When is Euro coming to the Czech Republic?

October 5, 2011 · Posted in Europe, Finance 

It is a question that most tourists and business people arriving to Czech Republic start asking in many places, shortly upon their arrival. It is certain that they never hear a straight answer to such a complex question and they might form a wrong opinion. Although, Czech Government has made a commitment that they will work towards joining the Eurozone, most of Czech population hope that the day will never arrive! Recent statement by Premier Necas, that his Government will not set any timetable to introduce Euro at this time, is supported by 66% of population.

Public poll research agency Stem has been conducting yearly opinion research about acceptance of Euro as Czech currency, since 2005. See the attached table of results for each year since 2005. A sample of 1245 respondents older of 18 years represents all segments of the population. [I:http://www.wisedir.com/wp-content/uploads/2011/10/PeterKozak4.jpg] In 2011, Euro introduction question has only support of 6% of population and 70% of people are decidedly against the Euro as new Czech currency. Public support has steadily been declining over last years, as troubles in the Eurozone mount. Czech inflation and interest rates have been kept lower than in Eurozone countries. Those are good signs for the currency and the domestic economy. Many voices have pronounced openly that Koruna, is a better currency than Euro and, therefore, it should never be replaced! After all with a precedent, the name Dollar originated in the Czech Republic in the medieval times. It was derived from the name of strong local silver currency that became popular all over Europe since 1520.

We could look at some simple reasons, why Euro is not liked. When you ask Czechs about it, they will give you plenty of reasons, but mostly they are all emotional. They fear that Euro has lots of instability, while history has shown Koruna to be very stable currency and appreciative currency. It is enjoying the confidence among population, international money managers and bankers. There are plenty of economic statistics to back up their assertions. Unlike in other countries of European Union that have kept their currency up till now, large segment of population prefers to conduct important financial transactions in assets and liability sides in Swiss Francs or Euros.

In the Czech Republic, it is difficult to find any household with mortgage in other currency than the Czech Koruna. Similarly, there are only exceptions when a household would maintain savings or investment account in other currency than the Czech Koruna. Czech banks also enjoy a high degree of stability and confidence among the population that prefers to do all their banking at home, in spite of Czech interest rates being lower than in some countries of Eurozone. It is convenient and prudent practice for businesses and corporations, engaged in international trade, to maintain business accounts also in other currencies, mostly Euros. Members of Czech-German Chamber of Commerce indicated in their recent of survey of obstacles to the mutual trade that the absence of Euro is the biggest headache on their list. Many Canadian corporations engaged in trade with USA also keep US current bank accounts for their convenience purposes. Confidence with the Czech banking system goes hand in hand with the same level of confidence to Koruna. In contrast to USA, England, Ireland, Belgium, Spain and other countries, the Czech government did not have to save and nationalize any domestic banks during the recent financial meltdown.

Most decisive factor for confidence in the currency is how international money market view and value it over extended length of time. For Koruna, the yardstick is over 20 years, since the transformation of the country to the market economy. Koruna has experienced an unprecedented appreciation in its value. Since Euro introduction for circulation in 2002. 36 Korunas purchased 1 Euro. Now the Koruna appreciation has been 42%, and today’s rate is approximately 24.50 Korunas is 1Euro. Biggest appreciation has been against British Pound with 100.7%, followed by US $ with 97%. Comparing to mighty Swiss Franc, Koruna has gained 30.8%, Swedish Koruna 67.1%, Japanese Yen 38.3% and 62% appreciation to Chinese Yuen. There is no other currency on the record showing similar appreciation in its value. Local population has taken Koruna and all benefits associated with the currency for granted. They know they enjoy prosperity and why would they want to give it up and trade for unknown? Only ignorant or irresponsible person would recommend giving it up. If you are planning to visit Czech Republic for business or pleasure, now you know why not expect Euros there anytime soon.

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