Abstract
Since January 1, 2002, pursuant to UNMIK Regulation[1] no. 1999/4, the EURO (‘’EUR’’) was adopted as the legal currency in Kosovo, and was made the factual currency of the country. All client accounts held by the Central Bank of the Republic of Kosovo (CBK) and commercial banks were converted from DEM into EURO, on an irreversible currency ex-change rate of DEM 1,95583 per 1 EURO. As a result, in practice, while the Euro is legal and while accounts are held in this currency, almost all transactions made in Kosovo are titled and made in Euro. The use of a sustainable currency was important to maintaining a macro-economic stability and played a decisive role in rebuilding the people’s trust on the financial sector. On the other hand, the CBK does not emit currency, and as such, it does not perform any monetary and exchange policies. The currency regime adopted by Kosovo may be rather challenging, given the absence of traditional monetary instruments and the exchange rates. Therefore, the main concern remains whether fair policies (both fiscal and regulations related to the financial sector) will support this regime. The purpose of this paper is to demonstrate costs and benefit brought upon the Kosovar economy by the use of Euro as a main currency in circula-tion, and how affordable are the costs in comparison to benefits brought by the Europeanization of the Kosovo’s economy.[1] UNMIK - United Nations Mission Interim in Kosovo.
Highlights
One of the numerous challenges arising before Kosovo immediately after the conflict was the selection of a monetary structure
The political divorce of former Yugoslav republics only strengthened further the role of the DEM in these economies, thereby resulting into recommendations of an official unilateral Euroization. Such an official unilateral Euroization is most like to bring about considerable benefits, and major costs
The adoption of the Euro in Kosovo brought more benefits in terms of ensuring macroeconomic stability in economy, which is of major importance
Summary
One of the numerous challenges arising before Kosovo immediately after the conflict was the selection of a monetary structure. Establishment of maximum ceilings over exchange amounts, and a clear definition of a deadline for the period of circulation of both currencies, largely encouraged possessors of such money to deposit their money to the banks, instead of risking loss of deadline This strategy was coupled with bank incentives, which had already improved and multiplied their services, to attract new client accounts. Euroization is often defined as the adoption of the Euro as a legal and official currency by authorities of a country outside of the Euro-Zone This means that Kosovo does not have independent monetary policies, and neither does it enjoy any control on interest rates. It is a country which has recognized the Euro as an official currency, but it is yet to become a member of the European Monetary Union.
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