Croatia adopts Euro as its currency

Despite economists reservations on Euro, the European countries keep switiching to Euro as their currency.

In July 2022, Croatia had decided to adopt Euro on 1 Jan 2023, becoming the 20th member of the European Monetary Union.

The Council of the European Union today adopted the Decision on the adoption by Croatia of the euro on 1 January 2023, amendments to the regulation according to which Croatia becomes the 20th member of the euro area and the regulation determining a fixed conversion rate between the euro and the kuna at: 7.53450 kuna per 1 euro.

The Council adopted the Decision in accordance with the positive assessment by the European Commission, after implementing procedures and conducting discussions in the Eurogroup and in the European Council, and taking into consideration the opinion given by the European Parliament and the European Central Bank.

The Decision was signed by Zbyněk Stanjura, Czech Finance Minister, in his capacity of President of the Economic and Financial Affairs Council (ECOFIN). The European Commission also displayed a banner on the Charlemagne building welcoming Croatia to the euro area with the message: Welcome to the euro, Croatia!

“Croatian citizens and entrepreneurs will have concrete, direct and lasting benefits from Croatia’s joining the euro area. Currency risk will be largely eliminated, Croatia will become more attractive to investors and more secure in times of crisis. The euro is also the key value of the European unity and it will enable us to play an even more active role in the European project. I am truly proud of this great Croatian success,” said Boris Vujčić, CNB Governor.

“We have achieved a strategic goal – Croatia is becoming a member of the euro area on 1 January 2023! The introduction of the euro will make our economy more resilient and raise the standard of living of the population in a long term. The membership of the euro area also provides higher security for Croatia and our citizens in times of crisis. We have worked hard and for a long time on this project because we firmly believe that joining the euro area is the national interest of Croatia,” said Prime Minister Andrej Plenković.

ECB President Christine Lagarde on the transition:

Eight months after you became ECB President, the Croatian kuna and the Bulgarian lev were included in the European Exchange Rate Mechanism II. After the shortest period in the ERM II of all new EU Member States, Croatia is now also about to join the euro area. Was such an outcome a surprise for you?

I will focus on Croatia, which is becoming a new member of our family. I believe it has achieved exceptional success and that is big news. Being able to do all that – covering all the areas within a period of ten years between accession to the European Union and euro area entry – is an incredible success. Croatia has implemented reforms and the necessary restructuring and done everything to continue to have sound public finances. So it fully deserves to be admitted to the euro area on 1 January 2023, and it is wonderful to welcome the 20th member to the family when we are celebrating the 20th anniversary of euro banknotes and coins. This is big news and a reason for all of us to celebrate!

Over the past few years, people in Croatia have had a chance to hear a lot of arguments in favour of introducing the euro, but the most prominent ones – such as lower interest rates and more favourable borrowing terms – have become less convincing due to a change in circumstances. People worry that the euro will only spur inflation. To what extent have these new circumstances changed the narrative in terms of the costs and benefits of introducing the euro?

It is good to have the euro because it can operate as a shield. Once a euro area country, always a euro area country. All for one and one for all. We are together in this, all soon-to-be 20 euro area countries. I am old enough to remember when France became a member of the euro area and we exchanged the franc for the euro. We were also worried that abandoning our currency and adopting the common currency might have grave consequences in terms of higher prices and less independence. However, looking back on 23 years of the euro and 20 years of euro banknotes and coins, we can say that it has paid off – the euro has brought protection and strength.

The initial concern that prices will be a little higher can be allayed. I am certain that the Croatian government has taken the necessary steps, such as ensuring prices are clearly displayed in both kuna and euro. In France, too, we were able to monitor the prices in both francs and euro for about half a year.

It is a really good way of providing information because it is difficult, especially for elderly citizens, to switch to another currency all of a sudden. I believe that pocket calculators (or apps for the younger generation) displaying the price of a desired product in both currencies are useful in that process, as they were to us in France. I also trust that there are arrangements in place to punish those who abuse the system, who take advantage of the conversion to raise prices. There must be a combination of measures in place to facilitate the conversion while, at the same time, not allowing it to result in difficulties for citizens.

Andhra Bank would have completed 100 years in 2023

In 1920s, multiple banks were established in India. Of which only few survived and continued to function:

• Catholic Syrian Bank established in 1920
• Tamilnad Mercantile Bank in 1921
• Nainital Bank in 1922
• Andhra Bank in 1923
• Karnataka Bank in 1924
• Synidcate Bank in 1926
• Lakshmi Vilas Bank in 1926
• Dhanalakshmi Bank in 1927
• South Indian Bank in 1929

In 2020s, these banks should be celebrating 100 years of their existence. However, Andhra Bank, Syndicate Bank and Lakshmi Vilas Bank will not be able to celebrate their 100 years. They have been merged/amalgamating recently by another bank: Andhra Bank by Union bank of India, Syndicate Bank by Canara Bank and LVB by DBS Bank.

One hopes the amalgamating banks do care for the long history and release a commemorative volume on the centenary.

Nainital Bank raises FD rates up to 7.10%, celebrates 100 years of existence

Shumbham Singh of Business Today reports:

Nainital Bank increased interest rates on fixed deposits under Rs. 2 crore. The new rates will go into effect on January 1, 2023, according to the bank’s official website. After the announcement, the bank is now promising interest rates with tenors ranging from 7 days to 10 years and 3.25 per cent to 5.35 per cent. The bank has additionally introduced the New Scheme Naini 2023 Deposit, on which it guarantees to provide a maximum standard rate of 7.10 per cent.

Nainital Bank Limited was founded in 1922, and as the year 2022 comes to an end today, the bank has successfully completed its 100-year history.

Wives listen but husbands don’t

Johanna Mollerstrom,  Ricardo Perez-Truglia, Dietmar Fehr in this voxeu article analyses how households process information and make decisions. Wives process the information better than husbands:

Over the past 50 years, there has been a progressive shift in economic research to learn how households make economic decisions in the real world. By sharing information and learning from each other, spouses can make better decisions for the household and for themselves. Using data from a survey experiment in Germany, this column documents significant gender differences in how economic information diffuses within the household.

….we document a sharp gender difference in how men and women react to information discovered by their spouses: the pass-through of information from women to men is substantially lower than from men to women. 

….Why do men and women react differently to information from their partners? It could come from gender differences in communication patterns. For example, it may be that men are more likely to talk about income than women. If that were true, men would not receive information about the income rank from their wives and thus could not update their beliefs. However, that is not what we see.

In the second survey wave, we included a question asking treated respondents whether or not they remembered sharing the information they got with other household members. While a sizeable number of respondents said they shared the information with other household members, we do not find any gender differences in the propensity to report having done so. We take this as an indication – but certainly no proof – that it may be the husbands’ capacity to listen in the household, rather than the wives’ unwillingness to share information, that is at play.

There is a lesson here for policymakers: if money or information should be directed to households (see e.g. Jain and Ilzetzki 2022 for a recent example), it matters who in the household it is directly targeted to.

Well, most wives will say that we knew this bit without the need for such research. Tell us something new and more importantly a solution…

Jab central banks met 2023

My year end article where I take cues from Imitiaz Ali movie Jab We Met.

In the Bollywood movie Jab We Met, the key character Geet (played by Kareena Kapoor) pleads to god to end the chaos as enough drama had already happened. She wants things boring again. I will not be surprised if central banks worldwide are making similar requests to Santa even without watching the movie.

However Geet’s request was not accepted and highky unlikely that central banks’ requests will be accepted as well.

States’ financial position needs to be watched as much as the Centre’s

While the aggregate financial position of states looks manageable, the finances of many individual states look weak. My argument in this article I wrote last week for moneycontrol

Happy new year to all the visitors!

Wishing all the vistors and well wishers a very happy and prosperous new year.

The blog was on a mini-break and hence no posts for more than a week. The blogging to resume in 2023.

Ashish who writes an awesome blog named econnforeverybody has some nice things to say about mostlyeconomics blog. Thanks a lot Ashish. Such comments keep the blog going.