Euroisation in the Western Balkans: The Evidence for Macedonian Economy

Euroisation is a problem with a long history and usually persistent phenomena. The high level of euroisation is common in emerging countries in Europe as in the countries with fixed exchange rate regime. In Western Balkan countries have been identified a strong presence of foreign currency. The fact is that transactions could take a place outside of the banking channels, which is not a case for FX-loan and FX-deposit ratios. It’s difficult to measure how much foreign money is in the economy. This is the reason to use data for currency substitution index. This index is high for Macedonia indicating high level of real euroisation. After the crisis, the levels are reduced (lower remittances from abroad). Considering the exchange rate experience of Macedonia, it’s likely to remain significantly euroised country for an extended period. IMF considers appropriate strategy which provides support for the gradual de-euroisation in maintaining macro-prudential policy and development of the domestic market. Another important strategy is the maintenance of prudent policies that mitigate foreign currency risks. The paper shows the persistence of FX mainly in Macedonian economy and discusses about benefits and costs, in light of the recent economic crisis.