Our exchange rate was 7.5345, so it wasn't that easy to convert kuna to euro by heart. This is shared for the DIGI PAY blog by Ivana Rosancic, a business development consultant at the successful Croatian financial company KOIOS. The goals were to prevent exploitation through unjustified price increases and to prevent businesses from excessively rounding prices during the transition. In my opinion, this was not fully achieved, she commented. What else did she admit about Croatia's experience and the steps they went through?

Dual pricing was introduced 3 months before the adoption date

Dual pricing in Croatia was introduced 3 months before the euro adoption date and continued for the entire year after that. This helped build trust by allowing consumers to familiarize themselves with the new currency and avoid confusion. People could easily compare prices, which was very useful in everyday life and shopping.

The government tried to closely monitor prices and imposed regulations against unjustified prices, but inflation, largely driven by global factors such as energy prices, was also a big part of it. Despite efforts, some price increases were attributed to the euro changeover, leading to a psychological feeling of higher inflation, even when actual inflation levels remained stable. One example was when people started tipping more in restaurants and bars. We had the filler when the kuna was the currency, but now these are just cents or small amounts in euros, but when converted to kuna, for most people, it's more than they had left before the conversion.

Croatia maintained strict control over public finances, reducing the budget deficit and managing public debt levels, which helped control inflationary pressures. The government implemented structural reforms aimed at improving economic competitiveness, which contributed to stabilizing prices. Croatia aligned its policies with the guidelines of the European Central Bank, ensuring that inflation remained close to the EU average, as required by the Maastricht criteria. However, inflation affected the euro adoption process in Croatia, and there was no clear distinction between which increases were influenced by the euro conversion and which price increases were influenced by inflation. Globally, price increases were significant.

The largest amount Croatia could convert without identification was 2000 euros

During the euro adoption process in Croatia, the largest amount of kuna that could be converted to euros without requiring any form of identification was 15,000 kuna (approximately 2000 euros). For amounts over 105,000 kuna (approximately 14,000 euros), individuals had to provide documentation proving the legal origin of the funds. After the euro adoption date, this amount became 10,000 euros. Businesses tried to manipulate prices under the guise of conversion, leading to unjustified price increases. This led to complaints and regulatory actions. There were concerns about the spread of counterfeit euros during the early stages of the transition, which necessitated public education on recognizing genuine currency.

The biggest challenge – good organization

The biggest challenge was how to conduct a sufficiently good analysis to organize the euro adoption project and any other tasks that followed the euro adoption. Another challenge was prioritization. The most important were the changes visible to the customer. No mistakes were allowed there. Some systems were even rejected due to lack of support. Another thing was how to raise awareness about the euro adoption process and positive thinking among people.

Preparation and organization are most important. Also, cooperation between banks and the national bank. This was not a race to be first; it was a change of experience and knowledge. In Croatia, banks were heavily involved in the law adoption process. They cooperated, read the law proposals, and gave their opinions. The Croatian National Bank was deeply involved in the euro adoption process in banks, set an exact number of testing environments and testing cycles, and requested reports on the testing process. Additionally, banks communicated with each other regarding regulatory accountability. KOIOS was in a great position here because we were in all major banks and could share knowledge and experience among ourselves.

Regarding corporate clients, banks provided advance cash in euros. The goal was that after the euro adoption date, all corporate clients would return only euros to their clients. Also, banks supported corporate clients with additional support to facilitate the process for them and their clients. The Croatian government and the Croatian National Bank undertook comprehensive legislative and regulatory reforms to facilitate the transition to the euro. These changes covered various sectors, including currency laws, taxation, accounting, consumer protection, and financial regulations. In my opinion, they could have done more for the adoption of the new currency because some people still did not have full confidence in the process and feared price increases.

Regarding e-commerce fraud, I think the most important thing is to shop from trusted websites. Croatia was flooded with sites like outlet-nike-croatia or something similar, with unrealistically low prices. It is very important to check the websites where you spend your money. Another thing is that during the dual pricing timeframe, carefully check which currency you are looking at. Please use secure payment methods with fraud protection. Be aware of phishing, do not click on suspicious links, and do not provide personal information through unsolicited emails or messages. Monitor bank statements and credit card statements and enable notifications for every purchase.

Currency conversion provides an opportunity to conceal the origin of illegal funds

Criminals can convert large sums of money into different currencies to break the audit trail, making it difficult for authorities to trace the source of the funds. They can also split large sums of illegal money into smaller amounts below reporting thresholds to avoid detection. These smaller amounts can then be converted into another currency and consolidated later. In the currency conversion process, strict regulations, vigilant monitoring, and robust anti-money laundering (AML) measures are necessary to protect the financial system.

In Croatia, it was common to keep saved money in mattresses. There were many complaints about the conversion limits, but in my opinion, it was necessary. Financial institutions are required to conduct enhanced due diligence on high-risk transactions, including large or unusual currency conversions. Educating the public about potential fraud and the importance of reporting suspicious activities can help reduce the risk of money laundering during currency conversion.

In this regard, I think AMLA (Anti-Money Laundering Authority) in Frankfurt will be a key component in protecting EU citizens against illegal money flows and terrorist financing.

Countries like Bulgaria and Croatia on the grey list should implement additional protective measures

Countries like Bulgaria and Croatia, which are on the FATF grey list, should implement additional measures to protect their financial systems. Tracking the origin of money and paying taxes should be normal and customary. A big step in Croatia was the fiscalization of receipts. This was not only for tax purposes but also a big step towards transparency and tracking cash flow. People living in countries on the FATF grey list should be aware that transparency and system organization are key to their safety and the safety of their children.

Use this process to make systems as flexible as possible

For everything that can be done in advance, start preparing as soon as possible. The key is cooperation between the banks themselves and also between the banks and your national bank. The national bank should be a key player in preparing regulations and steps and monitoring processes in banks. Additionally, you have one huge advantage that we did not have. You have our experience, which is very recent, and the memories are still fresh!

We know small details that can make the process easier for you, and we can also help with issues you are currently facing with our experience and knowledge. It is not the same, but it is very similar.

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