The Czech central bank (CzNB) analyzed the consequences of the possible entry of the Czech Republic to the euro area. In his conclusions, he stated that the adoption of the single currency should increase the openness of the country’s economy, although it involves the risk of losing independent monetary policy.
The presented analysis lists three groups of consequences of joining the euro area.
Switching to the single currency would eliminate the exchange rate risk and reduce transaction costs in all trade with the euro area countries. The possibility of mitigating turbulence and economic crises inside the euro area, while reducing costs related to the loss of an independent monetary policy, also speaks for.
The Czech Republic is analyzing the adoption of the euro
Analysts concluded that the equalization of the economic level of the Czech Republic with the countries of the common currency was not accompanied by the leveling of prices and wages, which they considered a factor against the premature adoption of the euro.
They assessed the differences in the structure of the Czech economy, which is more dependent on industry than that of the euro area, as risky. Another threat, according to CzNB, is the future of the stability of public finances, resulting, inter alia, from from an aging population and a lack of reforms in pension and healthcare systems.
Assessment of the euro area
The CZNB is of the opinion that when assessing the impact of adopting the single currency, the situation in the euro area itself should also be assessed. According to analysts, all potential liabilities that may arise in the future for the Czech Republic in connection with the adoption of the euro are unknown.
CzNB emphasized that the analysis does not formulate any recommendations regarding the single currency.