One of the key reasons for the introduction of the Euro is raising the chances of attracting investments, together with a more favorable cost of borrowing money. It can be noticed that the EU Member States that have adopted the Euro have significant differences in the amount of borrowed money compared to those that are not in the Euro area. Also, the potentially high exchange rate risks faced by the most common countries with small economies disappear with the entry into the eurozone.

In the second article from the upcoming series of articles on the Euro introduction, let us look at the supply of the Euro, its release into circulation, and the conduct rules.

Croatian National Bank’s role and obligations

From the day of the Euro introduction, the Croatian National Bank is obliged to publish the exchange rate list of the Croatian National Bank for the Euro in relation to other currencies.

The middle exchange rates of the Croatian National Bank for the Euro in relation to other currencies will be applied for statistical, accounting, and tax reporting purposes. It will also be applied in legal instruments in which before the day of the Euro introduction, the middle exchange rate of the Croatian National Bank for the Kuna and other currencies were used.

What will the money supply look like?

We distinguish three types of money supply according to which it will be performed:

  • Indirect pre-supply – starts no earlier than four months before the Euro introduction for banknotes or three months for coins;
  • Supply of initial coin packages – starting from 1 December 2022;
  • Simplified indirect pre-supply – starts no earlier than five days before the Euro introduction.

As an institution, the Bank provides indirect pre-supply to business entities, public authorities, credit unions, payment institutions, electronic money institutions, and financial service providers with Euro-based on previously received pre-supply contracts. This is only valid if the bank has concluded an indirect pre-supply agreement with these entities.

In addition to indirect pre-supply, the bank also provides simplified indirect pre-supply and the supply of initial packages of Euro coins. Also, when performing indirect pre-supply, simplified indirect pre-supply, and supply of initial packages of Euro coins, the bank is obliged to deliver money free of charge for processing and payment.

For micro business entities, the bank performs a simplified indirect pre-supply of Euro cash in the amount not exceeding EUR 10,000 five days before the Euro introduction at the earliest. This is only valid if the micro-entity has previously signed a simplified indirect pre-supply statement. Let us remind you that micro-business entities are those that have less than ten employees and whose income does not exceed HRK 15 million per year.

What will the cash release into circulation look like and the exchange of the Kuna for the Euro?

On the Euro introduction date, Euro cash from pre-supply, indirect pre-supply, and simplified indirect pre-supply will be released into circulation.

It is important to know that any financial institution, union, savings bank, business, or consumer is not allowed to release cash from pre-supply, indirect pre-supply, simplified indirect pre-supply, and initial Euro coins packs before the Euro introduction date.

Furthermore, the Act determines the manner and deadline for exchanging the Kuna for the Euro. In any case, the exchange of Kuna for Euro will be carried out within 12 months from the Euro introduction day in banks and branches of FINA and Croatian Post free of charge.

It will be possible to exchange a maximum of 100 Kuna banknotes and a maximum of 100 Kuna coins in one transaction, and if someone wants to exchange more than 100 banknotes and coins in one transaction, they will be able to do so, but the bank will be allowed to charge them a fee.

After 12 months, it will be possible to exchange the Kuna for the Euro at the Croatian National Bank free of charge. This refers to banknotes without a time limit, and coins for the next three years.

If the consumer wants to exchange Kuna with a deposit on a Euro transaction account, the bank with which the consumer has a transaction account is obliged (upon request) within 12 months after the Euro introduction free of charge simultaneous deposit service in Euro.

How long is the double circulation period and what are the conduct rules?

The double circulation period lasts 14 days from the date of Euro introduction, begins with the date of Euro introduction at 00:00, and lasts until the fourteenth day at 24:00. During the double circulation, the recipient is obliged for payment in Kuna, to return the difference in Euro. Exceptionally, when the recipient is unable to return the difference in Euro, he may return the difference Kuna, or both, Kuna, and Euro.

During the double circulation period, the payee at the time of payment is obliged to accept a maximum of 50 Kuna coins and the corresponding number of Kuna banknotes in one transaction applying “Anti-money laundering and anti-terrorist financing” regulations relating to restrictions on cash collection or payment. Below is a reminder of the limitations.

What restrictions under the Anti-Money Laundering and Terrorist Financing Act are in force and relevant to the introduction of the Euro?

  1. A legal or natural person performing a registered activity in the Republic of Croatia may not receive payment or make a payment in HRK 75,000 cash and more. Collection and payment when performing a registered activity, for more than HRK 75,000, must be made by payment or transfer to a transaction account for payment opened with a credit institution.
  2. The obligor (banks, authorized exchange offices, casinos, credit unions) shall notify the Office of the transaction carried out with the obligor in HRK 200,000 cash and higher. A cash transaction is any transaction in which the obligor physically receives cash from the party or physically hands over cash to the party in possession and disposal.
  3. The obligor is obliged to conduct an in-depth analysis of the client (determine and verify the identity of the client) for each occasional transaction for HRK 105,000 and higher. Recall, that an occasional transaction is a transaction that is not performed within an established business relationship.
  4. When performing foreign exchange business, taxpayers (authorized exchange offices, FINA, Croatian Post) are obliged to establish and verify the identity of the client in each transaction for HRK 15,000 and higher.

The Office for the Prevention of Money Laundering, the Croatian National Bank, and the Financial Inspectorate could issue a joint guideline for the uniform application of regulations governing the prevention of money laundering and terrorist financing in the exchange of Kuna for the Euro.

In the next article in a series of articles on the introduction of the Euro, you will find more detailed information on the rules of expressing double prices.