On July 12, 2022, the Council of the European Union adopted legislation that will enable Croatia to begin replacing its national currency, the kuna (HRK), with the euro (€) on January 1, 2023, and become the 20th member of the euro area. Previously, as part of the decision-making process, the Eurogroup endorsed the positive assessment of the European Commission and European Central Bank and agreed that Croatia had fulfilled all necessary economic convergence criteria. The Council’s decision was also based on a favorable vote by the European Parliament.
The final set conversion rate — €1 = HRK 7.53450 — is aligned with the rate of the kuna in the European Exchange Rate Mechanism (ERM II).
In May 2022, Croatia enacted the Law on the Introduction of the Euro as the Official Currency in the Republic of Croatia (NN 57/2022), which was an important step toward preparing its financial market for this change. The passing of the law wasn’t unanimous (117 Parliament members voted for, 13 voted against, and one abstained), with the opposition expressing concern that the introduction of the euro would increase poverty and contribute to the current inflation.
Dual Circulation and Display of Prices
The period of January 1–14, 2023, will be a period of dual circulation, where payers will be allowed to make cash payments in stores with a combination of kune and euros, while the payee will be required to provide change in euros. Only in cases involving insufficient euro funds will payees be allowed to provide change in kune.
Starting on September 5, 2022, and continuing through 2023, prices will be displayed in both kune and euros. The legislator sees this as a means of protecting citizens during the process of shifting the whole market solely to euros. All business entities would have to display both prices clearly and noticeably, and the prices would have to be in line with the established exchange rate. Requiring the dual display of prices will extend to invoices; price tags at the point of sale; price lists of goods and services, including those on websites; offers of contracts on a durable medium; and any form of advertising.
The May 2022 law introducing the euro as the official currency forbids business entities to increase the price of goods or services without a justified reason, though it does not provide a penalty for unjustified price increases. Nor does the law enforce stricter control over business entities to prevent them from increasing their prices under the excuse of converting to euros. Such price increases were among the reasons some Croatian political parties opposed the use of the euro. The law does, however, provide for penalties for entities that do not follow the procedures established for converting kune to euros, including a fine of €2,650–€13,270 (about US$2,710–$13,650) for entities not displaying both prices clearly and noticeably according to the fixed exchange rate during the dual period.
Preparing the Market for Change
The exchange of kune for euros by individuals at a fixed exchange rate will be possible in all commercial banks, branches of the Financial Agency, and Croatian post offices through December 31, 2023. Citizens will be able to exchange free of charge 100 kune banknotes and 100 kune coins of any denomination per transaction. An additional fee will be charged for exchanging a larger quantity of banknotes or coins. In 2024 and 2025, the exchange of kune for euros free of charge will be possible only in the Croatian National Bank.
The Republic of Croatia became an EU member in 2013. EU membership requires all member states to introduce the euro once they fulfill the euro convergence criteria under the Maastricht Treaty (only Denmark exercised the right to opt out of this obligation). The European Central Bank also assessed the progress made by the six other EU countries besides Croatia that haven’t yet adopted the single currency, concluding that Bulgaria, the Czech Republic, Hungary, Poland, Romania, and Sweden had made “limited progress” since the last convergence report in 2020.
In the official report of the European Commission, president Ursula von der Leyen stated: “[Croatia’s joining the euro area] will make Croatia’s economy stronger, bringing benefits to its citizens, businesses and society at large. Croatia’s adoption of the euro will also make the euro stronger.”
Prepared by Milica Škaro, Law Library intern, under the supervision of Peter Roudik, Assistant Law Librarian for Legal Research