The Peseta was first introduced in 1868 after the September Revolution under a decree issued by the Provisional Government. In order to join Latin Monetary Union, an agreement adopted in 1865 by France and other European countries to use a common currency, the Peseta was given a bimetallic standard of gold and silver, the same as the French Franc. But the Peseta never joined the LMU as all bimetallic systems collapsed following a steady rise in gold prices. As a result more and more countries switched to the gold standard and undertook to maintain their currencies stable against gold. This provided a system of fixed exchange rates between gold-standard currencies. Spain however remained outside the fixed exchange rate system for four decades and only joined shortly before the gold standard collapsed and many countries suspended their currency's convertibility to gold.

During the Spanish Civil War, the Peseta was split in two - the Nationalist Peseta and the Republican Peseta. The Nationalists declared invalid all notes issued by the Republicans, which contributed to higher inflation on the Republican side. After the war had ended, Bank of Spain notes were made full legal tender for the first time and the silver coinage still in circulation was completely withdrawn. In the political isolation during Franco's Dictatorship, Spain carried out its own monetary policy to dire consequences. A worsening of the balance of payments deficit led Spain to apply to the IMF in 1967 to devalue the Peseta and the new parity was set at 70 Pesetas per Dollar. The period of political and economic uncertainties in the USA coincided with a period of considerable political and social unrest in Spain as the Franco Dictatorship neared its end, and their very expansive monetary policy did nothing to stop inflation in Spain reached 14% in 1973.

The devaluation of the Dollar entailed a revaluation of the Peseta, and after the collapse of the Bretton Woods system, the Peseta adopted an administered floating rate system, free of exchange rate commitments. During and after the transition to democracy following the first democratic general elections in 1977, the inflation in Spain fell very slowly largely due to the complex economic difficulties the country faced and the lack of the political will to tackle inflation.

The Peseta joined the exchange-rate mechanism of the European Monetary System in 1989. Having being devalued four times, resulting in a total 24% devaluation against the German mark, the Peseta has fared well since then under the newly autonomous central bank and the Government's credible monetary policy, meeting the Maastricht criteria with ease in order to join the single currency.

The Euro

The Euro was launched on 1st January 1999 as an electronic currency and became legal tender on 1st January 2002, but attempts to create a single currency go back 20 years.

From 1st January 2002 the Euro currency, notes and coins, began to circulate and be used in the 12 countries which comprise the European Economic and Monetary Union (EMU). Spain is a member of EMU. From 1st January until 28th February 2002 the Euro and the Peseta will be used in Spain. From 1st March 2002 only the Euro will be accepted as legal tender though Peseta notes and coins can be exchanged at any of the Bank of Spain offices for an indefinite period.

Twelve of the 15 EU countries (Germany, France, Italy, Spain, Portugal, Belgium, Luxembourg, the Netherlands, Austria, Finland, Greece and Ireland) are members of the Eurozone.

Since the process began to make the Euro the common currency for the member states of the European Community, there has been a steady acceptance for it in Spain as the alternative to the Peseta. All merchandise was marked with prices both in Pesetas and Euros throughout 2001 thus allowing consumers the first-hand opportunity to familiarise themselves with the new currency.

People in Spain are generally happy to acknowledge the practical convenience of having a common currency with their neighbouring countries without having to worry about ever-fluctuating exchange rates, although the older generation may have a hard time with the physical conversion. There has also been a noticeable effort to clean up the 'black economy', bringing about a boom in the property market as money comes out from under old mattresses.

The main concern remains with the Euro's continuing weakness against the Dollar and this is giving a strong argument to those still opposed to the single currency.

What Is The Rate Of Exchange?

This is fixed at Pesetas 166.386 = 1€

There are eight Euro coins:

1 Cent Coin = 2 Pesetas

2 Cent Coin = 4 Pesetas

5 Cent Coin = 8 Pesetas

10 Cent Coin = 17 Pesetas

20 Cent Coin = 33 Pesetas

50 Cent Coin = 83 Pesetas

1 Euro Coin = 166 Pesetas

2 Euro Coin = 333 Pesetas

There are seven Euro notes:

5 Euro Note = 832 Pesetas

10 Euro Note = 1.664 Pesetas

20 Euro Note = 3.328 Pesetas

50 Euro Note = 8.319 Pesetas

100 Euro Note = 16.639 Pesetas

200 Euro Note = 33.277 Pesetas

500 Euro Note = 83.193 Pesetas

What Has Happened?

Cash machines, banks and foreign exchange offices will dispense Euro currency.

Vending, amusement machines and photo booths will similarly be converted to Euro use.

The majority of stores, shops, hotels, restaurants, bars, public transport, and all other services should, after 1st January 2002, give change in Euros for any purchase or service paid for in Pesetas. However, you may find that some outlets will continue to give change in Pesetas.

During the dual circulation period prices will be shown in both currencies.

Postage stamps and postal services will be converted to Euros.

Peseta bank accounts will be converted to Euros.

Salaries, pensions and other incomes received by local residents will be paid in Euros.

Euros can be used for visits to the other EMU countries (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Greece.)

Some of the larger shops and stores in the United Kingdom are expected to accept them too.

Euro coins bearing the national symbol of one country will be acceptable as legal tender in the other EMU countries.

Euro travellers' cheques will have a fixed exchange rate.

Credit and debit cards can be used for Euro payments.

British Consulates in Spain will be able to accept payment in Euros only for consular services applied for after 1st January 2002.

What About Exchanging Pesetas?

Notes and coins can be exchanged, free of charge at any Spanish bank until 30th June 2002. After that they can be exchanged at the Bank of Spain.

Holidaymakers with peseta notes at home will be able to exchange them at UK banks or foreign exchange counters.

Peseta cheques issued before the changeover will be accepted after 1st January 2002 for an indefinite period.

Points To Watch

Confusion with the two currencies - though this may be difficult, best to use one currency at a time.

Look out for unscrupulous retailers who will take advantage of the changeover to raise prices. A Government Code of Good Practice has been introduced and retailers subscribing to the code will display the Code Logo.

Look out for it in shop windows. Market stall holders, street and beach vendors, remote shops, bars and other small establishments, that might not have mastered the Euro.

Holidaymakers should calculate their own sterling conversion when purchasing expensive items.

Sterling travellers' cheque exchange rates may vary during a holiday.

Be Prepared

From December 2001, Euro starter kits have been available from banks. They will contain 43 coins and cost Euros 12.2. Get hold of one, as it will give you the chance to get to know the new currency.

The January sales in Spain will start as usual on 7th January 2002 even though in some EMU countries there are plans to put back the start date.

Summing-up

The Euro currency has now been in circulation for twelve days here in Ibiza and on first reflection it takes me back to the early 1970s when the UK currency went decimal. One day you had 240 (old) pence to the £ and the next day you only had 100 (new) pence to the £?

I filled my car up with Shell petrol on the eve of the conversion and paid 4 shillings and 10 (old) pence per gallon. The next day the same petrol cost 30 (new) pence a gallon, which was an instant, increase of one shilling and two pence a gallon?

This though first struck me a week last Wednesday on 2nd January. I thought I'd be a good boy by taking all my (old) pesetas to the bank and exchange them for Euros, where they were chuckling as I was given in replacement 6 € for each of my 1.000 pesetas (old) notes?

Local barman claims when he now goes for change to the bank he has to takes a donkey with him to carry the coins. Whereas before 100.000 Pesetas of coinage used to be a manageable amount to carry but now the equivalent of 601.01 € in coins requires a strong arm. Furthermore, a pint of beer that cost 300 pesetas and the asking price should now be 1.80 € has in most bars been rounded up to 2 €, which is equal to 333 pesetas. Can you imagine strolling along this summer to Café del Mar for a quiet drink and paying for your coffee with a 500 € note? I don't care because I prefer a pint of Guinness.

Nonetheless, it's good to have our lovely Emily Kaufman back on board after her family holiday in Madrid over Christmas to write her more than worthy of note weekly column on the History of Ibiza.

Gary Hardy

garyhardy@ibizahistoryculture.com