It is December 31 - one day before the millennium bug is expected to strike. Hong Kong's banks are nervous. Depositors, fearing banks may lose their deposit records because of computer malfunction, have begun stampeding branches and automatic teller machines for hard cash. The withdrawals are putting pressure on the money supply. Interest rates have climbed in recent days in tempo with the demand for cash, and the economic costs are beginning to mount. Across a spectrum of Hong Kong life - businesses, public transit and utilities, communications, hospitals, households - the impact is being felt as we become caught up in a global crisis. That is the worst-case scenario of the millennium bug - the inability of old computer programs to tell the difference between 2000 and 1900. Programs written for some older computers and electronic devices encode the year using just two digits - thus 1999 would be recognised as 99. The problem is that the year 2000 would be recognised as 00, and interpreted by the computers as 1900. But SAR companies have spent literally billions of dollars attempting to avoid a nightmarish start to the next century. CLP Power, the monopoly electricity provider to Kowloon and the New Territories, has spent more than HK$60 million. Cathay Pacific Airways has paid out more than HK$450 million since 1996 to make sure it will not be caught unprepared, while smaller rival Dragonair says it has committed HK$30 million. In the banking sector, Standard Chartered Bank has dedicated about GBP180 million (HK$2.33 billion) since 1996, while HSBC Holdings will have spent US$54 million this year alone. 'We've been developing our own computer systems for the past decade, making them Y2K-compliant all along,' one bank spokesman said. Hong Kong Monetary Authority executive director Raymond Li Ling-cheung said: 'It's definitely not a small sum that has been spent on the Y2K problem if you add all the banks together.' But throwing money at the problem is not a guarantee of results. The banking sector is well aware of this. Here, the problems go beyond software to so-called 'millennial fever'. 'There is nothing really to fear, except the fear that people will begin feeling irrational fear - that is something that can hurt the local economy,' Mr Li said. 'But having large amounts of cash brings about its own risks.' Depositors, caught up in the fervour of the moment, might decide to go liquid as a hedge against a crisis. New Year's Eve also falls on a Friday, the day when bank withdrawals traditionally increase ahead of the weekend. But the Government has made that day a bank holiday, to give institutions some breathing space. The monetary authority and the Hong Kong Association of Banks have been preparing for the potential rush on the supply of bank notes. The association has sanctioned an increase in the SAR's supply of bank notes from HK$90 billion to HK$150 billion during the last four months of the year as part of its plan to counter millennium bug worries. The HKMA last month said it would increase the potential supply of short-term funds to the market by HK$115 billion to prevent interest rates from surging if depositors did withdraw large amounts of funds. HKMA deputy chief executive Tony Latter said: 'What we are doing is to pre-empt or mediate any tightening which may arise, which could lead to unnecessary shortages of liquidity, surges in interest rates, simply because of the Y2K situation. 'But we are not expecting problems, I hasten to add. It's simply that we cannot afford to be as complacent about these developments in the same way as other central banks.' There is a general belief that the Y2K problem may have far fewer repercussions than first forecast. Experts predict that with the combination of heavy spending by corporations and energetic campaigning by government, regulators and utilities, the effect could be minimal. September 9, 1999, one of the danger dates leading up to the main Y2K event, was to have been the final dress-rehearsal for Hong Kong millennium bug-preparedness, yet the SAR emerged almost entirely glitch-free. It was feared that date would have been a problem because in old programs written in the now-obsolete Cobol programming language, 9999 was often used to indicate end-of-file. The appearance of that date was thought to have the potential for crashing old software programs. April 9 - the 99th day of the year and also a day when computers were considered to be vulnerable to the 9999 glitch - also went by with no reports of significant malfunctions or problems worldwide. CLP Power management services manager Richard Brisbane-Cohen said the utility had already committed more than 10,500 man-days to the Y2K problem. By January 1, it will probably have committed 11,000. 'We fully expect that power will be delivered to the customer on January 1, [the] same as it is now,' Mr Brisbane-Cohen said. The main concern during the process of making the utility Y2K-compliant was the danger of missing a system during the process of taking inventory of the utility's 1,516 systems, he said. 'It was a managed process. In the end, we conducted a bottom-up review and then a top-down review and matched them up,' he said. 'We ended up finding out the rectifications actually needed were far less than we had expected - only about 20 per cent of systems.' But Mr Brisbane-Cohen said the program to make CLP Power Y2K-compliant was 'not just a massive expenditure for Y2K'. 'Through our preparations, we have been able to broaden the general understanding of our business within the company; we have looked at our inventory of spares; and we have shown to ourselves that we can run a long logistics program,' he said. The HKMA has certified all Hong Kong banks completely Y2K-compliant and has created a Year 2000 Event Management Centre that will be open through the critical days leading up to and beyond January 1. The authority used September 9 as a dress rehearsal for the centre's main day, and no problems were reported, an HKMA spokesman said. 'We will have 31 staff on hand at any one time, 24 hours a day, to monitor the situation and ensure a smooth transition,' the spokesman said. The International Civil Aviation Organisation recently published a report which showed most world airlines and airports were prepared for the Y2K problem. Dragonair's Y2K project leader Algernon Yau said that, while the airline was Y2K-compliant, certification was necessary in order to secure insurance. 'There are no additional premiums, but it was necessary to show our compliance in order to be continue to be covered by insurance during those critical few days,' he said. Cathay Pacific spokesman Lavina Chan said the company was confident of its ability to handle the situation after prolonged preparation and heavy investment. 'The reality of the situation is that the critical avionics equipment on modern aircraft do not rely on date-logic [which is at the heart of the Y2K problem] to operate,' she said. But to be further certain of its Y2K compliancy, the carrier has - in conjunction with manufacturers Boeing and Airbus Industrie - conducted comprehensive operational flight tests, moving forward the date in computer systems to trick the systems into thinking it was January 1. 'We came up with no problems at all,' Ms Chan said, adding that Cathay had certified itself 100 per cent Y2K-compliant on June 30. Opinion is divided on the dangers posed by the millennium bug. In Hong Kong, companies have spent a small fortune on preparations. JOSEPH LO presents the first part in a six-part series looking at how Asian countries will cope with the threat.