Czech Republic Conversion to the Euro - Essay Example

Introduction to 'Euro' For the past many years, Dollar symbolized as '$', had been the king of all other currencies. Its impact on the share market had been tremendous and incredibly strong. Investments in dollars have been a tradition. Wages were preferred to be in dollars. This is because dollar had no competitor. Speaking in monetary terms, no other currency could match up the strength and value of a dollar. People felt dollar was the only currency for their benefits and necessity. In the recent years it has been discovered that Euro, symbolized as '', poses a strong competition to dollar. It is the second largest currency after dollar. Euro is the official currency of European Union (EU). Out of 27, 16 members of the EU have Euro as its currency. Euro is also abbreviated as 'EUR'. History of Euro The name 'Euro' was first adopted on 16th December, 1995 and it was officially introduced in the global financial markets on 1st January, 1999. Its circulation in financial markets began on 1st January, 2002. In November 2008, it crossed the dollar revenue with an amount of 751 billion and became the highest currency being circulated and was widely used all around the globe. Countries with 'Euro' Currency As mentioned earlier, 16 states of EU have Euro as their official currency namely- Austria, Belgium, Netherlands, Malta, Slovakia, Finland, France, Germany, Greece, Ireland, Luxembourg, Italy, Portugal, Slovenia and Spain. All these states collectively form the 'Eurozone' as known to the world today. Some other countries are also focusing on converting their official currencies to Euro. One state, which is of major concern today, is the Czech Republic. The Czech Republic The Czech Republic is a small progressing country situated in the mid-Europe with a population of 10.2 Million. Prague is its capital. It was first a part of Czechoslovak Federation in 1989 and was a place for tourists with rich culture, history and traditions. After many years of development, it became a member of EU on 1st May, 2004. The Czech Economy Since the whole world is going through the period of recession, the economy is being tremendously affected. The economy of Czech Republic, more of a struggling state, is totally dependent upon the development of the Western Europe for the next two years according to the latest poll published by the Czech News Agency. Investments in property have been greatly reduced. Thousands of advertisements for selling properties are seen in newspapers daily. Negotiations with the Czech National Bank (CNB) to lower the interest rate by 1.5 percent are in process so as to lessen the impact and stress on economy. Czech Republic: Importance of Euro Adoption Since Euro is the second largest currency distributed and used worldwide, following points will emphasize on how beneficial it will be to Czech to adopt Euro as its official currency. Minimizing Transaction Costs: - People in Czech, with 'Koruna' (CZK) as their currency, have to first convert their currency to dollar to pay their bills. The latest conversion rate is 1.00 CZK = 0.0499510 USD. Banks and exchange companies charge an extra amount for this conversion. Euro, if adopted as the national currency in EU, will definitely minimize such transaction costs leading the Czech economy to progress. Eliminating Exchange Rates: - Since, conversion from one currency to other in between European states will be eradicated on the adoption of Euro, the exchange rates will no longer affect the economy and the risks for the appreciating or depreciating currency will also be eliminated. Increasing Competition: - Transparency refers to knowing and seeing much of something; a product, price or service. Euro is transparent and will benefit the consumers to understand what they actually need and how much by paying fewer prices for products and services. It will also increase the wages thereby creating competition among the European states with Euro as their national currency. Capital Distribution: - All the European states including Czech Republic will have a fair allocation of capital in financial markets. Strong Currency leads to strong economy: - Euro will make the Czech economy stronger as it is the second strongest currency in the world after Dollar (US). Strategies for converting 'Koruna' to 'Euro' Following strategies should be adopted by the Czech Republic to convert Koruna to Euro. Conduct an information campaign so as to acknowledge the people about the Euro introduction on the right place and on right time. Assure them that the economy will rise and the country will progress. Run alert programs, advertisements on TV for more awareness. Conversion plan should be made. Conversion rates and costs from Koruna to Euro should be estimated keeping in view the prices, income, pension and other liabilities. Target a date to Euro introduction in terms of handling cash, ATM withdrawals, money circulations, bank accounts etc. Collect relevant data for conversions on a long term basis i.e. which can give predictions for the next 4-5 years. It should be processed through updated cost estimation systems. Czech National Bank, the Ministry of Finance and the other financial bodies should decide on the shapes, colors and designs of coins, notes etc. All the partners linked to this conversion should discuss new logos, slogans and secured monetary policies for Euro. Start with Dual circulation so that the people feel that Euro is no different from Koruna but is a refined form of it i.e. more strong economically. Future Work and Conclusion The Czech Republic government first decided the introduction of Euro in 2009. But due to the stressed circumstances all around the world, it has been reported by the Czech News agency that the plan of introducing Euro as the national currency of the Czech Republic has been postponed until 2012. For this, CNB has time to work on its monetary policies. It also plans to research more on the European framework to improve the economic situation of the Czech Republic. References "CNB economic research 2007-2012." CNB, Czech National Bank. 1 May 2009 . "Communication strategy on Euro introduction in Slovakia." Oct. 2007. National Bank of Slovakia. 1 May 2009 . "Czech Economy in 2009 Dependent on Europe." Homesgofast.com. 1 May 2009 . Antweiler, Werner. "The EURO, Europe's New Currency." 7 Dec. 2001. 1 May 2009 . "How much do you know about the Czech Republic" Globalgateway. 1 May 2009 . Read More