Euro changeover the final act in banker's central performance

In his last few months as governor of the Central Bank of Ireland, Mr Maurice O'Connell won't have much opportunity to gradually wind down.

The 65-year-old Kerry man is staying on until the end of February to oversee the introduction of euro notes and coins as legal tender in the Republic. He is confident it will be a relatively smooth operation.

"A lot of planning has gone into it and is still going on. Some element of confusion is inevitable. Let's hope it is kept to a minimum and that it is confined to local hitches," he says.

The coins have been minted and the Central Bank's main function between now and February is to distribute them to the financial institutions and large retailers. It also has to collect all of the old currency and remove it from circulation.

"Bringing in the old money is as big a problem as distributing the euro. The old money has to be collected and counted, which is probably a bigger job. While everybody will be pushing with you to get the euro out and you can control that and have a schedule, you don't know how many old coins will come back."

The Central Bank's research suggests there is an average of £24 (€30) in coins in jamjars, money boxes, and maybe even under the bed in each household in the State. Mr O'Connell is slightly sceptical about this figure, believing it to be slightly lower than that, but points out that the Central Bank is still being presented with bank notes and coins from another era, with the "Lady Lavery" notes and older still being honoured.

Unlike in other countries, the Central Bank continues to pay face value for old bank notes and while this will continue following the euro's introduction, it hopes that the bulk of the pound notes and coins will be eliminated early next year.

Central banks across Europe will be spearheading awareness campaigns in the autumn to help consumers to come to grips with the euro. Mr O'Connell accepts that, depending on their age, some people will find it harder than others to master the currency but, he believes nonetheless, that people tend to quickly realise the value of money.

"The euro is going to affect all of us and everybody will have to make an effort. I think we all have an innate capacity to understand money. Have you ever met anybody who didn't appreciate the value of money? I think there may be something there that will help us along," Mr O'Connell says.

"After a short period, the euro will make a great impact, particularly where people are travelling to Europe and won't have to exchange currency. It's a pity that we will still be changing into sterling."

The switch to the euro is a more complex transition than the move to decimalisation in the 1970s. Many people have linked this transition to the inflationary spiral that precipitated long-term economic difficulties in the Irish economy. Mr O'Connell suggests this is a "myth" and is keen to dismiss any such concerns about the euro.

"Prices will be watched very closely when the euro becomes legal tender. And while the folk memory is that decimalisation led to inflation, that isn't true. We were in an inflationary spiral at that time regardless of decimalisation. It's a myth but you can't dislodge it."

Mr O'Connell was in the Department of Finance in the decimalisation days and in the following years was closely associated with the negotiations on the Republic's accession to a single European currency. To be ending his career with the realisation of this objective will be a source of tremendous satisfaction for Mr O'Connell.

"I was at the very first meeting when they were discussing Maastricht and attended all of the meetings from start to finish. The ink was hardly dry on the Maastricht Treaty when you had the Danish referendum and Black Wednesday and yet, 10 years on, everything is in place. Not one syllable of that Treaty has been rewritten. It's all happened. How much would you have put on that 10 years ago?"

Since his appointment as governor in 1994, Mr O'Connell has overseen many changes, the most significant being the ceding of control for monetary policy to the European Central Bank (ECB). Next week the ECB will hold its fortnightly meeting in Dublin as part of its twice-yearly tour of member-states.

The last meeting was cancelled due to the foot-and-mouth scare. Mr O'Connell says the Republic's "no" vote to the Nice Treaty hasn't put them off this time. Mr O'Connell says the vote won't have any short-term implications for the euro system but admits it is very hard to know what will happen in the long term.

Much of his time is spent travelling to Europe, both in connection with the euro and to liaise with international regulators of the banking system, which is the Irish bank's primary responsibility.

"Our main concern is as a prudential regulator. We have to be concerned about the stability of the financial system, and that embraces all of the inspections we carry out and the requirements."

The bank's activities on this front are cloaked in secrecy and, having bypassed any major financial disasters at the Irish based banks so far, it is considered to be effective.

"For consumers in general, it is important that the financial system is sound and can be trusted because if the financial system goes wrong then the whole economy is in trouble. Things can go wrong again. The only certainty there is, is that things will go wrong.

"It is very hard to tell people what prudential regulation is all about. Essentially we are the first line of defence for the depositor. They can go into a bank and lodge their money and feel comfortable about it. There is a sense of security there and that is hugely important to all of us. If something goes wrong there, we are all in trouble. We are the only lobby for the depositor."

It also monitors bank lending and has been proactive in voicing concerns about the phenomenal growth in indebtedness in the Irish economy in the past couple of years. The governor has sent letters to each of the banks cautioning against aggressive lending practices that could create massive bad debts in the future.

"We've been voicing concern, but not alarm, about credit growth for quite some time because credit was growing at a pace that, from our experience, was unprecedented. It had shot up by 25 per cent and higher but is now slowing. "We have been monitoring it very closely. We have been advising the banks, examining their views on mortgage lending so that, in the event of a downturn, the banks are properly covered."

The bank's powers of persuasion can be considerable on these type of issues but, with the increase in foreign-owned banks now operating in the Irish economy, its influence will lessen.

Mr O'Connell has been among those who have suggested that the introduction of the euro could trigger further international takeovers of domestic banks. Some commentators believe that, ultimately, all of the domestic banks here could be foreign-owned, raising concerns about their ability to understand problems specific to the Irish economy.

"There are precedents for foreign ownership of the entire domestic banking sector such as in New Zealand. I don't see it on the horizon here at the moment. On a personal level, I'd be a bit disappointed if that happened. I see the two big banks in particular as a type of flagship.

"There is a kind of status about having your own indigenous banking sector. Some people say it is just symbolic but it is more than that. I suppose if the whole system falls into foreign ownership then moral suasion mightn't have the same impact in the future as it had in the past. That would disappoint me."

After February it will be someone else's problem.