Focus on Central, Eastern and South-Eastern Europe
Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 10: The Euro as a Safe Haven Asset in Central, Eastern and South-Eastern Europe
10. The euro as a safe haven asset in Central, Eastern and SouthEastern Europe Helmut Stix1 INTRODUCTION 10.1 The ownership and use of financial assets denominated in foreign currency is considered to be a widespread phenomenon in some countries of Central and Eastern Europe (CEE) and South-Eastern Europe (SEE). In light of this fact, we analyse whether euro-denominated financial assets have been used as safe haven assets in this region.2 Why is this question important? Per se, de facto euroization has significant implications for economic policy – to name some examples: it constrains the effectiveness of monetary policy through the interest rate channel; it has implications on the choice of an exchange rate regime; it affects the extent of the pass-through of exchange rate movements on inflation through indexation; balance sheet mismatches might impair on monetary stability. From a fiscal policy perspective direct implications arise as the existence of substantial foreign currency cash balances has an impact on the size of unrecorded transactions and hence tax revenues, notwithstanding the fact that seigniorage revenues are lowered. While these problems are already significant in normal times, they are magnified in times of heightened uncertainty if agents tend to shift their financial portfolios towards save haven (foreign currency-denominated) assets. For this reason, it is very important to unveil the extent of euroization and the various dimensions associated with it. This will help to better understand how monetary policy can best be conducted, how the financial crisis has affected the extent of euroization and how...
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