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Euro adoption: views from the third row

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  • Boris Vujcic

    (Croatian National Bank, Trg hrvatskih velikana 3, 10000 Zagreb, Croatia.)

Abstract

Croatia is already much more euroised than any of the first wave accession countries. The paper demonstrates that Croatia has a strong incentive to adopt euro as soon as it becomes feasible. Costs of doing so are smaller because the degrees of freedom for an independent monetary policy-making are already reduced, while the benefits are higher. A special benefit that a heavily euroised economy derives from formally adopting the euro is removal of relatively high costs of prudential regulation connected to the balance sheet risk and a possible run on the foreign exchange liabilities of the banking system. This would in turn substantially reduce costs of financial intermediation and interest rate spreads. Our analysis suggests that in a highly euroised economy, the costs of euro adoption are smaller and the benefits are larger than in a non-euroised economy. Comparative Economic Studies (2004) 46, 159–176. doi:10.1057/palgrave.ces.8100042

Suggested Citation

  • Boris Vujcic, 2004. "Euro adoption: views from the third row," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 46(1), pages 159-176, March.
    • Handle: RePEc:pal:compes:v:46:y:2004:i:1:p:159-176
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    Cited by:

    1. Neven T Valev, 2006. "From a Currency Board to the Euro: Public Attitudes Toward Unilateral Euroisation in Bulgaria1," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 48(3), pages 480-496, September.

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