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Latvia Joining Eurozone
Latvia Joining Eurozone
Latvia Joining Eurozone
Contents
Terms of Reference................................................................................................................2
Acknowledgments..................................................................................................................2
Introduction............................................................................................................................2
The Eurozone and the Euro....................................................................................................2
History of the Euro.............................................................................................................2
The Eurozone.....................................................................................................................3
Introduction of Euro in Latvia................................................................................................4
History of introducing the Euro.........................................................................................4
The Euro implementation scenario....................................................................................4
Conversion.........................................................................................................................4
Stages of Euro introduction scenario.................................................................................5
Latvian Euro Coin Design......................................................................................................6
Positive effects of the Euro Changeover................................................................................7
Latvia and the Euro Zone...................................................................................................7
The Euro and the Latvias Credit Rating............................................................................8
The Euro and GDP.............................................................................................................8
Financial stability in the euro area.....................................................................................8
Negative effects of the Euro Changeover..............................................................................9
The Euro Changeover Costs...............................................................................................9
Prices..................................................................................................................................9
Societys Sentimentalism...................................................................................................9
Conclusions..........................................................................................................................10
References............................................................................................................................11
Bibliography.........................................................................................................................11
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Terms of Reference
Main aim of this project is to analyse factors that affect country and its citizens due to
currency change
Acknowledgments
I would like to say thank you to my lecturer- Karen Guest and fellow students for all help they have
showed through the project writing process.
Introduction
Latvian history of the 20th century has been difficult. Collapse of the Soviet Union in 1991 resulted of
command economy, the trade deficit and other forms of discontent. But the Independent Republic of
Latvia was established and country gradually began to develop.
In November 1, 1993 the European Union was formed and has resulted in the establishment of the euro
area and its single currency - Euro, which connects many European Union countries for trade, business
and banking operations as well as for everyday life.
In July, 2013 the European Union finance ministers officially approved Latvia as the 18th member of euro
zone as of January 1st, 2014.
The main purpose of this project is to explore the European Union, the euro area's history and its single
currency- Euro, as well as to discuss the positive and negative effects of the euro changeover in Latvia.
Renunciation from Latvias current currency - Lats will be historically important step for a country.
Therefore in this project I will also look at the reasons why Lat is more than just a medium of exchange
for its citizens.
Two countries - Denmark and UK chose to use the Maastricht Treaty opt-out clause and decided not to
adopt the euro. The remaining countries (most of the new member states, and Sweden) have yet to
complete several rules to adopt the euro.
The Eurozone
The euro area (also known as the Eurozone) consists of those European Union countries which have
adopted the euro as their currency. The euro area was established in 1999 and it currently includes 17
member states.
The rest of EU countries will have to join the euro area after they meet the criteria set. The exception is
Denmark, UK and Sweden. The first two has agreement that allows for the option of joining the euro
zone, but Sweden does not fulfil needed requirements. However, the above-mentioned three countries
operate within European Central Bank's (ECB) framework.
The ECB is responsible for the Eurozones monetary policy. One of its main responsibilities is to maintain
price stability in the euro area in order to avoid risks of inflation that could lead to a decline in purchasing
power of the euro. To accomplish this purpose the ECB controls the money supply and monitors price
trends.
Expression- Eurozone informally can be extended to those countries which have independently introduced the euro,
such as Montenegro. Three European microstates - Monaco, San Marino and Vatican City have entered into an
agreement with the European Union. The Euro in these countries has become the only method of payment. This
arrangement allows the countries to mint their own euro coins. However, the framework agreement does not mean
that the country is part of the Eurozone.
(Table 1)
Page 3
The euro changeover will take place at the current exchange rate of the Bank of Latvia: 1 EUR =
0.702804 LVL.
Money on bank account will be automatically exchanged on the night of January 1, 2014 at the
official exchange rate and free of charge.
Exchange of cash Lats to the Euro will be available at banks free of charge from January 01 until
June 30, 2013 in unlimited amounts.
The Bank of Latvia will exchange lats for euros at the official exchange rate free of charge for an
unlimited period of time.
(TKB, 2013)
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(Table 2)
Page 5
(Table 3)
(Table 4)
Key changeover dates at a glance
Date
Frontloading of coins starts on
1 November 2013
10 December 2013
1 November 2013
10 December 2013
10 December 2013
1 January 2014
End of the dual circulation period of the lats and the euro
14 January 2014
15 January 2014
31 March 2014
30 June 2014
No deadline
(ECB, 2013)
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0.01
0.02
0.05
0.10
0.20
0.50
1.00
2.00
2 (side engraving)
(Table 5)
(Ministry of Finance of the Republic of Latvia, 2013)
Not only businesses will benefit from Euro changeover but also society as a whole. During the economic
crisis Latvia lost a lot of its capital. One of the reasons was the public and trade companies concerns about
the possible losses that would arise in case of devaluation of Lat. Therefore money that could have been
invested in Latvian economy- was invested elsewhere.
After joining Eurozone concerns about currency devaluation will disappear, thus improving the
investment environment in Latvia.
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Conclusions
The establishment of European Union has created cooperation and solidarity between European
countries, new infrastructure and employment.
EU resulted with the establishment of the EEC, which is providing economic stability across the
euro area.
To join the euro area, certain criteria has to be met, which also includes the Maastricht Treaty.
Euro zone is affected by the stability of the euro, which is supervised by the ECB.
When Latvia joined EU it was also supporting euro adoption.
Euro changeover process in Latvia is overlooked by the Euro Project Steering Committee.
Implementation of the Europes single currency cannot be assessed unambiguously. It has both its
advantages and disadvantages; however Latvias Euro Changeover has more positive than negative
effects.
One of the issues introducing the euro in Latvia is societys sentimental feelings about Lats.
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References
Bibliography
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http://www.focus.lv/latvija/viedokli/parejot-uz-eiro-latu-tik-atri-neaizmirsisim. [Accessed:
20/10/2013].
JSC Trasta Komercbanka. (2013). Euro Introduction in Latvia. Available from:
http://www.tkb.lv/en/tools/euroinLatvia/. [Accessed: 15/10/2013].
ECB. (2013). CASH CHANGEOVERS BY COUNTRY. Available from: http://www.new-eurobanknotes.eu/Cash-Changeovers. [Accessed: 20/10/2013].
The European Central Bank (ECB) . (2013). Address By Mario Draghi at the Euro ConferenCe
Latvia. Available from: http://www.new-euro-banknotes.eu/News-Events/Press/SPEECHESINTERVIEWS/ADDRESS-BY-MARIO-DRAGHI-AT-THE-EURO-CONFERENCE-LATVIA.
[Accessed: 20/10/2013].
Steve Schifferes, BBC News. (28/02/2002). Euro changeover complete. Available from:
http://news.bbc.co.uk/2/hi/business/1845045.stm. [Accessed: 20/10/2013].State JSC "Mortgage
and Land bank of Latvia. (2013). Euro. Available from: http://www.hipo.lv/lv/eiro. [Accessed:
20/10/2013].
SIA Sanoma Latvia. (11/07/2013). Uzsver neatgriezeniski fikst prejas kursa no lata uz eiro
nozmi. Available from: http://www.apollo.lv/zinas/uzsver-neatgriezeniski-fikseta-parejas-kursano-lata-uz-eiro-nozimi/576520. [Accessed: 2/10/2013].
Bank of Latvia. (16/07/2013). Praktiski apsvrumi saistb ar lata/eiro prejas kursu. Available
from: http://www.bank.lv/es-un-eiro/publikacijas/eiro-ieviesana/praktiski-apsverumi-saistiba-arlata/eiro-parejas-kursu. [Accessed: 10/10/2013].
Bank of Latvia. (31/07/2013). Skta Latvijas eiro montu kalana. Available from:
http://www.bank.lv/presei/preses-pazinojumi/sakta-latvijas-eiro-monetu-kalsana/8649.
[Accessed: 10/10/2013].
SIA Sanoma Latvia. (17/10/2013). Bankas eirozon kredits vairk, liecina ptjums. Available
from: http://www.apollo.lv/zinas/bankas-eirozona-kredites-vairak-liecina-petijums/616782?
utm_source=apollo&utm_medium=article&utm_campaign=theme. [Accessed: 22/10/2013].
SIA Sanoma Latvia. (30/10/2013). Vairk nek puse uzmju atbalsta lata preju uz eiro.
Available from: http://www.apollo.lv/zinas/vairak-neka-puse-uznemeju-atbalsta-lata-pareju-uzeiro/618928?utm_source=apollo&utm_medium=article&utm_campaign=theme. [Accessed:
1/11/2013].
ECB. (2013). Latvia (as of 1 January 2014). Available from:
http://www.ecb.europa.eu/euro/changeover/latvia/html/index.en.html. [Accessed: 10/10/2013].
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