Montenegro and the euro

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Eurozone participation
European Union member states
(special territories not shown)
  20 in the eurozone
  1 in ERM II, without an opt-out (Bulgaria)
  1 in ERM II, with an opt-out (Denmark)
  5 not in ERM II, but obliged to join the eurozone on meeting the convergence criteria (Czech Republic, Hungary, Poland, Romania, and Sweden)
Non–EU member states
  4 using the euro with a monetary agreement (Andorra, Monaco, San Marino, and Vatican City)
  2 using the euro unilaterally (Kosovo and Montenegro)

Montenegro is a country in South-Eastern Europe, which is neither a member of the European Union (EU) nor the Eurozone; it does not have a formal monetary agreement with the EU either. However, it is one of the two territories (along with Kosovo) that has unilaterally adopted the euro[a] in 2002 as its de facto domestic currency.[1] This means that even though the euro is not a legal tender there, it is treated as such by the government and the population.[2][better source needed]


In the early 20th century, during the short-lived Kingdom of Montenegro, the government introduced the Montenegrin perper from 1906 to 1918. However, other foreign currencies were used in parallel, such as the Austrian krone.[3] From 1922 to 1941, as part of the Kingdom of Serbs, Croats, and Slovenes, later known as the Kingdom of Yugoslavia, Montenegro used the country's official currency, the Yugoslav dinar.[3]

Yugoslav Dinar[edit]

5000 dinar banknote (1985)

After Montenegro became a part of the Socialist Federal Republic of Yugoslavia following World War II, it was bound to Yugoslav monetary policy and used the Yugoslav dinar as its official currency until 1999.[4] After the disintegration of the SFRY, in 1992 the former member republics – Montenegro and Serbia formed the Federal Republic of Yugoslavia. In the new country, the monetary system was re-centralized, wherein the National Bank of Montenegro lost its autonomy and became a regional office of the National Bank of Yugoslavia headquartered in Belgrade.[5]

A high level of monetary and financial centralisation was established, which was easy to be manipulated and which enabled many misuses due to the nonexistence of any legal state and financial discipline, and this resulted in hyperinflation in the period 1992–94.[6] After the crash of the common market and simultaneous outbreaks of war in two former Yugoslav republics, the monthly inflation rate in Serbia and Montenegro was 50% in February 1992, reaching 100% in June the same year.[6] This caused severe and prolonged hyperinflation, one of the worst and longest in history, which has led to a devastation of the region.[7] The Yugoslav dinar has been considered one of the worst-performing currencies of the world.[8]

Deutsche Mark[edit]

A 100 Mark banknote

At the beginning of 1999, the government started looking for a way to protect economic interests of Montenegro and its monetary independence.[9] The government established a dual currency system, in which both the dinar and Deutsche Mark would be used. The decision for that was mainly driven by an unstable, expansionary monetary policy stance of the National Bank of Yugoslavia.[10][11]

The introduction of dollarization, as well as the improvement of the situation in the monetary, financial and banking sectors of Montenegro resulted in increasing citizensʼ confidence in the new monetary regime.[5] Since January 2001 the country decided to take the Deutsche Mark as a sole legal tender,[12] because a sufficient amount of Deutsche Mark were in circulation, and for this reason there was no need to use the Dinar as the national currency.[12]


Euro coins and banknotes of various denominations

On 1 January 2002 the euro notes and coins were officially introduced into circulation in many European countries, including Germany, where the Deutsche Mark used to be the official currency.[13] Thus the Deutsche Mark ceased to be legal tender immediately upon the adoption of the euro. Following these events in the beginning of 2002 Montenegro made the decision to officially and unilaterally adopt the euro, first as a parallel legal tender to the Deutsche Mark, and since March 2002 as the only legal tender.[14] The main motives were the same as before – to ensure monetary stability and to continue to avoid the high/hyper inflation seen in preceding decades.[15] To date there are no official ties or agreements between Montenegro and the European Central Bank approving the use of the euro as an official currency.


Unlike the members of the Eurozone, Montenegro has no authority to mint euro coins of its own and therefore does not have its own national side of the coins in use. Rather, they depend on bills and coins already in circulation.

Eurozone countries have a common reverse, portraying a map of Europe, but have their own design on the obverse, which means that each coin has a variety of different designs in circulation at once. Four European microstates (Andorra, Monaco, San Marino, and Vatican City)[b][16] which use the euro as their currency also have the right to mint coins with their own designs on the obverse side.[17]

The EU position[edit]

When Montenegro started using the euro as a national currency, the European Central Bank (ECB) initially did not object to this step.[18] Since then, however, the European Commission and the ECB have expressed dissatisfaction with Montenegro's unilateral use of the euro, with European Commission spokesperson Amelia Torres saying in 2007 that "The conditions for the adoption of the euro are clear. That means, first and foremost, to be a member of the EU."[19] Also in the Declaration attached to the Stabilisation and Association Agreement with the EU is written that: "unilateral introduction of the euro is not compatible with the Treaty." Despite Montenegro becoming a candidate in 2010,[20] the European Union continued to question of Montenegro’s use of the euro.[21] The use was eventually acknowledged by the European Commission through a specific approach, which took into consideration that euroisation happened due to “extraordinary circumstances” present in the country when the euro was introduced.[22] As a result of that, Montenegro still continues to use the euro currency as its legal tender and hopes to join the European Union as soon as possible.[citation needed]

Montenegrin position[edit]

Central Bank of Montenegro officials have indicated on several occasions that the European institutions expect Montenegro to adhere very strictly to ERM rules, as a part of the accession procedures to the European Union.[23] In 2009 Nikola Fabris, chief economist of the Central Bank of Montenegro, noted that the situation was different when the euro was adopted by Montenegro, and that other states that have considered unilaterally adopting the euro, such Bosnia and Herzegovina, would face sanctions from the EU including suspending their accession process.[23]

The dispute regarding the use of the euro was expected to be resolved by analysts during the accession negotiations.[24] Diplomats have indicated it is unlikely Montenegro will be forced to stop the circulation of the euro.[18] In 2013 Radoje Zugi, the finance minister of Montenegro, stated "it would be economically irrational to return to a currency of your own, only to be back in the euro later".[25] Instead, he hopes that Montenegro will be allowed to keep the euro, and he promised "the government of Montenegro will meet some important conditions to keep the euro, such as fiscal compliance".

Current status[edit]

In 2007 Montenegro signed a Stabilization and Association Agreement with the European Union,[26] then submitted its application for membership in December 2008 and finally obtained the status of official candidate in 2010.[20] In 2012, Montenegro became the first country from the current six Western Balkan states to start accession negotiations with the EU and to date, according to many officials, it is a frontrunner on the path towards the EU membership.[27]

As a part of the ongoing negotiations, the EU will have to deal with this unprecedented case in which a state, already using the common currency without implementing all the mandatory economic conditions, is striving to join the EU and the Eurozone. These conditions (convergence criteria) are set out in Article 140 (1) of the Treaty on the Functioning of the European Union in order to ensure that a certain country is ready for integration into the monetary regime of the euro area.[28] There are 4 economic convergence criteria: [29]

  1. Price stability: The inflation rate cannot be higher than 1.5 percentage points above the rate of the 3 best-performing member states.
  2. Sound and sustainable public finances: Government deficit cannot be higher than 3% of GDP. Government debt cannot be higher than 60% of GDP.
  3. Exchange-rate stability: The candidate has to participate in the exchange rate mechanism (ERM II) for at least 2 years without strong deviations from the ERM II central rate and without devaluing its currency's bilateral central rate against the euro in the same period.
  4. Long-term interest rates: The long-term interest rate should not be higher than 2 percentage points above the rate of the 3 best-performing member states in terms of price stability.

Additionally to that, to join the euro area candidates must also ensure that their national laws and rules provide for the independence of their national central banks, and that their statutes are in compliance with the provisions of the treaties and compatible with the statutes of the European Central Bank and the European System of Central Banks.

The Maastricht Treaty provides that all members of the European Union will eventually join the euro area, once the convergence criteria have been met.

To date, the path of Montenegro to the European Union and subsequently to the Eurozone membership is still unclear. Some experts are of an opinion that in situation like this the convergence criteria should be set as an additional prerequisite for Montenegro's membership in the European Union and should be complied with before the country joins the Union.[30]

See also[edit]


  1. ^ Unilateral euroization (or dollarization) is a process in which a state gives up on having its own currency and the EUR (or the USD) becomes the legal currency on its territory. So far, only a few countries in the world have decided to choose such a currency regime.
  2. ^ Andorra, Monaco, San Marino, and Vatican City have formal agreements with the EU to use the euro as their official currency and issue their own coins.


  1. ^ "Euro used as legal tender in non-EU nations – Business – International Herald Tribune – The New York Times". Retrieved 2020-03-21.
  2. ^ "The euro outside Europe". European Central Bank. Retrieved 2020-03-03.
  3. ^ a b "Money in Montenegro through history". Central Bank of Montenegro Retrieved 2020-03-22.
  4. ^ Fabris, N. (2014) “The History of Money in Montenegro”, Central Bank of Montenegro and Faculty of Economics, Belgrade University. Journal of Central Banking Theory and Practice, pp. 5-18
  5. ^ a b Liebscher, K., Christl, J., Mooslechner, P., Ritzberger-Grünwald, D. (2005) “European Economic Integration And South-East Europe: Challenges And Prospects”, Edward Elgar Pub, pp. 155-176
  6. ^ a b Bogetic, Z., Petrovic, P., Vujosevic, Z.,(1999) “The Yugoslav Hyperinflation of 1992-1994: Causes, Dynamics, and Money Supply Process”, "Yugoslavia: Montenegro Adopts German Mark As Currency". Journal of Comparative Economics. Retrieved 2020-03-22.
  7. ^ Thayer Watkins. "The Worst Episode of Hyperinflation in History: Yugoslavia 1993-94". San Jose State University. Retrieved 2020-03-22.
  8. ^ Steve H. Hanke. "The Beauty of a Parallel Currency". CATO Institute. Retrieved 2020-03-22.
  9. ^ "Money in Montenegro through history". Central Bank of Montenegro. Retrieved 2020-03-22.
  10. ^ Ö. Olgu (2011) "European Banking: Enlargement, Structural Changes and Recent Developments". Palgrave Macmillan Studies in Banking and Financial Institutions.
  11. ^ Regulation on the Use of the German Mark as the Means of Payment With a View to Protecting the Economic Interests of Montenegro (Official Gazette of the RM, no. 41/99 and 22/00)/Службен весник на РМ, бр. 41/99 и 22/00
  12. ^ a b "Yugoslavia: Montenegro Adopts German Mark As Currency". Retrieved 2020-03-19.
  13. ^ "Initial changeover (2002)". European Central Bank. Retrieved 2020-03-22.
  14. ^ Razmi, A.,(2018) “Montenegro's Unilateral Euroization”, UMASS Amherst Economics Working Papers 2018-13, University of Massachusetts Amherst, Department of Economics.
  15. ^ Winkler, A., Mazzaferro, F., Nerlich, C., Thimann, C., (2004). "Official dollarisation/euroisation - motives, features and policy implications of current cases." Occasional Paper, European Central Bank.
  16. ^ "Agreements on monetary relations (Andorra, Monaco, San Marino, and Vatican City)". European Communities. Retrieved 2020-03-03.
  17. ^ "National sides of euro coins". European Commission. Retrieved 2020-03-19.
  18. ^ a b "EU to question Montenegro's use of euro". Retrieved 2020-03-05.
  19. ^ "EU to warn Montenegro on euro". Retrieved 2020-03-05.
  20. ^ a b "Commission Opinion on Montenegro's application for membership of the European Union" (PDF). European Commission. Retrieved 2020-03-03.
  21. ^ "EU prijeti Crnoj Gori ukidanjem eura: Niste sposobni za našu valutu" [EU threatens revoking the euro from Montenegro: You're not capable enough for our currency] (in Croatian). Retrieved 2020-03-05.
  22. ^ "Commission Staff Working Document - Montenegro 2019 Report" (PDF). European Commission. Retrieved 2020-03-21.
  23. ^ a b "Montenegro Warns Against Unilateral Euro Adoption (Update1)". Archived from the original on 2012-04-06. Retrieved 2020-03-05.
  24. ^ "EU Warns Montenegro over the Euro". Retrieved 2020-03-03.
  25. ^ "Montenegro's peculiar path to EU membership". Retrieved 2020-03-06.
  26. ^ "Stabilisation and Association Agreement between Montenegro and the European Union". Council of the European Union. Retrieved 2020-03-03.
  27. ^ "Montenegro – a lead candidate for EU accession" (PDF). European Parliament. Retrieved 2020-03-21.
  28. ^ "Conditions for joining the euro area: convergence criteria". European Council. Retrieved 2020-03-19.
  29. ^ "Convergence criteria". European Council. Retrieved 2020-03-19.
  30. ^ "Montenegro's experience with unilateral euroization". Retrieved 2020-03-06.