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Charset
ZNC supports character encodings in core since 1.6.0. If you want to look at earlier "charset" module, it's here.
Prerequisites
ICU library does the actual conversion. If it's available, ./configure will find it.
Usage
ZNC internally uses UTF-8. You can configure charset used between clients and ZNC, and charset used between ZNC and server.
If one of "Try UTF-8 and ___" options is selected, when ZNC receives a line from socket (either client, or server), at first it checks whether it's valid UTF-8, or not. If it's not, the fallback charset is used to decode the line.
GUI is available in webadmin, in User page, and in IRC network page. Also controlpanel module can be used.