In mid-July 2020, the European Commission welcomed the decision to include Croatia in the European Exchange Rate Mechanism (ERM II), a key step towards joining the eurozone. Croatia is close to the eurozone, and the planned introduction of the euro on January 1, 2023, is getting closer and more likely.
The exchange of the kuna for the euro takes place in three periods; the preparatory period, the dual circulation period, and the period after the completion of the dual circulation. The first or preparatory period can start five months before the introduction of the euro, ie from the day when the Council of the European Union decides that Croatia introduces the euro and sets an official fixed exchange rate that will last until the day of the euro (expected decision in July 2022).
In the first article from the upcoming series of articles on the euro, we bring general rules regarding the introduction of the euro as the official currency of Croatia.
Organization of activities in the process of replacing the kuna with the euro
The National Council for the Introduction of the Euro is in charge of leading the entire process, as well as adopting strategic guidelines and setting all deadlines. The National Council set up six coordination committees, where each developed an action plan in its area. Coordination committees are obliged to implement action plans, and for everything to go smoothly, the main coordinators were appointed at the suggestion of the leading institutions. Coordination committees are under the supervision of the Steering Committee, which is in charge of coordinating the work of coordination committees at the operational level, and the coordination committees are obliged to report to them regularly.
Adaptation of the legislative framework
The adjustment of the legislative framework of the Republic of Croatia is necessary to ensure legal certainty after the introduction of the euro as the official currency. In legislative activities, two main activities are planned:
- Preparation of the Act on the Introduction of the Euro as the Official Currency in the Republic of Croatia
- Creating a legal basis for currency exchange, as well as ensuring legal certainty and clarity
- Basic principles of the introduction of the euro
- Basic provisions on the replacement of the kuna by the euro
- Determining and harmonizing other laws and bylaws
- The first group – regulations that contain significant references to the Croatian kuna
- The second group – a smaller number of regulations and provisions that need harmonizing (900 regulations in total)
In addition to the above, it is necessary to identify areas that should be covered by the Law on the Introduction of the Euro to ensure legal certainty and to propose a comprehensive legal framework. The laws of the Member States that were among the last to introduce the euro have already been analyzed, and legal provisions are being continuously analyzed.
Basic principles of the introduction of the euro
- Principle of consumer protection
- Recalculation of prices and other monetary statements is carried out free of charge, using a fixed conversion rate and following the rules for conversion and rounding.
- Due to the conversion, the consumer must not be in a financially less favorable position than he would have been in the euro had not been introduced.
- The principle of continuity of legal instruments
- The procedure for the introduction of the euro does not affect the validity of existing legal instruments stating the kuna.
- The introduction of the euro does not give any contracting party the right to a valid unilateral termination or termination of the contract or change of a particular provision of the contract unless otherwise agreed between the contracting parties or unless otherwise regulated by a special regulation.
- The principle of prohibition of unjustified price increases
- It is forbidden for all business entities, institutions, and financial service providers to increase the price of goods or services without a justified reason.
- Principle of transparency and information
- All information about the introduction of the euro must be clear, understandable, accessible, and visible.
- The principle of efficiency and economy
- All procedures and activities arising from the introduction of the euro are carried out in such a way to ensure that everyone can act as simple as possible at the lowest possible cost.
After the EU Council adopts the Decision on the abolition of derogations, the Government of the Republic of Croatia must announce the day of introduction of the euro, fixed conversion rate, day of beginning and end of double circulation, day of beginning and end of double circulation and other relevant issues required for the introduction of euro.
General rules regarding the introduction of the euro as the official currency of Croatia
Several general rules on the application of the euro in the Republic of Croatia are defined, and below we present the most important ones.
The amounts stated in kuna in legal instruments are considered amounts in euros with the application of a fixed conversion rate and in accordance with the rules for conversion and rounding from this Act.
After the provision enters into force on the day of the introduction of the euro, the euro becomes the official currency and legal tender in the Republic of Croatia. Thus, the amounts stated in HRK will be considered as amounts in euros with the application of a fixed conversion rate, under the rules for conversion and rounding.
Furthermore, the values and amounts on certificates, certificates, and other public documents for the periods before the introduction of the euro will be expressed in HRK. Amounts stated in legal instruments in euros that are converted into kuna equivalent by the day of the introduction of the euro according to the middle exchange rate of the Croatian National Bank or another exchange rate of the bank are considered amounts in euros. Of course, there are some exceptions. For example, the nominal value of securities and shares and stakes in other entities and relevant registers is recalculated in the manner specified in Part 6 of Chapter V of the Act.
General rules regarding conversion and rounding
Amounts to be paid or accrued shall be converted using a fixed conversion rate by the conversion and rounding rules set out in Articles 4 and 5 of Regulation (EC) No 1049/2001. 1103/97.
The conversion will be performed by applying the full numerical amount of the fixed conversion rate, in a way that is rounded following the mathematical rules of rounding. In other words, the result obtained will be rounded to two decimal places, based on the third decimal place.
We can observe that in most cases the fixed exchange rate was equal to the central parity applied during participation in the ERM II exchange rate mechanism. In the case of Croatia, the central parity is 1 Euro = 7.53450 kuna.
Liability of the payer for the correctness of the calculation
If there are monetary statements in kuna value before the double statement period to be paid, the payer is obliged to convert the amounts into euros before payment using a fixed conversion rate and following the rules for conversion and rounding arising from the Act.
While it may seem difficult, change is not necessarily bad. The arrival of the euro in Croatia opens up many development opportunities, as well as investments by foreign investors. Currency risk will certainly disappear, interest rates should be reduced, and the possibility of financing on the capital market, as well as the credit rating, should be increased. In addition, it is logical that more tourists will be interested in coming to Croatia.
In the next article in the series of articles on the euro, you will find more detailed information on the supply of the euro, its release into circulation, but also some information on the rules of conduct.
