Legislative Council

LC Paper No. LS39/98-99

Paper for the House Committee Meeting
of the Legislative Council
on 6 November 1998

Legal Service Division Report on
Introduction of the Euro Bill

Object of the Bill

To provide for the effect on legal obligations consequent upon the adoption of the Euro as the single currency of the participating member states of the European Union and for matters incidental thereto and connected therewith.

LegCo Brief Reference

2. G4/47C (98) issued by the Financial Services Bureau on 30 September 1998.

Date of First Reading

3. 4 November 1998

European Monetary Union

4. As from 1 January 1999 the currency of the participating members states ("the participating Member States") of the European Union ("EU") will be the Euro ("Euro"). The European Currency Unit ("ECU") will be converted into the Euro at the rate of 1 ECU to 1 Euro. The national currencies of the participating Member States will cease to exist legally as currencies in their own right. There will however be a transitional period of three (3) years ("Transitional Period"), during which each of the national currencies of the participating Member States will continue to be valid and of legal tender as a non-decimal sub-division of the Euro. Banknotes and coins of each of the participating Member States may remain legal tender within its territorial limits until six months after 31 December 2001 at the latest. During the Transitional Period, as agreed at the meeting of the European Council in Madrid on 15 and 16 December 1995, the EU will adopt the principle of "no-compulsion/no-prohibition" for the use of the Euro. The participating Member States will not compel any person to convert any national currency into the Euro. The final changeover is targeted to take place on 1 January 2002 when all national currencies of the participating Member States must be converted into the Euro.

The Legal Framework for the Introduction and the Use of the Euro

5. The legal framework for the introduction and the use of the Euro is provided in the main by two Council Regulations :-

  1. Council Regulation on the introduction of the Euro, which will come into force on 1 January 19991 ("Regulation A"); and

  2. Council Regulation (EC) No. 1103/97 of 17 June 1997, which has been in force since 20 June 1997 ("Regulation B").
Both Council Regulations ("Regulations") are binding and directly applicable in the whole European Union. They do not deal with the conversion rates of the national currencies, which will be irrevocably set by the European Council towards the end of this year.6. Regulation A establishes the Euro, the "no-compulsion/no-prohibition principle" for the use of the Euro and provides for the Transitional Period and the final changeover.

7. Regulation B provides for matters in respect of which financial markets have felt most in need of legal certainty. It stipulates the ECU-Euro conversion, the continuity of contract and the rounding and conversion rules.

Comments on the Bill

8. The Bill provides for the continuity of legal obligations and the deemed conversion of ECU into the Euro. Clause 3(2) stipulates that unless it is otherwise expressly agreed by parties to a legal obligation, a reference to ECU will be deemed to be a reference to ECU as defined in the European Council Regulation No. 3320/94. Clause 3(1) deems such reference to ECU in any legal obligation to be a reference to the Euro at the rate of one Euro to one ECU. Clause 4 declares that the introduction of the Euro and the resulting changes, the application of the lex monetae principle2 on or after the introduction of Euro, and the provisions of the Bill will neither discharge (or excuse) any person from performing his legal obligation nor give him the right to terminate such obligation.

9. The Bill makes no reference to the Transitional Period. The Administration has, upon our enquiries, expressed the view that there is no need to provide for the following matters :-

  1. whether any banks in Hong Kong may compel its customers to convert any relevant national currencies into the Euro on 1 January 1999 at a conversion rate fixed by the bank.

  2. whether the banks in Hong Kong may levy any fee for conversion of credit balance in any account held in ECU into the Euro.

  3. whether the banks in Hong Kong are obliged to follow the rounding/conversion rules set by the Regulations for conversion of the relevant national currencies into the Euro.

  4. whether the banks in Hong Kong must adopt the conversion rates to be fixed by the European Council for conversion of the relevant national currencies into the Euro.

Comparison with the New York State Legislation

10. The State of New York of the United States of America promulgated an Act 3 to provide for the continuity of contract and the consequences of the introduction of the single currency of the EU ("NY Act"). It might be a useful reference for considering what may be included in the Bill. A brief comparison of the provisions contained in the NY Act and the Bill is set out in table form below.


NY Act

the Bill

Definition of "Euro"

Yes (section 5-1601)

Yes (clause 2)

Definition of "ECU"

Yes (section 5-1601)

Yes (clause 2)

Definition of "Introduction of the Euro"

Yes (section 5-1601)

Yes (clause 2)

Deemed reference to ECU as reference to the Euro


Yes (clause 3)

Euro to be a commercially reasonable substitute of contract currency at conversion rate adopted by Council of European Union

Yes (section 5-1602.1)


Continuity of contract

Yes (section 5-1062.2)

Yes (clause 4)

Replaced or substituted interest rate due to introduction of Euro will not discharge contract

Yes (section 5-1602.2)

Silent (clause 4)

Contracting out allowed

Yes (on all provisions by express agreement)

Yes(only under clauses 3(2) and 4)

Effective date


Not yet fixed


Takes precedence over all other laws (section 5-1064)


Public Consultation

11. According to the LegCo Brief, the local banking community, the Hong Kong Capital Markets Association and the Law Society of Hong Kong have been consulted and they strongly support the proposal.

Consultation with LegCo Panel

12. Members of the Panel on Financial Services have been briefed by the Administration on the Bill during the Panel Meeting on 5 October 1998.


13. As the introduction of the Euro may have significant effect on the local financial market, Members may consider it necessary to set up a Bills Committee to study the Bill in detail.

14. In the meantime, the Legal Service Division is seeking clarification from the Administration on the legal and drafting aspects of the Bill.

Prepared by

KAU Kin-wah
Assistant Legal Adviser
Legislative Council Secretariat
3 November 1998

1. It is published in draft form in the Official Journal No. C O. J. No. C236 of 2.8.1997.

2. Lex monetae principle may be briefly stated as that the governing law of the currency of a foreign state is the law of that state. It follows that it must be the law of the currency, the lex monetae, that determines how in case of a currency alteration, sums express in the currency, which has been substituted by a new one, are to be converted.

3. 1997 NY S.B. 5049.