functions and forms

Functions of money: Medium of exchange (i.e. means of payment)-enables convenient exchange of goods and services Store of value (or financial asset)-allows wealth to be accumulated and saved Unit of account (i.e. measure of value)-used for the calculation of payments and prices Money: functions and forms

2. THE CENTRAL BANK OF CYPRUS

The Central Bank of Cyprus (CBC) was established in 1963, shortly after Cyprus’s independence The Central Bank of Cyprus It is the institution which issues notes and coins

To ensure price stability (low inflation) so that money maintains its value over time The primary aim of the Central Bank of Cyprus The Central Bank of Cyprus

It uses: monetary policy and exchange rate policy How does the CBC ensure price stability? The Central Bank of Cyprus

Monetary policy: -excessive increase in supply of money leads to rise in prices, thus by setting the interest rate (price of money) the Bank attempts to affect the quantity of money (supply of money) and prices Exchange rate policy: -maintains the value of the Cyprus pound against other currencies (exchange rate) How does the CBC ensure price stability? The Central Bank of Cyprus

Management of the Republic’s currency reserves Bank regulation and supervision Banker to the government Management of the issue and circulation of currency Other main responsibilities of the CBC: The Central Bank of Cyprus

3. CYPRUS’S ROAD TO EURO ADOPTION

Belgium Germany Greece Spain France Ireland Italy Luxembourg The Netherlands Austria Portugal Finland The euro area comprises 13 countries of the European Union which have adopted the euro: Cyprus’s road to euro adoption Slovenia

1 May 2004: Accession of Cyprus to the European Union 1 January 2008: Target date for the adoption of the euro Provided we satisfy the necessary conditions, i.e. the convergence criteria (better known as the Maastricht criteria) Cyprus’s road to euro adoption

The European Central Bank (ECB) is the central bank for the euro area The basic task of the ECB is the maintenance of price stability in the euro area Cyprus’s road to euro adoption

Price stability Easier comparison of prices across euro area countries, since prices will be expressed in the same currency Elimination of exchange rate risks for businesses for transactions in euro No currency conversion costs (and no commissions) Travelling to euro area countries (and to countries outside the euro area) will be easier The benefits of euro adoption for the citizens of Cyprus: Cyprus’s road to euro adoption

4. THE WITHDRAWAL OF THE CYPRUS POUND AND THE ADOPTION OF THE EURO

Dual display of prices: What do we mean by this? The price of each product will be displayed simultaneously in Cyprus pounds and in euro. For how long? From September 2007 until June Will it be compulsory for businesses? Yes, the dual display of prices will be compulsory by law for the above period. Some shops may implement it voluntarily for a longer period. The withdrawal of the Cyprus pound and the adoption of the euro

Period of parallel circulation: January 2008 Payments by checks and cards, withdrawals from ATMs in euro Change will only be given in euro Cash in pounds will be an acceptable form of payment The withdrawal of the Cyprus pound and the adoption of the euro

Bank accounts Loans Wages and pensions Subsidies and other payments No changes in value, just changes in numbers On 1 January 2008, automatic conversion, free of charge, of: The withdrawal of the Cyprus pound and the adoption of the euro

Completion of the changeover to the euro Circulation of the euro only The Cyprus pound will not be accepted in transactions. 1 February 2008 The withdrawal of the Cyprus pound and the adoption of the euro

How will the change be made from pounds to the euro? Banks and cooperative credit societies will continue to convert Cyprus pound notes and coins into euro until 30 June 2008, free of charge Central Bank will continue to exchange notes for euro until 2017 and coins until 2009

Examples of conversion and rounding With a hypothetical conversion rate of €1 = £0, To convert Cyprus pounds into euro, we divide the amount in Cyprus pounds by the conversion rate using all six decimals: e.g.£10/0, = €17, which is rounded to €17,09 To convert euro into Cyprus pounds multiply the amount in euro with the conversion rate: e.g.€ 40 x 0, = £23, which is rounded to £23,41

5. EURO NOTES AND COINS

Euro notes Appearance of euro notes (front view)

Appearance of euro notes (rear view) Euro notes

Appearance of euro coins (common side) Irrespective of the national side design, euro coins (as well as euro notes) circulate in all the euro area countries: their acceptance as a means of payment is compulsory Euro coins

National side of euro coins (Cyprus): Chosen themes Civilization (Idol from Pomos) History (Ship of Kyrenia) Nature (Mouflon) Euro coins

Further information National web page for the euro Central Bank of Cyprus European Central Bank European Commission, Directorate General for Economic and Financial Affairs European Commission The euro

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