SPONTANEOUS EUROIZATION IN THE CZECH REPUBLIC (is it a problem and why not?)

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SPONTANEOUS EUROIZATION IN THE CZECH REPUBLIC (is it a problem and why not?)

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Martina Horníková
Jaromír Hurník
Viktor Kotlán

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Abstract

The paper offers a preliminary analysis of possible spontaneous euroization in the Czech economy. After a brief general introduction of the issue of currency substitution it specifically discusses two things. First, the transmission channels of potential spontaneous euroization, through which the process could possibly complicate the implementation of domestic monetary policy. Second, it analyses the degree of euroization. Among the transmission channels, attention is paid to interest rate and exchange rate channels. The circumstances under which the transmission would be sub-optimal are discussed. Besides the impact on the monetary policy transmission, another risk of progressive spontaneous euroization is seen in the shift of the exchange rate risk from bigger to smaller enterprises in the economy. The available data do not allow a precise measurement of the degree of euroization. Nevertheless, both the ratio of euro-denominated over koruna-denominated deposits and the CNB's survey in 2003 suggest that euroization is not an obstacle for the Czech monetary policy at the moment.

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Article provided by University of Economics, Prague in its journal Prague Economic Papers.

Volume (Year): 2005 (2005)
Issue (Month): 2 ()
Pages: 99-108
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Handle: RePEc:prg:jnlpep:v:2005:y:2005:i:2:id:255:p:99-108

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Find related papers by JEL classification:
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
F15 - International Economics - - Trade - - - Economic Integration
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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