Currency substitution in CESEE: why do households prefer euro payments?

Thomas Scheiber () and Caroline Stern ()
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Thomas Scheiber: Oesterreichische Nationalbank, Foreign Research Division, http://www.oenb.at
Caroline Stern: Oesterreichische Nationalbank (OeNB), Foreign Research Division

Focus on European Economic Integration, 2016, issue 4, 73–98

Abstract: This paper uses microdata from 2014 to examine the determinants of currency substitution in Central, Eastern and Southeastern European (CESEE) countries. To analyze the hysteresis of euroization in these countries, we combine the standard search-theoretic model of money demand with recent findings on the preference of CESEE households for saving in cash as well as with aspects of economic geography. In Southeastern Europe, unlike in Central and Eastern Europe, network externalities and lower trust in the local currency than in the euro are still important factors. Expectations that the local currency will depreciate, income in euro and the expectation of an official adoption of the euro are important explanatory factors for all CESEE countries. Despite the heterogeneity across the region, our results suggest that institutions and policies that foster trust are key to promote de-euroization.

Keywords: euroization; currency substitution; hysteresis; microdata; CESEE (search for similar items in EconPapers)
JEL-codes: D12 E41 O16 P34 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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