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

Martina Horníková, Jaromir Hurnik and Viktor Kotlán ()

Prague Economic Papers, 2005, vol. 2005, issue 2, 99-108

Abstract: 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 (search for similar items in EconPapers)
JEL-codes: E42 E52 F15 F42 (search for similar items in EconPapers)
Date: 2005
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DOI: 10.18267/j.pep.255

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