Guverner Boris Vujčić razgovarao je s novinarom Bobanom Spasojevićem za magazin Diplomacy & Commerce. Intervju je objavljen 27. listopada 2025.

A digital euro would complement cash and not replace it

The expectation is that the European Parliament might adopt the Regulation on the establishment of the digital euro until the end of this year, in which case the digital euro might be introduced in 2028 at the earliest

Boris Vujčić, Governor of the Croatian National Bank, explains to Diplomacy&Commerce the advantages of introducing the digital euro, but also shares the expectation that inflation will go down in 2026. He reveals the reasons for the different perception of citizens when it comes to inflation, and how the global crisis and taxes affect the policy of the Central Bank and our lives.

To what extent do the new US tariff policy and global geopolitical instability affect inflation in Europe and Croatia, and thus the monetary policy and decisions of the European Central Bank, whose Governing Board member is also the Governor of the CNB?

The impact of U.S. tariffs and, more broadly, geopolitical tensions on the EU economy appears to have been relatively limited so far. Economic growth has proven more resilient than expected, and although underlying growth momentum remains somewhat subdued, it is projected to gradually strengthen. At the same time, inflation has broadly stabilised around the target, leading the ECB’s Governing Council to keep key interest rates unchanged since the June meeting.

However, the medium-term effects of trade tensions on the EU economy remain highly uncertain. Tariffs are likely to weigh on growth by dampening global trade and business confidence. The impact on inflation, is expected to be more limited as weaker demand may offset upward price pressures stemming from trade disruptions. Overall, uncertainty surrounding the economic outlook remains elevated, with risks to both growth and inflation pointing in both directions.

Potential further changes to U.S. trade policy make medium-term projections particularly challenging. While an improvement in trade relations cannot be ruled out, recent developments have also shown that conditions can deteriorate rapidly. Under the current circumstances, we might see shifts in trade patterns, including a potential redirection of Chinese exports from the U.S. to the EU, which might also have important ramifications for domestic macroeconomic conditions.

What are your projections for inflation trends in this and next year in Croatia, what are the main factors that will influence inflation trends by the end of this year and in 2026 in Croatia?

Inflation in Croatia should tick-up slightly this year before easing in 2026, according to our September forecast. We expect the harmonised index to increase from 4.0% in 2024 to 4.2% in 2025 but then decline to 2.8% in 2026. The national index, which is more relevant for domestic households because it excludes the consumption of foreign tourists, shows a similar pattern –increase from 3.0% to 3.6% this year and then down to 2.6% next year.

The main driver of higher inflation this year are energy prices, due to regulated price increases in late 2024 and early 2025. Food prices are also pushing inflation higher this year, reflecting earlier increase in prices of some food commodities, the pass–through from rising wages, strong domestic demand and weather impacts. However, inflationary pressures on food prices have recently moderated and food inflation has started slowing down. Also on a positive side, core inflation – which excludes volatile energy and food prices – continues to fall. This is mainly due to services inflation easing as wage growth slows along with subdued growth of tourism demand.

Looking ahead to 2026, we anticipate inflation falling amid low imported and easing domestic inflationary pressures, with inflation declining across the board. Our new macroprudential measures should help ease domestic inflationary pressures by curbing the financing of household consumption through loans.

That said, significant risks to inflation outlook remain. Inflation could be lower if economic growth disappoints, global commodity prices fall or exchange rate strengthens further. But it could also surprise on the upside if wages rise faster than expected or geopolitical tensions disrupt global supply chains and energy markets. Adverse weather conditions and increased defence spending also pose upside risks to inflation outlook.

It seems that the perception of inflation growth is much higher than the data of the National Bureau of Statistics, how do you explain that?

Consumer inflation perception in excess of official figures is not a new phenomenon. Even during periods of low inflation, people perceived prices rising much faster than they actually were. This gap between perception and official statistics has widened in the period of high inflation. In spite of a significant decline in official inflation since its peak at end–2022, people still perceive inflation to be much higher, although recent data show that perceived inflation has substantially declined throughout 2025.

This disconnect between perceived and official inflation can be linked to several factors. People naturally focus on what they buy most often – especially food and energy. Food prices have risen strongly, along with energy costs due to increases in regulated prices of electricity and gas. These frequent purchases shape how we experience inflation day–to–day. Housing prices also play an important role in how people perceive inflation, even though real estate prices are not included in official inflation figures as it is hard to disentangle investment and consumption components related to living in own apartment. There is also an issue of relevant time horizon as official inflation figures measure year–on–year changes – comparing prices today to twelve months ago. However, consumers often compare current prices to what they paid several years back, which means that inflation perception is formed on the basis of cumulative inflation over a longer period. In Croatia specifically, many people still convert prices to kuna and compare them to pre–euro levels rather than last year's prices, which amplifies the perception of higher inflation.

Finally, it is worth noting that perceived inflation is much stronger not only compared to official figures but also compared to consumer's inflation expectations. Inflation expectations have declined more since their peak than perceived inflation. In general, consumers tend to be more optimistic about price developments in the coming year in comparison to their assessment of past price developments.

Our magazine has been read for 8 years by, among others, business people for whom expert and concrete information means a lot. When we talk about bank lending and risk reduction, a countercyclical protective layer of capital is important. Why did the CNB adopt this measure right now, when this measure should come into force and how could it affect the banks' operations? Will this measure lead to higher interest rates for the economy and citizens? Regardless of this measure, how do you foresee the movement of interest on loans for citizens and the economy by the end of this year and in 2026?

The countercyclical capital buffer is a releasable macroprudential capital requirement used to mitigate risks arising from procyclicality in bank lending and reduce risks to the stability of the financial system. Build-up of additional capital in the upward phase of the cycle enables credit institutions to absorb losses and maintain lending activity in the downward phase of the cycle or in case of a sudden crisis.

Croatian National Bank activated the countercyclical buffer in 2022 and gradually increased its rate in line with the evolution of cyclical risks amid the expansion of the financial cycle. The latest increase, from currently applicable 1.5% to 2% applicable from 1 January 2027, was announced in October this year and was prompted by strong and broad-based credit activity of banks, as well as the continued growth in the housing prices, further fuelling the already heightened cyclical vulnerabilities. The strengthening of the capital position of banks through countercyclical buffer complements the new restrictions on consumer lending criteria. The domestic banking system is profitable and maintains significant capital headroom, which should enable banks to increase capital buffers without unfavourable impacts on cost and availability of bank financing.

Interest rates on loans to firms and households have decreased considerably in Croatia as the ECB lowered key interest rates. Financing cost have declined in line with euro area aggregates and have recently stabilized at levels similar to the euro area averages.

In 2023, the European Commission announced the Single Currency Package, which includes two key legislative proposals - one to protect the status of euro banknotes and coins as legal tender (Regulation on euro banknotes and coins as legal tender) and the other for the digital euro (Regulation on the digital euro). The latter caused great public interest. What is the digital euro, how will it be paid with the digital euro, will it be used only for payments or also for deposits, will the ECB have insight into digital euro transactions and will cash certainly remain a means of payment?

The digital euro is digital money that would be issued by the Eurosystem, that is, by the European Central Bank and national central banks of those EU countries that have adopted the euro. The idea of introducing a digital euro as a form of central bank digital currency for euro area citizens emerged as a response to a growing demand for secure and reliable electronic payments in Europe.

A digital euro would complement cash and not replace it. It would be used in parallel with cash, which would continue to be available in the euro area. Other electronic means of payment currently used would also remain available. Therefore, the digital euro would be available to users to be used primarily as a means of payment while its possible use as a store of value (savings) would be limited by the design of the digital euro capping the amount of the digital euro that users may hold in their accounts. No interest would be paid on digital euro holdings.

This would ensure that the digital euro primarily serves as a means of payment with no negative impact on bank outflows and the stability of the banking and financial system.

The European Central Bank (ECB) and the Croatian National Bank (CNB) both support the Commission’s proposed regulation enshrining the legal tender status of euro banknotes and euro coins. The regulation will clarify that merchants and service providers must, in principle, accept cash, except in exceptional circumstances (e.g. where an alternative payment method has been agreed in advance). It will also require euro area member states to guarantee citizens and corporates sufficient access points for cash withdrawals and deposits, such as ATMs, bank branches, or other channels to ensure that cash remains readily available to all, including those who rely on it exclusively. The aim is to preserve cash as an inclusive, secure and reliable means of payment that will stand side by side with digital forms of payment.

Cash plays a crucial role in financial inclusion and in maintaining the resilience of our payment systems and economies. In times of crisis, such as cyberattacks or power outages, cash serves as a dependable alternative. This was evident during the natural disasters that affected parts of the euro area last year.

The digital euro would be available to users anytime and anywhere in the euro area. It would be a universally accepted digital means of payment that users could use free of charge for payments online, in-store or between individuals. This means that digital payments could be executed through a public means of payment, both online and offline.

Citizens would be able to use a digital euro in everyday transactions, making payments by means of a card or a mobile application or any other means that meets technical requirements set out in the legislative proposal at the time when a digital euro is issued, and is also user-friendly and secure to use. It would be widely available, reliable, safe and effective, and it would be created in accordance with the law, offering the highest possible protection of privacy.

Through its design, the digital euro would ensure the highest data protection and privacy standards in accordance with the strict standards of personal data protection imposed by EU regulation, which are among the strictest in the world as regards digital security and privacy of individuals.

As regards privacy, the Eurosystem and the European Central Bank will not be able to identify the persons included in payment transactions. In offline payments using digital euro, personal data and the identity of the persons included in the transaction would only be available to the payer and the payee.

The digital euro would be safe and easy to use. It would also promote digital financial inclusion by not excluding anyone from payments in the digital euro. It would accommodate the needs of people with disabilities and those with no access to a bank account or lacking digital or financial skills.