The countdown is on for 01/01/2000 -- the start of the new century.
On the last day of 1999 celebrants around the world will wait
for the stroke of midnight with a mixture of excitement, curiosity,
and trepidation. Some will greet the new year at parties planned
years in advance, while others will be sitting in their offices
wondering whether they started planning far enough in advance.
Will the much-ballyhooed Y2K computer meltdown occur?
For the Federal Reserve the concern is not only to be certain
that our internal systems are Y2K compliant, but also that we
fulfill our charter as a regulator of financial institutions and
as the nation's money manager. Some critical tasks spelled out
in the Federal Reserve's charter are to ensure safety and soundness
in the operation of financial institutions, to provide stability
in financial markets, and to maintain the smooth functioning of
the nation's payments system. It's hard to imagine that back in
1913, when members of Congress empowered the Federal Reserve System
with these responsibilities, they could have envisioned a day
when the financial system would be threatened more by outdated
computer code than by banking panics.
Basically, it's just that -- outdated computer code -- that sits
at the root of the Y2K problem which, depending on the newspaper
you read, may cost as much as $860 billion worldwide to fix. Until
recently, computers have traditionally used two-digit numbers,
rather than four-digit, to represent years -- "98" for 1998 instead
of "1998" -- to optimize space on very expensive mainframe processors.
Thus, 2000 may be miscalculated by the electronic brain as 1900.
In that case the software would not be able to perform certain
functions or would produce erroneous results. This has the potential
to affect not only mainframe and personal computers, but also
machinery, appliances, security systems, and other devices with
think of calendars as factual and scientific. In truth, they are
merely a socially agreed upon system of keeping account of time.
Calendars form a basis for planning agricultural, hunting, and
migration cycles; for divination and prognostication; and for
maintaining cycles of religious and civil events.
The fix is not simple, obvious, or inexpensive but can be done
successfully. It requires tedious searching through computer code,
much of it written in outdated languages by programmers who may
have long since retired.
Planning for the year 2000 began throughout the Federal Reserve
System in 1995, when tasks were defined and a timeline was established
to ensure that any necessary modifications would be made to our
internal systems to enable them to function normally over the
century date change. Key steps in the process include assessing
the scope of changes and resources needed to reach compliance,
modifying program code, testing all systems (including contingency
plans), and, finally, implementing the updated systems. A critical
phase of the project is testing -- internally and externally with
customers, vendors, and other service suppliers such as utilities,
transportation providers, and environmental systems. The Reserve
Banks now have completed the renovation and testing of our internal
systems, and we are satisfied that all financial service applications
of the Federal Reserve are Y2K ready. Testing applications with
depository institutions will continue throughout 1999.
In addition to readying its own systems, the Federal Reserve
System is working closely with other regulators and depository
institutions to oversee the preparations of the banking industry
as a whole. To facilitate this process, the System has spearheaded
an extensive awareness and educational process.
Communication is a key element of the Federal Reserve
effort to ensure banking industry readiness for Y2K. Fed representatives
meet regularly with other regulators and trade associations to
assess progress, share information, and facilitate information
dissemination. A Century Date Change (CDC) web site at www.frbsf.org/fiservices/cdc/
provides immediate, up-to-date communication regarding the project.
The Fed regularly communicates with financial institutions in
the United States via newsletters designed to guide constituents
through a maze of data on the subject and provides updates and
information about resources, problems, and solutions. A booklet,
"Small Business and the Year 2000," was produced for depository
institutions to distribute to their customers. Institutions which
have electronic relationships with the Fed receive regular bulletins
alerting them to information such as timelines, details of testing,
and information resources.
States legal code does not specify an official national calendar
-- use of the Gregorian calendar in the U.S. stems from an Act of
the British Parliament in 1751, which specified use of the Gregorian
calendar in England and her colonies.
Chinese calendar names years by pairing one of 10 signs related
to the Chinese constellations with one of 12 animals of the Chinese
zodiac. This pairing creates a 60-year cycle. January 1, 2000, will
fall in the Chinese year of the Earth Rabbit.
Outreach efforts reached a peak in mid-1998 with a series of
seminars offered throughout the country for depository institutions.
In the Twelfth District alone more than 1,200 participants attended
16 seminars in 10 locations to receive updates and ask questions
regarding regulatory and readiness issues. Later in the year,
the Federal Reserve scheduled a national satellite teleconference,
which reached viewers gathered in more than 200 locations nationwide
to learn more about testing, liquidity issues, and contingency
planning and to have their questions answered.
As part of our regulatory role, the Federal Reserve is concerned
with making sure that Y2K problems don't adversely affect the
safety and soundness of the country's financial system. In conjunction
with interagency guidelines, we review Y2K readiness of banks,
bank holding companies, and other financial institutions. We have
established testing and readiness requirements and regularly review
institutions' project plans and progress as part of our examination
of risk management and sound business practices.
Contingency planning is a crucial part of our Y2K readiness
plan. This contingency planning involves looking beyond automated
systems and developing a way to keep operating without customary
resources. It requires testing, more testing, and refining various
scenarios. The Fed's contingency and event management plans
are dedicated to being able to respond quickly to unforeseen
Another key responsibility of the Federal Reserve is ensuring
that enough currency and coin are in circulation to meet the
public's demand. This demand typically changes with the level
of economic activity and with the seasons of the year. For example,
during holiday seasons additional coin and currency are placed
into circulation and then eventually returned to depository
institutions by merchants. Depository institutions, in turn,
ship the excess to their regional Reserve Bank, where it is
credited to their accounts.
word "calendar" comes from the Roman term "kalendae,"
which refers to the first day of each month. Kalendae is derived
from the Latin "calare" -- to announce solemnly, to call
is the most valuable thing a man can spend.
From Diogenes Laertius, Lives of Eminent Philosophers.
It is expected that the holiday season, coupled with the turn
of the century, will cause the demand for coin and currency to
increase at the end of 1999. Some individuals may choose to hold
extra cash during the century rollover in case operating problems
should affect any retail payment system. Also, since about two-thirds
of U.S. currency is held outside the United States, there may
be increased foreign demand. To meet this demand, the Federal
Reserve has increased substantially its fiscal year 1999 print
order from the Bureau of Engraving & Printing over the 1998
level. This increased amount of currency either in circulation
or in vaults at the Federal Reserve and the Bureau will enable
us to fill our customers' currency orders quickly.
|As 1999 continues, the Fed will continue
to test, anticipate, plan, and do everything possible to provide
for the smooth operation of the payments sector and the safety and
soundness of the nation's banking system. We have taken prudent
actions to make sure that 01/01/2000 is truly the first day of a
happy new year and new century.