Keywords

euroisation, CNB, monetary policy, macroprudential measures

This paper analyses the evolution of financial euroisation in Croatia and examines the use of monetary and macroprudential measures amid the context of high euroisation. Croatia's experience suggests that high euroisation is difficult to diminish despite the country's long history of macroeconomic and exchange rate stability and credible monetary policy, which included regulatory measures for discouraging banking business in foreign currencies. The exit strategy for the elimination of currency risk arising from high euroisation, which complicates monetary policy implementation and maintenance of financial stability, may lie either in euro adoption or in the promotion of the use of the domestic currency. Both options ultimately require the fulfilment of the same preconditions – sound economic fundamentals, a credible economic policy and reduced macroeconomic imbalances.