1st of January - Eurozone joined Latvia!

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As every country adopting the euro, Latvia has its own particular challenges. Below is a brief overview of them.

Nominal euro prices are higher than those in lats

Latvia is one of the few countries where a unit of national currency – the lat – is of higher value than one euro. The lat is pegged to the common European currency and the fixed conversion rate is LVL 0.702804 to the euro or one lat equals 1.42 euro. It means that prices in euro are nominally higher than those in lats. This adds to the perception that prices in euro are (and will be) higher than in lats.

High value and wide use of Latvian coins

Cash constitutes around 12–15% of money in circulation. This rate is similar in most other Central and East European countries. It constituted around 1.234 million lats (EUR 1.76 M) at the beginning of 2013 and has come down to 893.5 million lats (EUR 1271.34 M) in November 2013. 94% of the cash is bank notes, 6% is coins. The one-lat coin is the most popular, constituting 54.0% of all coins in circulation. While the amount of coins in circulation is relatively small, compared to the overall amount of cash, it constitutes a formidable challenge in weight and amount. The Bank of Latvia estimates that 488 million coins in the value of 73 million lats (compared to 59 million banknotes in the value of 1.16 billion lats) will have to be collected and replaced by an even larger nominal amount in euro.

Economic and banking crises

Latvia has gone through serious economic shocks in its recent past. Most of them affected the banking system and therefore also people’s trust towards banks and the Government’s ability to keep the promises of safeguarding deposits and savings.

The first serious wave of the crisis occurred in 1995, when the largest bank in Latvia, Banka Baltija, collapsed, involving the loss of about 40 percent of the banking system's assets and liabilities. Thousands of people including pensioners, homemakers, and working people queued outside the bank’s locked doors to demand their money. The bank had bet on a devaluation of the national currency, the lat, and it had set up a classic pyramid scheme with promises of 90 percent return on deposits.

In 1998, a financial crisis in Russia influenced the Latvian banking system, and operations of the Riga Commerce Bank were halted. It was later rescued with financing from the European Bank for Reconstruction and Development and other international sources.

In 2008, after years of booming economic success (e.g., annual salary growth of 20–30%), the Latvian economy took one of the sharpest downturns in the world, GDP contracting by 10.5%, and another 18% in 2009. This again brought to collapse Parex Banka, second largest in Latvia at the time. While most individual citizens were covered by the national deposit guarantee scheme, it again did no good for the trust in financial institutions.

Historic experiences of currency change

Latvians have gone through painful experiences of money reforms. This experience contributes towards suspiciousness towards the introduction of the euro. Historically, reforms have been instituted in Latvia whereby people lost a good part of their savings during the war and monetary reform in 1961 and as a result of the Soviet monetary reform of 1991, commonly referred to as the "Pavlov Reform".

After regaining its independence in 1991, Latvia was adversely affected by inflation of the Russian rouble. From 7 May 1992, a temporary currency, the Latvian rublis (LVR), was put into circulation as a legal tender parallel to the existing rouble notes. It was declared equal in value to the Russian rouble.

The lat was reintroduced in 1993, replacing the LVR at a rate of 1 lat = 200 LVR. That meant the loss of lifelong savings for many and mistrust towards any money related reforms.

However, the euro changeover is not a currency reform. The Latvian lat will be exchanged at the current rate without any commission in perpetuity and in unlimited amounts at the Bank of Latvia. It will amount to replacing one currency with another. This time all the lats that people have at home or in the bank, will be exchanged and no value loss will occur. At the Bank of Latvia, the Latvian lats will be exchanged in perpetuity and in unlimited amounts.

Awareness and public support

Despite being well informed about euro adoption, many Latvians remain wary of the euro area due to economic troubles of some of its southern members and the volatile global economic situation. There are also strong subjective sentiments at play, often contradictory with facts.

In the most recent poll, support for euro adoption was at 40% in October, a marked increase from 26% at the start of the year. However every second person opposes joining the euro area. At the same time people feel well informed (72% in October, up from 58% in April) and 94% know that 1 January 2014 is the euro introduction date.

79% of respondents have noticed public information activities, particularly noticing information about money design and the “Fair Euro Introducer” initiative. A strong majority (70% of those who have seen the information advertisements), positively evaluate the design of the Latvian euro coins.

The euro adoption is most supported by those aged 26-35 (49% in favour), with higher education (51% in favour), and with a monthly income of 300 or more lats (59% in favour).

Significantly, euro adoption was supported by 51% of businesspeople in October. This figure was up by 16.4% since September.

National euro information campaign activities

The National Euro Changeover Plan foresees a broad range of information activities with a strong emphasis on practical information and targeting socially excluded or otherwise disadvantaged social groups. Below is a list of the most important, but nearly not all campaign activities.

The general society is informed through all types of media: TV, radio, print media, the Internet, outdoor advertising, and social networks (Twitter, Facebook, the national social network Draugiem.lv, and YouTube). The Ministry of Finance has prepared information about such issues as the exchange rate and currency exchange periods, payment of salaries, pensions and benefits, parallel currency circulation during first 14 days of 2014, the Fair Euro Introducer initiative. The Bank of Latvia has commissioned informational advertising about the appearance and safety features of the new currency.

Both the Ministry of Finance and the Bank of Latvia have, respectively, mailed each Latvian household a Euro Newspaper and a currency calculator with information about euro safety features. The Euro Newspaper has been tailored to the five regions of Latvia and is also available in Russian, a total of 1,252,400 copies. It contains the most important information about the euro changeover, such as the calendar of key events, closest safe currency conversion and distribution locations, and many other items. Information about the Euro Newspaper has been widely distributed among media editors and even featured in the most popular national TV series.

The Ministry of Finance in cooperation with the European Commission has brought to Latvia the travelling exhibition “The Euro: Our Currency”, that introduces the history of the euro and euro area. It is exhibited in the three largest Latvian cities from 12 September 2013 to 12 January 2014, including the capital Riga. When the travelling exhibition departed Riga, the European Central Bank and the Bank of Latvia opened another, the “Euro Exhibition” in Riga, focusing more on visual introduction of the new currency and its safety features.

A significant part of the national euro information campaign is the toll-free euro information number 80003000, which enjoys wide popularity among the general population and businesses. It is accompanied by an email address [email protected], where people usually send more specific inquiries. A great information resource is the national euro information portal www.eiro.lv now attracting over 45,000 visitors monthly. In total, there are 35,000 followers of the euro adoption campaign in the various social networks - Twitter, Facebook, and Draugiem.lv. The Ministry of Finance Euro Bureau also distributes a weekly electronic newsletter to mostly expert and media audiences, which can be freely subscribed to by anyone.

To facilitate an honest and transparent implementation of the euro by businesses, as several other euro area accession countries, Latvia has implemented the “Fair Euro Introducer” initiative and information campaign. The aim of the initiative is to protect the population against unjustified price hikes as a result of the introduction of the euro. More than 1,200 retailers and service providers have joined the initiative with more than 10,000 sale or service provision locations.

Another important part of the euro information campaign is print publications in various formats for a variety of target audiences. These concern the following and other topics or audiences: general euro adoption guidelines for municipalities and businesses, leaflet for tourists, leaflet for visually impaired persons (complemented by information in audio format), leaflet about cartels and prohibited agreements, information about the dual currency circulation period.

The Ministry of Finance Euro Bureau, in cooperation with public and private sector partners, has organised over 200 free seminars and lectures all over Latvia on various topics in relation to the euro adoption. Several of these have also been broadcast and published online for those not able to attend in person.