Eight steps for entrepreneurs to prepare for the use and sub-frontloading of euro cash
From 1 December 2014 until the euro adoption date, commercial banks and their authorised cash-in-transit companies will deliver euro banknotes and coins to retail traders and service providers, the Lithuanian Post Office, the credit unions which will exchange litas to euro and other entities interested in the frontloading of euro. Small trading and service providers, which can receive euro cash beforehand similarly to other customers of commercial banks, have been provided with the opportunity to, no later than five calendar days prior to the euro adoption, acquire an amount not exceeding EUR 10,000. The frontloading procedure has been set forth in the Procedure for the Frontloading and Sub-frontloading of Euro Banknotes and Coins approved by the Board of the Bank of Lithuania.
The eight steps described below are offered for business to prepare for the use and sub-frontloading of euro cash. This will help further continue economic commercial activities from the first day after the euro adoption.
Step 1. Assess the company’s demand for euro cash during the first days after the euro adoption and take measures to reduce it.
The experience of other countries shows that the cash demand can grow 3–5 times and the number of settlements can increase by approx. 20% during the first days after the euro adoption. During 1–15 January payments for goods and services can be made in euro and litas, whereas change will be given exclusively in euro cash, except for a few exceptions provided for in the Law of the Republic of Lithuania on the Euro Adoption. It is likely that during the dual circulation period some individuals will want to exchange litas into euro by making cash payments in litas at trading and service provision sites. Therefore retail trading and service providing businesses must assess the distance to the Bank of Lithuania, the nearest commercial bank or division of the credit union or the post office, where euro cash will be exchanged free of charge. If the distance is long, it is likely that the demand for euro cash may grow even more.
The nearest exchange locations in the whole of Lithuania can be found on the interactive map.
In order to ensure that a store does not turn into a currency exchange, it is proposed that the information about the nearest locations where cash litas can be exchanged to euro be spread among its customers (posters, booklets, etc.).
Seeking to reduce their cash demand, businesses should encourage their customers to pay the exact amount when paying for goods or services so that there is no need to give change, or encourage them to use electronic payment methods more frequently. When planning the cash demand, it is advisable to take into account the fact that it is important for trading companies and service providers to acquire sufficient volumes of small-denomination euro banknotes (5, 10 and 20 euro) and euro and euro cent coins of all denominations beforehand. The smallest package of banknotes is a banknote pack (1 pack containing 100 units of banknotes of all denominations).
The sub-frontloading of coins can be planned according to their denominations: a block of coins – 10 rolls of the same denomination. Depending on the denomination of coins, the amount of a block varies from EUR 5 to 500. Some commercial banks will sub-frontload coin blocks only those customers who order large euro amounts. For further information, please contact commercial banks.
To facilitate the sub-frontloading of euro coins, the Bank of Lithuania will compose two types of euro coin starter kits intended for trading companies and service providers, particularly small ones, which will be available for acquisition at commercial banks: the first kit will consist of rolls of coins of each denomination (a total of 8 rolls, the value – EUR 111); the second kit will include from one to three rolls of coins of different denominations (a total of 15 rolls, the value – EUR 200).
Step 2. To apply to a commercial bank for the sub-frontloading of euro as early as possible.
Entrepreneurs can acquire euro cash banknote packs and coin starter kits designated to retailers or coin blocks at commercial banks whose services they use, they just need to contact their banks and discuss their needs.
Besides the volumes of banknotes and coins, businesses should also decide whether they pick up their banknotes and coins at a commercial bank, or whether they want to use the services provided by cash-in-transit companies.
Some commercial banks have already announced that they accept applications for the sub-frontloading of euro cash. Some commercial banks inform that applications to receive euro under the ordinary procedure will be accepted in September-October and applications to receive euro under the simplified procedure will be accepted from the beginning of November. It is important not to miss such announcements and consider expeditiously proposals provided by commercial banks.
Step 3. To sign a contract or a standard form for the sub-frontloading of euro cash with a commercial bank.
In order to receive euro banknotes and coins, businesses will have to sign a contract for the sub-frontloading of euro or a standard form for simplified sub-frontloading of euro with commercial banks. The minimum requirements of such contracts are defined in Annex No. 6 to the Procedure for the Frontloading and Sub-frontloading of Euro Banknotes and Coins. It is important to follow announcements of commercial banks and consider expeditiously their proposals for the signing of such contracts.
Step 4. To prepare for a short-term freezing of some working capital funds due to the sub-frontloading of euro cash.
In order for a business to be able to acquire the required volume of euro cash from a commercial bank, the bank will have to reserve the amount of funds equal to the value of the ordered euro in the company’s account and to debit the account for the reserved amount and handle accounting records on the first day of the euro adoption (1 January 2015). Thus, businesses must have such funds that commercial banks could reserve.
Step 5. To provide for adequate euro cash storage facilities.
Businesses which have received euro from commercial banks during the sub-frontloading before the euro adoption date will not be able to place them into circulation, they will have to store them in the premises, separately from their other supplies of euro, other currencies and property. The obtained euro will have to be stored in their original package until 1 January 2015.
Seeking to vacate the available cash storage spaces, businesses should try to return the litas, particularly litas coins, to banks during the last days before the euro adoption and to keep only the necessary cash amounts needed to carry out their economic-commercial activities.
All the litas which have returned to the company after the euro adoption cannot be put back into circulation, they will have to be stored and delivered to commercial banks. Therefore, businesses should provide for adequate and sufficient cash storage facilities.
Step 6. To prepare for the use of euro cash.
Businesses should provide for employee training in advance and familiarize their employees with the denominations of euro banknotes and coins as well as the security features of banknotes.
In order to prevent counterfeit money from entering circulation, it is advisable that businesses should acquire adequate equipment for cash authenticity verification.
Due to the lack of experience of working with the new currency, it is likely that there will be more mistakes and the fraud risk will be higher after the euro adoption date; therefore, businesses should implement appropriate internal control so that prevention of error and fraud could be ensured.
Step 7. To accept euro cash and keep it until the euro adoption date.
Businesses will take euro from their commercial bank themselves, or they will have it delivered to them by a cash-in-transit company. Some commercial banks have already announced that euro can be taken in their divisions only during the last 5 calendar days of this year and priority will be given to small businesses. Bank customers should take interest in these matters in advance so that there are no contingencies on the eve of the euro adoption. The sub-frontloaded euro may not be placed into circulation; thus, it will have to be stored in the receiving company separately from its other amounts in euro and other currencies and its other property.
Where necessary, businesses will have to provide access to persons authorised by the Bank of Lithuania to check how the obligations regarding the storage of the sub-frontloaded euro are complied with. Businesses will bear the risk of destruction, loss, theft and robbery of the received euro from the moment of its receipt. Fines will be imposed for the inadequate storage and placement of the sub-frontloaded euro into circulation before the euro adoption date, as provided for in the Specification of the Procedure for the Frontloading and Sub-frontloading of Euro Banknotes and Coins.
In the event that the cash held at the company has been insured, it is proposed to check whether the sum insured is adequate after the cash amount held at the company has increased.
Step 8. To start using euro, which was acquired beforehand, on the euro adoption date.
From 00:00 on the day of the euro adoption, the sub-frontloaded euro will become money in circulation and businesses will start using it as a legal tender. Small entrepreneurs could find useful euro coin starter kits for the public, which will be issued by the Bank of Lithuania in December. The nominal value of one kit will be EUR 11.59 or LTL 40, after it has been rounded to the benefit of the consumer. It will consist of 23 coins. The kits will include three coins of 1, 2, 10, 20 and 50 euro cents and 1 and 2 euro as well as two coins of 5 euro cents. In total, 900,000 such kits will be produced. Euro coin starter kits will be available in the cash departments of the Bank of Lithuania and commercial banks from 1 December 2014 and in the Lithuanian Post Office from 4 December 2014. One person will be able to acquire up to five such kits at once.
These kits will be helpful for small entrepreneurs as well because it is a good opportunity to have a sufficient supply of euro coins for change during the first days after the euro adoption.