"The exchange of the kuna for the euro went better than expected, primarily because we immediately started the campaign and did most of the work even before the introduction of the euro. The response from the population was excellent, and most did not wait until 1 January 2023. By the end of 2022, currency in circulation had decreased by 60% - from HRK 35bn to HRK 14.7bn. January-February 2023 was the most intense period of cash exchange and now there is still a little less than HRK 5bn," Governor Vujčić said today, referring to the first year of Croatia's participation in the euro area at the conference "Zagreb - Banking and Financial Centre", organised by Poslovni dnevnik.
He stressed that cashless payment transactions, bank cards and ATMs functioned properly already in the first hours of 1 January 2023, when the conversion of loans, deposits and other instruments was carried out without incidents.
"Croatia joined the euro area at a time of historically high inflation and the strongest cycle of monetary policy tightening by the European Central Bank. Nevertheless, Croatia continues to grow faster than the euro area average – next year GDP growth estimates for Croatia are four times higher than those for the euro area average. The expected positive effects of the introduction of the euro in Croatia have fully materialised: the elimination of currency risk, (relatively) lower interest rates, lower transaction costs and greater resilience to financial crises and shocks," the Governor said.
He explained that Croatia, as a highly euroised country, benefited from the introduction of the euro because the changeover to the euro completely eliminated the currency risk for debtors - at the end of December 2022, foreign currency debt stood at EUR 77bn (115% of GDP), while at the end of March 2023 it stood at only EUR 0.5bn (0.7% of GDP).
"The introduction of the euro significantly reduced risks to financial stability because the elimination of currency risk for debtors increased the resilience of the economy as a whole, eliminated currency-induced credit risk for banks because almost all loans are in the euro (99.6%); almost all deposits (94%) are now in the same currency, the euro, which facilitates liquidity risk management. The Croatian National Bank, as part of the Eurosystem, can now resolve disruptions more efficiently. In addition, the country was granted the right to borrow from the European Stability Mechanism in case of any potentially conceivable financing needs during crises. I hope that we will not have to use this instrument, but it is certainly good that we have access to a fund worth EUR 500bn," the governor said.
He also stated that two channels – reducing the country’s risk premium and increasing excess liquidity in the banking system as a result of the alignment of the monetary framework with the Eurosystem framework – had achieved the expected objective of lower interest rates. Croatia now has lower interest rates than the euro area average and significantly lower than its non-euro area peers. "As expected," said the Governor "transaction costs have decreased, which supports Croatia's further trade and financial integration with the euro area. The benefits of reducing transaction costs are already noticeable - the introduction of the euro and entry into the Schengen area contributed to the successful tourist season of 2023, and entrepreneurs confirm that it is now easier and cheaper to do business abroad. Also, the introduction of the euro has greatly contributed to the improvement of Croatia's credit rating since the EU Council determined that Croatia had met all the conditions for the introduction of the euro."