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CNB > FAQ > Questions from the public concerning the introduction of the euro in the Czech Republic

Questions from the public concerning the introduction of the euro in the Czech Republic

  1. When will the euro be introduced in the Czech Republic?
  2. How much will xy (different types of goods, primarily food) cost after we adopt the euro?
  3. What measures will be adopted to prevent price increases?
  4. How will the euro be introduced in the Czech Republic?
  5. Will we have the same salaries as the Germans after we introduce the euro?
  6. What will be the rate for conversion of the koruna to the euro?
  7. Who will decide the level of the conversion rate and what will be the mechanism for setting it?
  8. Will koruna banknotes and coins be exchanged for euro banknotes and coins free of charge?
  9. How long will the two currencies be valid simultaneously (the dual circulation period)?
  10. Why should we introduce the euro at all?
  11. Will there be a referendum on the introduction of the euro in the Czech Republic?
  12. Who will decide what symbols will be on Czech euro coins, and when?
  13. What will happen to Czech koruna banknotes and coins after the introduction of the euro?
  14. If I take out a mortgage in korunas and we then adopt the euro, will I lose money?
  15. Questions regarding the daily exchange rate of the koruna against the euro
  16. How is the Czech Republic getting on as regards satisfying the convergence criteria?
  17. Are there any manuals on how to prepare for the changeover (for the public, the business sector, the banking sector, etc.)? When will the public and the other groups mentioned above be informed about how to prepare for the euro (how far in advance)?
  18. Why does Slovakia intend to introduce the euro earlier than the Czech Republic?

1) When will the euro be introduced in the Czech Republic?

In the document entitled The Czech Republic's Euro-Area Accession Strategy , the Czech Government set 1 January 2010 as the earliest possible date for the Czech Republic's entry to the euro area. However, this schedule has not been kept to and the adoption of the euro has thus been postponed to a later, as yet unspecified, date. The timing of the Czech Republic's entry to the euro area will depend mainly on the political will and the ability of the Czech Republic to satisfy the Maastricht convergence criteria on a sustainable basis:

The criterion on price stability requires that a Member State has a price performance that is sustainable and an average rate of inflation, observed over a period of one year (12 calendar months) before the examination, that does not exceed by more than 1.5 percentage points that of, at most, the three best performing Member States in terms of price stability.

The criterion on long-term interest rates requires that, observed over a period of one year (12 calendar months) before the examination, a Member State has had an average nominal long-term interest rate that does not exceed by more than 2 percentage points that of, at most, the three best performing Member States in terms of price stability.

The criterion on the government budgetary position means that a Member State has a ratio of planned or actual government deficit to GDP that does not exceed 3%, unless:

either the ratio has declined substantially or continuously and reached a level that comes close to the reference value, or the excess of the reference value is only exceptional and temporary and the ratio remains close to the reference value.

The criterion on government debt means that a Member State has a ratio of government debt to GDP that does not exceed 60%, unless the ratio is sufficiently diminishing and approaching the reference value at a satisfactory pace.

The exchange rate convergence criterion requires participation for at least two years in the ERM II and observance of the set fluctuation margins close to central parity for at least two years. The Czech Republic has not yet entered the ERM II.

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2) How much will xy (different types of goods, primarily food) cost after we adopt the euro?

At present it is not possible to estimate the rate at which the Czech koruna will be converted to the euro. Generally, prices of all goods and services, all income and expenditure, and the assets and liabilities of all economic agents denominated until that time in koruna, will be converted at the so-called conversion rate, i.e. a fixed rate which will be definitively known only a few months before the changeover date. The conversion rate will depend on the market exchange rate of the koruna against the euro.

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3) What measures will be adopted to prevent price increases?

First, retailers will be obliged to display dual prices - in both the koruna and the euro - for goods for a certain period of time. This measure will prevent the possible tendency of some retailers to take advantage of the transition to the euro to raise their prices, e.g. in the form of upward rounding. Second, we can rely on competition to prevent unjustified price increases.

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4) How will the euro be introduced in the Czech Republic?

The euro will be introduced in line with the National Euro Changeover Plan for the Czech Republic. This document was drawn up by the National Co-ordination Group for the Introduction of the Euro in the Czech Republic, which consists of experts from all relevant institutions (in particular the Ministry of Finance, the Czech National Bank, the Ministry of Industry and Trade and other government departments).

The euro will be introduced in the form of a 'Big Bang" . This means that the euro will start to be used in both cash and non-cash form at the same time. In this case, the period of dual circulation, when the koruna and the euro will circulate in parallel, will be relatively short, but  the current members of the euro area agreed at the time of the introduction of the euro that it would not last longer than two months).

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5) Will we have the same salaries as the Germans after we introduce the euro?

There is no direct link between the currency changeover and price or wage growth. The real standard of living and the performance of the Czech economy will not be directly affected by the changeover. However, the euro should create favourable conditions for faster catching-up with the advanced EU countries, a process that is already ongoing and will continue.

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6) What will be the rate for conversion of the koruna to the euro?       

See the answer to question 2. The conversion rate will be set about six months before the changeover, after the Council of the European Union abrogates the Czech Republic's derogation (the temporary exemption from introducing the euro). The conversion rate is fixed.

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7) Who will decide the level of the conversion rate and what will be the mechanism for setting it?

The conversion rate will be announced by the Council of the European Union in the composition of the countries which have adopted the euro, and by the Czech Republic, after consultation with the European Central Bank. The final conversion rate will depend on the previous exchange rate of the Czech koruna, which will participate in the ERM II for two years before the changeover.

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8) Will koruna banknotes and coins be exchanged for euro banknotes and coins free of charge?

Of course. Koruna banknotes and coins will be exchanged for euro banknotes and coins by commercial banks, other institutions and the Czech National Bank free of charge. After the pre-defined exchange period expires, it will be possible to exchange invalid Czech koruna banknotes and coins only at the CNB, probably for an indefinite period of time.

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9) How long will the two currencies be valid simultaneously (the dual circulation period)?

This has not yet been decided. The dual circulation period will last several weeks (the EU has stipulated that it may last up to six months, but the current members of the euro area agreed at the time of the introduction of the euro that it would not last longer than two months).

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10) Why should we introduce the euro at all?

The Czech Republic undertook to adopt the euro by signing the EU Accession Treaty. The public approved the text of the Accession Treaty in a referendum. Article 4 of the Act concerning Accession grants new Member States a temporary derogation, which implies a commitment to introduce the euro in the future. Although no precise time limit is defined for this commitment, the Czech Republic is generally expected to adopt the euro as soon as it satisfies all the criteria (see the Maastricht convergence criteria in question 1) and its economy is prepared in all respects for the adoption of the euro and the related loss of independent monetary policy.

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11) Will there be a referendum on the introduction of the euro in the Czech Republic?

This will depend on the decision made by the political representation. From the legal perspective, no referendum is necessary given the commitment expressed in the Accession Treaty. Moreover, the Accession Treaty was approved in a referendum.

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12) Who will decide what symbols will be on Czech euro coins, and when?

Czech euro coins, just like the coins of all countries that have introduced the euro, will have one side identical to all coins of the euro area countries (the European side). This side will show the value in euros or cents and the European symbol. The national side of euro coins will be discussed by the Czech National Bank and the National Co-ordination Group. The mechanism for selecting the national side of Czech euro coins should become clearer by the end of this year. It is interesting to note that the public played an important role in the selection of the national design in Slovakia, as people were given the opportunity to vote for their favourites.

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13) What will happen to Czech koruna banknotes and coins after the introduction of the euro?

The Czech National Band will withdraw koruna banknotes and coins from circulation and gradually destroy them. The metal from the destroyed coins will be probably sold as raw material.

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14) If I take out a mortgage in korunas and we then adopt the euro, will I lose money?

Not at all. The principal of the loan will be converted at the fixed conversion rate, as will the repayments.

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15) Questions regarding the daily exchange rate of the koruna against the euro

At present, the exchange rate of the koruna against the euro is determined on the foreign exchange market. After entry into the ERM II (Exchange Rate Mechanism), the rate between the koruna and the euro should move within a set range around the central parity. The range will be determined after ERM II entry. It will not, however, be wider than +/-15% from the central parity.

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16) How is the Czech Republic getting on as regards satisfying the convergence criteria?

In 2006, the Czech Republic fulfilled all the Maastricht nominal convergence criteria except the criterion on the government budgetary position and the exchange rate criterion. The exchange rate convergence criterion requires participation for at least two years in the ERM II and observance of the normal fluctuation margins close to central parity for at least two years. We expect the Czech Republic to participate in the ERM II only for the necessary period of two years. Adoption of the euro should follow a short time afterwards.

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17) Are there any manuals on how to prepare for the changeover (for the public, the business sector, the banking sector, etc.)? When will the public and the other groups mentioned above be informed about how to prepare for the euro (how far in advance)?

General information about the euro and the euro area (the group of states that have adopted the euro) is available on the CNB website ( www.cnb.cz) and on the Ministry of Foreign Affairs' European portal ( http://www.euroskop.cz/). Specific information in the form of brochures, leaflets and other documents for specific target groups will be probably start to be distributed when the Czech Republic enters the ERM II. At that time, the Czech Republic's entry to the euro area will be practically decided and there will be about 2½ years left to go, which should be sufficient for the distribution of all the necessary information.

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18) Why does Slovakia intend to introduce the euro earlier than the Czech Republic?

This question would be better addressed to Slovakia's political representation. Generally, the decision to adopt the euro reflects the political will and the ability of the country to satisfy the Maastricht convergence criteria and to lay the groundwork for smooth functioning within the euro area. Views differ on whether it is advantageous for Central European economies to enter the euro area as quickly as possible, or to wait and align their economies with the euro area as much as possible.

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