Many readers have been asking about the mechanics of any hypothetical ‘euro’ break-up, or indeed of what might happen if one country were to leave. Up to now, we have been told this is impossible, but clearly it is possible, and, however remote the possibility may seem (the order of 5% risk is the topical response) institutions in the financial sector cannot be without a plan ‘b’. In this context, this article, I found whilst idly noodling around the net, could be seen as informative. It is written by a software engineer for a magazine called Software Reality. The article’s title: reverse-engineering the euro.
“Banks must start to plan for one or more European countries leaving the Euro. We all thought that after the Y2K and Euro changes, we wouldn’t be doing it again, but it appears we’ll have to.
The possibility is real and banks have a duty to shareholders to mitigate against such risks. If we start now we may have a few years, which is just about the right timescale for planning these things.
Technically I don’t think that there will be a great deal of software that needs to be rewritten. As I said earlier, the front office doesn’t really care about countries and the back-office holds the relationship between countries and currencies in their counterparties.
An important aspect of software development is whether data providers such as Reuters and Bloomberg can convert their systems to handle the new currency. Whilst the trade capture software might not require a great deal of modification, any new currency would affect all financial instruments (especially FX), and a new German currency would have the greater impact on financial markets.