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E-day: retail scenario analysis for landing into Euro-land (RV of 2000/20/TM)

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The introduction of Euro bank notes and coins on January 1st 2002 is an operation of unprecedented magnitude affecting the currency regimes of 12 European countries. At this stage, the decision to invade "Euro-Land" has been taken, and the major parameters (date, exchange rates, denominations, appearances, …) have been set. All that seems left is to properly execute the logistics of this massive operation. Problems in execution could take various forms ranging from a shortage of change at checkout counters of retail stores and unprecedented queues at service desks of national railway systems, to a cash crisis. In particular, decreases in sales volume during this transition period could negatively impact retailers and manufacturers, and cause liquidity problems. Intervention by army and police forces to secure public order cannot be ruled out either. Serious incidents during the launch would of course discredit the new currency itself, and induce considerable costs on the organisations concerned with the launch, and, more broadly, on the entire European construction. The physical launch of the Euro in January 2002 simply must not fail. Authors' contribution has been the development of a scenario analysis tool for consideration by retailers preparing for the introduction of the Euro on January 1st 2002. The tool allows a study, through simulations, of the particular cash conditions that will prevail at the time of the launch of the new currency. It illustrates both the considerable cash requirements that especially the high volume retailers will face at the time, and the considerable costs that these stocks generate. Running the tool under different contextual assumptions (pertaining to the distribution of the new currency), one immediate conclusion prevails: it is nearly impossible for retailers to prepare for a single scenario, as the major parameters affecting consumer behaviour are mostly outside of their control. This tool has generated numerous requests by retail and banking organisations throughout the European Union, some including the tool, with appropriate adaptations, in their planning for the changeover. A second and corollary observation reached on the basis of our simulations is to underline the critical role played by consumers in the cash supply chain. It is critical to understand that consumers play a dual role in the cash supply chain: they are both providers of cash (through their payments) and users of cash (through the change that they require when they pay with amounts in excess of their purchase). A third observation derived from their simulations concerns the very different roles played by large and small bills in the consumer cash economy. In terms of the cash supply chain, banks typically distribute large bills to consumers, whereas consumers acquire small bills and coins in the form of change due on retail purchases.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2001/2001-37.pdf

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Copyright INSEAD. All rights reserved