Prague Economic Papers 2005, 14(2):99-108 | DOI: 10.18267/j.pep.255

Spontaneous Euroization in the Czech Republic (is it a problem and why not?)

Martina Horníková1, Jaromír Hurník1, Viktor Kotlán2
1 Czech National Bank, Na Příkopě 28, CZ - 115 03 Prague 1 (e-mail: martina.hornikova@cnb.cz; jaromir.hurnik@cnb.cz).
2 Czech Saving Bank, Na Perštýně 1, CZ - 113 98 Prague 1 (e-mail: vkotlan@csas.cz).

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.

Keywords: monetary policy, euroization, dollarization, transmission mechanism, currency, currency substitution
JEL classification: E42, E52, F15, F42

Published: January 1, 2005  Show citation

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Horníková, M., Hurník, J., & Kotlán, V. (2005). Spontaneous Euroization in the Czech Republic (is it a problem and why not?). Prague Economic Papers, 14(2), 99-108. doi: 10.18267/j.pep.255
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