How Acceptable are the Costs Compared to Benefits Brought by Euroisation of Kosovar Economy

Since January 1st 2002 in compliance to UNMIK (United Nations Mission Interim in Kosovo) regulation no.1999/4, EURO ("EUR") is adopted as legal currency in Kosovo and it became the de facto currency of the country. All client accounts held in Central Bank of Kosovo (CBK) and in other commercial banks were converted in EUR by un-converted exchange rate of DEM 1,95583 for a EUR. Consequently, in practice, since Euro has legal tender (which means that a payment in Euro cannot be refused) and since accounts are kept in this currency, almost all the transactions made in Kosovo are denominated and paid in Euro. Utilization of a sustainable currency was important in maintaining macroeconomic stability and played a key role in the reestablishment of people's trust in the financial sector. On the other hand, CBK is not a money emission bank and in this way does not perform monetary and exchange policies. The currency regime that Kosovo has adopted might be very challenging given the absence of traditional monetary and exchange rate instruments. The key concern, therefore, remains on whether the right policies (such as fiscal and structural policies as well as those related to the financial sector) will support this regime. The objective of this paper is to present the costs and benefits brought to the Kosovo economy by the utilization of Euro as its main currency in circulation, and to what extent are the costs acceptable compared to the advantages that were brought by the introduction of Euro in the Kosovo economy.