Thomas Cook and American Express, the two biggest issuers of travellers cheques, have already announced they will provide euro travellers cheques from January 1999 onwards, which will be issued alongside existing sterling and other European currency travellers cheques.

Says Jayram D Ketkar, executive director (foreign exchange) at Thomas Cook (India) Ltd: "We will start offering daily dollar-euro quotes from January 1, 1999 onwards, along with quotes on the dollar to existing European currencies. This will help travellers in knowing the conversion rates on their travellers cheques whenthey visit European countries."

American Express, the world's largest issuer of travellers cheques, announced in September it would start offering euro travellers cheques to customers from the start of the next year. These cheques will be available in denominations of 50, 100 and 200 euro.

"We anticipate Indian travellers to the euro zone will find the product extremely convenient. It will allow them to travel with only one currency travellers cheque, enabling them to save on the cost of changing money between various foreign currencies," said Rajan Bhat, area director, India & around countries, Travellers Cheque Group, American Express.

The euro will become the official currency of the euro-zone on January 1, 1999, with national currency exchange rates fixed to the euro. There will be a three-year transition period before euro notes and coins go into circulation on January 1, 2002. During this time, customers will be able to use the euro travellers cheques to pay for goods and services as merchantsacross Euroland begin to convert to euro pricing.

Euro notes and coins will not be made available until January 2002, when they will be issued alongside the national currencies of the first eleven "Wave One" countries, as they have become known. This will continue until the euro is made the sole legal tender for these countries from July 2002, at the latest.

Credit card users will still be able to use their cards, but the exchange rate at the time it is used will not necessarily be the same as the exchange rate when the transaction is processed, which could be weeks later. On the other hand, travellers cheques will effectively provide customers with a fixed exchange rate from the moment they are bought.

Retail outlets in Europe may choose to process credit card transactions in euros rather than in their domestic currency. The only difference that will be seen is that the credit card statement will show a conversion rate from euros to rupees rather than, from say, deutsche marks (DM) or French francs torupees. The purchasing power of the euro may, however, vary from country to country. This will depend on the ruling inflation rate in each country.

Market expectations suggest the euro will become not only an important international currency, but also a strong one. The stability of the euro can only be one factor influencing its exchange rate. Fundamental variables, such as economic growth performance and current account positions, will be dominant determinants in the long run.

As regards exchange rate volatility, there are indicators suggesting a long-term trend towards more stability. Economic policy priorities have tended to become aligned along very similar lines throughout the industrialised world in the recent past. Most policy makers, therefore, agree low inflaton, stable interest rates and fiscal discipline are the key to sustained economic growth.