Croatia is in the waiting room to adopt the Euro as the official currency and ditch the Kuna, which could happen from January 1 2023.
The Croatian Kuna has been included in the so called Exchange Rate Mechanism (ERM 2) which is basically the final waiting room before adopting the Euro, announced the European Central Bank. And after consultations with the Commission, the Economic and Financial Committee, it was decided that the central exchange rate of the Kuna for the euro would be 7.53450 Kuna.
This also means that as of yesterday, the European Central Bank has taken over the supervision of Croatian banks.
In relation to this exchange rate, until the introduction of the euro, a fall or increase in the exchange rate of the Kuna by a maximum of 15 percent will be allowed. In other words, 7.53450 Kuna for the Euro is the central rate at which we will exchange Kuna for Euros on the day when the Kuna remains a part of Croatian history, and that could be on January 1, 2023 at the earliest, reports Jutarnji List.
The last EU country to adopt the Euro as the official currency was Lithuania, and that was more than five years ago.
The key reason why countries generally decide to adopt the euro, join the EMR 2 mechanism, is to raise the chances of attracting investments, as well as more favourable borrowing prices. The differences in the cost of borrowing for euro area members compared to those EU members that have not adopted the euro are very significant, adds Jutarnji List.
Since the activation of the ERM-2 mechanism, Croatia will have to maintain the national currency exchange rate in the range of plus / minus 15 percent against the Euro and spend at least two years in the exchange rate mechanism. Basically, this means that the Euro could be introduced in Croatia on the first day of 2023.
"The agreement on participation of the Croatian kuna in ERM II is furthermore accompanied by a firm commitment by the Croatian authorities to pursue sound economic policies with the aim of preserving economic and financial stability, and achieving a high degree of sustainable economic convergence. The Croatian authorities have committed to implement specific policy measures on the anti-money laundering framework, the business environment, state-owned enterprises and the insolvency framework," stated the European Central bank.