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Currency substitution in CESEE: why do households prefer euro payments?

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This paper uses microdata from 2014 to examine the determinants of currency substitution in Central, Eastern and Southeastern European (CESEE) countries. To analyze the hysteresis of euroization in these countries, we combine the standard search-theoretic model of money demand with recent findings on the preference of CESEE households for saving in cash as well as with aspects of economic geography. In Southeastern Europe, unlike in Central and Eastern Europe, network externalities and lower trust in the local currency than in the euro are still important factors. Expectations that the local currency will depreciate, income in euro and the expectation of an official adoption of the euro are important explanatory factors for all CESEE countries. Despite the heterogeneity across the region, our results suggest that institutions and policies that foster trust are key to promote de-euroization.

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  • Thomas Scheiber & Caroline Stern, 2016. "Currency substitution in CESEE: why do households prefer euro payments?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 73-98.
    • Handle: RePEc:onb:oenbfi:y:2016:i:4:b:2
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    Cited by:

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    2. Lalouette, Laure & Zamora-Pérez, Alejandro & Rusu, Codruta & Bartzsch, Nikolaus & Politronacci, Emmanuelle & Delmas, Martial & Rua, António & Brandi, Marco & Naksi, Martti, 2021. "Foreign demand for euro banknotes," Occasional Paper Series 253, European Central Bank.
    3. Marc Bittner & Thomas Scheiber, 2022. "The use of euro cash as a store of value in CESEE," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q1-Q2/22, pages 121-143.

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    More about this item

    Keywords

    euroization; currency substitution; hysteresis; microdata; CESEE;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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