Costs of common currency

1. Loss of sovereign monetary policy and loss of exchange-rate policy

The central bank may exercise the use of instruments of monetary policy

to help the economy to cope with internal and external activities that may influence
economicenvironment and performance of the country economy.

A decrease in interest rates stimulates the growth of economy through increased investment due
to lower cost of capital. Also it is noticed that, through higher demand resulting the lowering of
savings and higher use of credits by households.

Depreciation of currency for a short run increase competitiveness of domestic exporters on

foreign markets

When we adopt common currency, we will lose exchange-rate policy completely, since there
will no longer theexistence of the use of home currency.

Loss of sovereign monetary policy and loss of exchange-rate policy will be an

immediate and permanent diminishing cost for the country economy.

2. Reduction of commission incomes

Banks receive incomes on foreign exchange operations in the form of inter-bank spotand forward
foreign exchange transactions.

By the introduction of common currency commission incomes will be reduced because

transaction commission incomes will be lost completely.

3. Increase of inflation

Inflation can increase due tothe introduction of common currency through two channels. The
first channel being

roundingprices up when expressed in common currency and misuse of new prices environment
by
enterprises leading to setting-up prices in common curency at higher level than would
correspond just

to prices rounded up. The second channel is the real convergence process wheneconomic
development, standard of living, wages as well as prices in the country may gradually converge
to the countries that use common currency.

4. Impact on savings and pensions

Savings of all Nations that were formally use their home currency will be converted into
common currency through the sameconversion rate as any other assets. From this fact there is no
danger of losingsavings just due to common currency conversion. However, during the process
of real convergenceafter introduction of common currency it is expected that debts and liabilities
willdepreciate because of the higher inflationary situation which will actually reduce real
interestrates on savings which may be termed as debts and liabilities reduction.

5. Software adaptation, administrative and technical adjustment expenses

Financial institutions and public sector institutions will then try to cop by adjust their

Software program on financial operations for the purpose ofworking with currencies for the
period of about half a year

before the introduction of common currency . The

bank statements, statements on pension schemes, social security benefits will

have to present amounts in home currencies. All prices will have to be presented in those

currencies.

Companies have to accept and store two currencies during that period

and will have to provide training to their employees on how to handle the new currency and new

software application. The government will supply information campaign related to the
introduction of common currency.

Also it is expected that government will inform people two years before common currency
adoption, which will be focused on these
target groups and will advise them to buy software compatible with common currency.