Wednesday, 2 March 2022

HNB Intervenes in Foreign Currency Market to Preserve Kuna Exchange Rate

ZAGREB, 2 March 2022 - The Croatian National Bank (HNB) on Wednesday intervened in the foreign exchange market to preserve the kuna exchange rate, selling €171 million to commercial banks at an average exchange rate of HRK 7.562505 for one euro, the HNB said in a brief statement.

This was the central bank's first foreign exchange intervention since 16 June 2021.

The kuna strengthened against the euro by a marginal 0.0001 per cent from Tuesday.

Today's middle exchange rate, effective from Thursday, is 7.560528 kuna for one euro.

The Croatian financial system is currently enjoying record liquidity of about HRK 80 billion.

For more, make sure to check out our business section.

Friday, 11 February 2022

The Kuna, Croatia's Future Euro Coin Design Explained

February 11, 2022 – Considerable controversy has arisen in Croatia this week after artist Stjepan Pranjković was accused of plagiarising a winning proposal for the country's future Euro coin design of the Kuna. 

The graphic designer became the object of public scrutiny when members of the public began pointing out similarities between his composition and a photo of a marten taken by British photographer Iain H Leach. Pranjković has since withdrawn the proposal, leaving officials with the task of selecting a new motif before the coins enter circulation in January of next year.

Squabbling aside, I want to seize this opportunity to draw your attention to the real star of this somewhat dramatic narrative, our fuzzy friend, the kuna.

Many people are familiar with this mischievous forest creature and maybe understand why he lends his name to the national currency. However, if you're like me, you may recognize that gaps remain in your kuna-knowledge. If so, keep reading.

In biologists' speak, kuna (martens) constitute the genus Martes within the family Mustelidae, a group that includes more familiar carnivores like weasels, otters, badgers, and wolverines. There are many species of marten, ranging throughout Europe, Asia, and North America. The star of the current coin debacle is most likely a European pine marten (Martes martes), a common species across Europe, including in Croatia and in Leach's native Great Britain.

The photo in question shows the kuna climbing on a branch. It comes as no surprise then that pine martens are arboreal, spending much of their time maneuvering amongst treetops. These agile predators use their semi-retractable claws to climb between branches, including those of the pines from which they take their name. These claws also come in handy when hunting and foraging their favourite foods: small mammals, birds, insects, fruits, and carrion… delicious! While not most appetizing to the average palate, scientists attribute the appetites of pine martens to a population reduction of the invasive grey squirrel in certain regions across Europe. While many view this fuzzy creature as a pest, this example demonstrates the valuable role pine martens play in their native habitat. Fortunately, despite pressure from deforestation and illegal hunting, the European pine marten is still classified as least concern by the International Union for Conservation of Nature.

So, how did this tree climbing, squirrel eating, weasel cousin end up at the centre of a national debate on currency design? Well, like most things in Croatia, the kuna goes back several centuries and has a complicated but interesting backstory. To understand, we must go back to medieval Croatia, a time when marten pelts were traded as money. Flash to the 13th century, the Croatian Viceroys distributed marten-adorned silver coins called banovac. However, the currency did not last long. As Croatia lost its autonomy to its union with larger and more powerful Hungary, the banovac disappeared in the following century. But this would not be the last time the world would hear the word kuna.

As I'm sure you are all aware, Croatian's are a stubborn and traditionalistic people. (I say this out of love and from personal experience). Thus, it was only natural that upon independence, Croatian leaders designated the kuna as the state currency on May 30, 1994. Ever since, the kuna has served both practically and symbolically as an embodiment of Croatian custom, identity, and national pride.

As is so often the case, it appears that history is set to repeat itself. With the adoption of the Euro imminent, the renaissance of the kuna is coming to an end. I don't want to criticize the government as it moves to bring the country towards a more integrated future. Croatia has much to gain from establishing the Euro within its borders. Nevertheless, by dawning this historical perspective, one can glean additional insight into why so many are hesitant about the process.

For this reason, it truly is a shame that the coin depicting the kuna, a consecrated emblem of Croatian independence, has become ensnared in public dissension. Of course, the choice to withdraw the submission and protect intellectual property was correct. But, personally, I hope that officials can find a way to reincorporate the kuna into the Croatian Euro roster. That way, Croatians can continue to trade furs for beer and wine while sharing this tradition with the rest of the European community.

For more news about Croatia, click here.

 

Sunday, 30 January 2022

Weaker Kuna During Croatian Eurozone Accession Could Pose Issues

January the 30th, 2022 - A weaker Croatian national currency (kuna) during Croatian Eurozone accession could cause more issues than solve them.

As Poslovni Dnevnik/Ana Blaskovic writes, with Croatian Eurozone accession rapidly approaching, set to occur at the very beginning of 2023, one of the main issues will be the rate at which the kuna will be exchanged for the Eurozone's single currency. There isn't really much room for maneuver as the rules require targeting around a central parity of 7.5345.

For years, critics have been making negative remarks about the Croatian kuna for being too strong, arguing that it makes the currency uncompetitive when it comes to exports, and the idea of ​​depreciation was once supported by former president Kolinda Grabar-Kitarovic.

The Croatian National Bank (CNB) once calculated that the depreciation of the kuna by ten percent would currently increase the debts felt by residents, companies and even by the state, whose contracts have a currency clause of 50 billion kuna. All of the aforementioned now comes a detailed review of the likely repercussions.

"The negative effect of kuna depreciation on the balance sheets of Croatian sectors outweighs the positive foreign trade effect of depreciation," concluded research author Ozana Nadoveza Jelic, an advisor at the Modeling Directorate, and Rafael Ravnik, an economic analyst from Macrode.

In their paper entitled "Dependent on the Euro: The Macroeconomic Effects of Exchange Rate Changes in Croatia", the duo concluded that in the medium term, net exports would benefit relatively slightly from the kuna's depreciation, but that all domestic sectors would end up paying a much higher price.

The change in the exchange rate of the kuna against the euro would be reflected through the trade channel, ie foreign trade, in which a short-term decline would occur first, followed by an increase in net exports.

The second effect is on the balance sheet of the sector of companies which, thanks to their open exchange rate position (where debt relief also depends on the exchange rate) are faced with an increased burden of loan repayment. Consequently, they'll reduce investment, which spills over to the rest of the economy, causing a reduction in capital accumulation in the medium and long term, and thus an effect on potential GDP.

At the same time, households will also be dealing with the burden of repayment, as well as having their financial wealth denominated in euros, and there will be a further reduction in real disposable income due to rising consumer basket prices.

The state doesn't go through quite the same effect thanks to the ability to borrow in foreign currency, but the repayment burden will grow for it as much as it will for regular citizens (as ultimately it is all the responsibility of taxpayers), and the higher debt burden will consequently raise the country’s whole risk premium.

In this vicious circle as Croatian Eurozone accession comes knocking, the next step would be the growth of all interest rates in the country, one of the factors of which is the riskiness of the state.

For more on Croatian Eurozone accession, check out our politics section.

Tuesday, 25 January 2022

How Will Croatian Eurozone Accession Affect Kuna-Winning Game Shows?

January the 25th, 2022 - How will Croatian Eurozone accession, which is rapidly approaching and currently due to happen at the very beginning of next year, affect game shows in which prizes are paid out to winners in Croatian kuna?

As Poslovni Dnevnik writes, Croatian Eurozone accession will occur on January the 1st, 2023, and then the euro will replace the kuna as the official currency in this country as well. At that moment, a lot will change, but what interests quiz and game show fans is whether or not the prize money in the popular show "Who wants to be a millionaire?" will increase from one million kuna to one million euros.

Vecernji list finds out that things in that regard are still very much up in the air.

''We haven't totally ruled out the possibility of competitors fighting for a prize of one million euros, but it's more likely that this won't be the case. It will be difficult to plan seven and a half times more funds for the prize fund in the production plan than is the case now. That's a real issue, but it hasn't really been discussed yet.

The originally British "Who wants to be a millionaire?" is also aired on many commercial TV stations in other countries as well, and in those countries, the fund is covered by sponsors. Maybe part of that fund could be covered by sponsors in this country as well.

''There are different options and they are all still being discussed, and when the time comes, we'll have to decide on what our format will look like,'' said Igor Grkovic, the editor of ''Who wants to be a millionaire?" and ''The Chase''.

''We won't have any problems with "The Chase", as the amount of cash offered for the answering of the questions will simply be converted from 3,500 kuna to 500 euros. As for "Who wants to be a millionaire?", we've seen many different examples on how that's done from other countries. Slovenians play for 100,000 euros, and countries such as Slovakia, Estonia, Latvia and Lithuania cancelled their versions of the show before joining the Eurozone. I guess they didn't want it to still be being called "Who wants to be a millionaire?" when the prize isn't a million euros,'' Grkovic said.

It is interesting to compare experiences in other countries. As previously touched on, "Who wants to be a millionaire?" started in the UK back in 1998 and has been broadcast in more than a hundred countries since. Regardless of the name, in some countries, much less than a million is won. For example, in the Albanian and Kosovar versions of the show, the highest prize was 50,000 euros. A new season of the show is being broadcast in Bulgaria, where the main prize is 100 thousand levs, or 385 thousand kuna, and in Greece, as well as in neighbouring Slovenia, the top prize is 100 thousand euros.

For more on Croatian Eurozone accession, check out our lifestyle section.

Monday, 17 January 2022

Croatia to Display Prices Both in Kuna and Euro as of September 5

ZAGREB, 17 Jan 2022 - Prime Minister Andrej Plenković on Monday announced a dual display of prices in Croatia, both in kuna and in euro, from 5 September through the whole of 2023.

Plenković made the announcement at a press conference where he unveiled the bill proposing the adoption of the euro as legal tender in Croatia. He was accompanied by Finance Minister Zdravko Marić, Economy and Sustainable Development Minister Tomislav Ćorić, and Croatian National Bank (HNB) Governor Boris Vujčić.

The bill was put to public consultation today and the final proposal is expected to be sent to Parliament for a second reading in the second half of April.

The bill regulates the legal framework, the cash exchange, supplying all legal entities with euro, the loan and deposit conversion, and consumer protection from undue price increases.

Prices will be displayed in both kuna and euro as of 5 September to raise awareness of the euro even before its adoption, for which the target date has been set at 1 January 2023. The dual display of prices will continue throughout 2023.

Plenković said that citizens will be able to exchange kuna for euro at no cost to them at banks, the Croatian Post, and the Financial Agency (Fina) throughout next year, after which they will be able to do so at the Croatian National Bank free of charge too. He called on citizens to deposit any cash they have in banks so that the conversion can be done automatically.

The PM said that the aim is to ensure a smooth switch to the euro and the effective functioning of the economy.

He noted that this year the government would send to Parliament more than 70 proposals concerning the adoption of the euro, including the physical replacement of the national currency with the euro.

Plenković said that Croatia aspired to integrate with the European Union more deeply by joining the Schengen passport-free travel area and the euro area, and in that regard, relevant decisions would be made in the coming months.

He spoke of the steps that had been taken so far regarding the euro adoption and the reasons why Croatia wanted to join the euro area. He said that the Croatian economy is highly euroized, that 70 percent of tourism revenues come from citizens of euro-area countries, 60 percent of trade is generated with those countries, 70 percent of time savings deposits and nearly 60 percent of household and corporate loans are in euro or indexed to the euro.

Plenković said that the goal of euro area membership was included in government activities 20 years ago.

"What will be happening this year will be the culmination of the processes that have been systematically worked on in the last two decades," the prime minister said, announcing that the Council for Euro Adoption would meet before a cabinet meeting on Thursday.

For more, check out our dedicated politics section.

Saturday, 27 November 2021

80-100 Million Euro Costs for Croatian Banks to Switch to Euro

November the 27th, 2021 - Croatian banks will have a hefty sum on their hands as the country's Eurozone entry approaches. The costs of the transition alone are eye-watering.

As Poslovni Dnevnik/Jadranka Dozan writes, based on the Action Plan for the Adjustment of the Financial System to the Introduction of the Euro as the Official Currency, about a month ago the Croatian National Bank instructed commercial Croatian banks to prepare a simulation of the costs of adjusting to the euro.

Estimates of the expected effects on revenues and expenditures directly related to the adjustment process, from the beginning of this year to 12 months after the date of the introduction of the euro, must be submitted to the CNB by the end of this year.

According to the CNB's instructions, the simulation includes all points of the Action Plan related to the implementation of the conversion, the double reporting of prices, the notification of users and adjustments following the introduction of the euro.

Among other things, it should include all foreseeable costs of pre-supply, indirect pre-supply and the cost of additional processing and the transportation of cash and additional cash insurance in branches of Croatian banks, as well as all foreseeable costs related to changes in the operation of payment systems. In addition, Croatian banks are expected to calculate related to regulatory reporting requirements, but also with all the expected savings associated with the conversion.

On their behalf, the Croatian Association of Banks provided a rough estimate. "For the needs of the technical process of adjusting the banking system, one-time costs are estimated at between 80 and 100 million euros. In addition to the above, the turnover on the foreign exchange market of kuna/euro will stand at about one billion kuna per year,'' stated the director of HUB, Zdenko Adrovic. One-time costs related to the introduction of the euro, he says, are primarily related to the adjustment of information systems and ATM networks.

However, HUB emphasised that both Croatian banks and their clients will find it easier to manage any currency risk in the long run, which means that risks will generally be reduced, and the collectibility of placements will be higher on average than it would be if Croatia were to keep the kuna.

HUB also emphasised that the introduction of the euro is extremely important for increasing investment, financing conditions and long-term growth of the Croatian economy. They add that the technical introduction of the euro is a very complex process that requires intensive engagement and cooperation of all bank employees.

"Croatian banks will play an important role in the whole process, given that they'll adjust the software of their POS devices and digital services and the entire ATM network so that people have the opportunity to use all banking services and withdraw their cash from the moment the euro is introduced. In addition, banks will convert deposits and loans and inform their clients in a timely and detailed manner about all they need to know,'' they concluded.

In any case, despite the instructions of the CNB to Croatian banks, this year was largely marked by the preoccupation with the euro project and all of the related preparatory activities. Although the Government continues to insist on the "fast track" move, so the target date for entry into the Eurozone is still the 1st of January 2023 (the earliest possible date according to the rules related to ERM II), the exact date will be known only next year.

Whether it is the beginning, middle or end of the year, operational activities to replace the kuna require very careful coordination. This is especially true for IT system customisations, which also account for a large share of the aforementioned costs. Regarding technical and technological adjustments to the transition to the common European currency, it is enough to mention, for example, that the number of devices on which payment cards are accepted in Croatia exceeds 113 thousand.

Most of them, slightly less than 108 thousand, refer to EFTPOS devices for payments at points of sale, and despite the long-term trend of reducing the ATM network, there were almost 4900 ATMs at the beginning of this year. Like most other banks, Erste Bank says they're already working intensively on the euro adjustment process to prepare in time for the introduction of the new currency. In terms of costs, most of it relates to the IT segment.

For more, follow our politics section.

Saturday, 30 October 2021

Euro Introduction Referendum: 157 Thousand Signatures Collected in Zagreb

October 30, 2021 - Croatian authorities such as the President, the PM, the FinMin and the HNB have recently commented on the process of euro introduction. Meanwhile, a collection of signatures is being carried out throughout the country to promote a euro introduction referendum to reaffirm the kuna as the official currency in Croatia.

Marko Milanović Litre, Member of Parliament of the Croatian Sovereignists and a representative of the Organizing Committee of the euro introduction referendum initiative Let's Protect the Croatian Kuna, said in Zagreb today that 157,000 signatures had been collected in five days and that the organizers were satisfied with the collection dynamics, reports Index.hr.

The initiative for the euro introduction referendum was launched by the Croatian Sovereignists, the Croatian Party of Rights, the Independent for Croatia, and the Generation of Renewal, and by November 7 they should collect 368,867 valid signatures of citizens. 

Signatures are collected at 250 locations throughout the country, and citizens thus declare whether they are in favor of the provision in the Constitution that the currency of the Republic of Croatia is the kuna, which is divided into one hundred lipa, and that the decision to change the currency is made by voters in a referendum.

"In the first five days, thanks to our volunteers, members of the Croatian Party of Rights, and Croatian Sovereignists, we managed to collect 157,000 signatures by 5 pm yesterday'', Milanović Litre told a news conference at the place where signatures are collected in Zagreb's central square.

He expressed satisfaction with the dynamics of collecting signatures.

"At the moment, we are satisfied with the dynamics of collecting signatures, especially after the first day and the media presence we received. It is much clearer to people what we stand for and what our goal is with this referendum initiative, which is greater democracy in Croatia", Milanović Litre said.

He assessed that the ruling party is ignorant of their initiative and stated that Croatia has the right to decide at what point it will accept the euro.

"They can repeat their mantras that it has already been decided in a referendum on joining the EU, which is not true. That is half the truth. Croatia has the right to decide when to adopt the euro. It must not be a decree of one person and his interests, but the decision of the Croatian people to decide on their own destiny", Milanović Litre said, among other things.

"We will fight for the kuna to remain because we are currently in the biggest economic crisis in human history and we cannot rush into a new monetary union that will have its own interests'', said Croatian Sovereign MP Milanović Litre.

For more, check out our politics section.

Tuesday, 14 September 2021

Switching Kuna Cash for Euros - Time Limits Vary for Coins and Notes

September the 14th, 2021 - As Croatia prepares to adopt the euro as its national currency and send the kuna to the history books, just how much time do we actually have to switch any kuna cash to euros?

As Poslovni Dnevnik writes, last Friday, at a Eurogroup meeting in the Slovenian capital city of Ljubljana, a "Memorandum of Understanding" was signed between the European Central Bank, the Croatian National Bank and the European Commission. Tihomir Mavricek, Executive Director of the CNB's Cash Department, spoke about the bureaucratic phrase (memorandum of understanding) regarding the issuance and production of euro coins in Croatia on HRT's Studio 4 show.

Mavricek simplified the memorandum, why it is important and whether it means that Croatia can mint the euro itself.

The memorandum signed has its own symbolism and practical side. It is symbolic because it is the first official document signed between the three parties, and practical because it completes all of Croatia's preparations for accession to the Eurozone.

How much does it cost to mint the euro?

When asked who will do it in Croatia and how much it will cost, Mavricek said that it will be minted by the Croatian Monetary Institute.

''They've already started their preparations, and the real minting of euro banknotes is possible only after the Council of the European Union makes a decision on Croatia's accession to the Eurozone,'' said Mavricek.

''Based on the memorandum, we can make one million test pieces of each of the eight denominations of euro coins. We can test how ready we'd be to mint all the necessary quantities of euro coins after the Council's decision,'' he said, adding that the cost of making one euro coin costs about 10 cents on average.

Kuna cash and its storage

As for the storage of the Croatian kuna, which will soon be replaced by the euro, he said that since the beginning of the introduction of the kuna, the CNB has produced 2.8 billion pieces of kuna coins.

''If we lined them up next to each other and vertically, we'd get 4500 km of coins, which is from Zagreb to Riyadh in Saudi Arabia. They weigh about 10,000 tonnes. Based on the experience of other countries, we expect that about 35 percent of those coins will be returned, or 1.13 billion pieces. That's about 5200 tonnes, which corresponds to the weight of 124 new Zagreb trams. If a truck can load 20 tonnes of coins, we're talking about about 260 trucks of kuna coins,'' Mavricek illustrated.

He said that there would be fewer euro coins, but not because of the exchange rate or the ratio of approximately 7.5: 1.

''There's a conversion methodology developed by the European Monetary Institute, which is based on the fact that we have the same number of coins and banknotes as we had for our national currency. According to the budget formula, we'll get approximately the same number of coins and banknotes, but it will still be a little less,'' Mavricek explained.

He added that according to information from the Deutsche Bundesbank, a huge amount of German marks remained everywhere, and still do. According to some estimates, it amounts to almost 6 billion marks. Even today, stamps can be converted into euros.

''The CNB is preparing for the safe storage of both kuna cash (banknotes) and coins. Banknote issues have already been resolved, and for coins it is currently being resolved. It will be in a safe location that will be guarded non-stop,'' Mavricek said.

Deadlines for exchange of kuna cash and coins

-''Unlike kuna banknotes that will be exchanged for euros indefinitely, kuna coins will only be able to be exchanged for a period of three years. The first year will see all banks take responsibility for that, and then the following two will be dealt with solely by the CNB,'' Mavricek explained, adding that the returned kuna cash will be stored on an area of ​​about 2,000 m2.

He believes that minting euros in Croatia will be cheaper than having them done for the country elsewhere and by someone else.

For more, check out our dedicated lifestyle section.

Sunday, 20 June 2021

Croatian National Bank Pumps 900 Million Kuna into System

June the 20th, 2021 - The Croatian National Bank (CNB/HNB) has pumped a huge amount into the system for the second time since this year began as the economic situation globally continues to be rocky.

As Poslovni Dnevnik/Ana Blaskovic writes, for the second time this year, the Croatian National Bank has needed to intervene in the foreign exchange market to correct the exchange rate of the domestic currency (kuna) against the euro.

The central bank bought 120 million euros from commercial banks on Wednesday at an average exchange rate of 7.497346, pumping 900 million kuna back into the Croatian financial system.

Although there were no significant slips to speak of in the market before, the supply of the banking sector slightly pulled the exchange rate from 7,488 down to 7,485, but after a continuous appreciation in the previous month, the Croatian National Bank, as the regulator, decided to intervene and make the move.

While the second intervention this year resulted in the ''printing'' of Croatian kuna, when the previous such intervention took place back in April, the Croatian National Bank made a withdrawal from the system. With the sale of 190 million euros to banks, around 1.44 billion kuna in total was withdrawn, which stabilised the exchange rate back then at the level of 7.570405 kuna.

On Thursday, the middle exchange rate of the euro on the exchange rate list of the Croatian National Bank (which has been applied since Friday) reached 7.484807 kuna. When we last saw these levels, it was mid-August last year at the very peak of the tourist season, which ended very abruptly shortly after when Croatia unfortunately ende up being placed on the red lists of most countries from which the tourists were typically arriving here from.

This year, a better yet still wobbly summer season is expected than last year, and with it the inflow of euros, which will, as every year at that time, push the kuna exchange rate down. It should be noted that by joining the exchange rate mechanism, Croatia undertook to keep the exchange rate in the range of +/- 15 percent around the central parity of 7.53450.

For more, follow our business section.

Thursday, 8 April 2021

Zagreb Stock Exchange Indices, Turnover Up

ZAGREB, 8 April, 2021 - The Zagreb Stock Exchange (ZSE) indices on Thursday continued rising and the stock market saw a turnover of HRK 12.5 million, of which HRK 6.2 million was generated by a block transaction with Atlantic Group shares.

The Crobex rose by 0.35% to 1,887.88 points and the Crobex10 by 0.21% to 1,185.88 points.

The main indices rose for the second consecutive day, reaching their new highest levels since the end of February 2020.

Regular trading amounted to HRK 6.3 million, 2.8 million more than on Wednesday.

Another 6.2 million was generated in a block transaction with Atlantic Group shares.

Only the HT telecom operator turned over more than one million kuna in regular trading, around 1.02 million, with the price of its shares falling by 0.26% to HRK 193.

(€1 = HRK 7.567065)

For more about business in Croatia, follow TCN's dedicated page.

 

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