Euro Cash in Central, Eastern and Southeastern Europe

A considerable part of the euro banknotes issued since 2002 is in circulation in Central, Eastern and Southeastern European (CESEE) countries. This can be attributed to the fact that numerous economic agents resorted to currency substitution in a parallel safe haven currency during the crisis arising in the course of their countries’ transition to a market economy. On the other hand, euro cash holdings are related to some countries’ upcoming accession to the European Union, which will oblige them to adopt the euro. Although countries have caught up economically, the degree of euroization in CESEE countries has hardly receded over the past years. According to surveys conducted by the Oesterreichische Nationalbank (OeNB), economically significant amounts of euro cash are primarily held by households in Southeastern Europe, which – unlike households in Central Europe – use euro cash as a store of value and partially as a means of payment in addition to their respective local currency. Policies introduced in CESEE countries to stabilize economies after the outbreak of the financial and economic crisis in 2008 have ultimately increased the public’s confidence in the security of its savings deposits. The recent drop in euro cash holdings can therefore be attributed not only to the depletion of euro cash reserves during the crisis to finance necessary expenditures. It also seems to reflect a medium-term tendency to shift portfolios from (euro) cash to (euro) deposits.