3 Reasons The Czech Republic’s Euro Standoff is Great for Your Business
March 27, 2018
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The Czech Republic’s relationship to the European Union isn’t like other countries.
Recently, tensions between the EU and Czechia were highlighted by the election of the country’s new prime minister, Andrej Babiš. Particularly, the matter at hand is the Czech adoption of the EU’s official currency, the euro (€).
Since joining the Union in 2004, the Czech Republic has been legally obligated to adopt the currency. However, governments have continually kicked the can down the road, and have retained the country’s current official currency, the koruna (CZK).
Current and past prime ministers have noted issues with the euro and entering the “eurozone,” which is the group of 19 EU member countries that share the currency. These include wage gaps between eastern and western European countries, and fears of another European financial crisis, among other things.
In fact, a recent survey revealed that 72% of Czechs are against adopting the euro.
But, why should you care?
Well, though Czechia’s issues with the EU may seem like a bad thing, their refusal to adopt the euro is actually great for international businesses. The Union affords many advantages to businesses looking to expand abroad, but it does have its limitations.
If you’re looking to invest in Czechia, here are three reasons why not using the euro favors international businesses.
If you’re looking for a supplier in the Czech Republic or are generally buying goods from the country, the euro stalemate is great for you.
The USD to CZK rate of exchange greatly favors US businesses. 1 USD equals out to about 21 CZK, meaning that US currency is “worth” more than Czech currency.
By comparison, 1 USD represents about 0.84 euro. This means that the US dollar is worth less than the euro.
Ultimately, US businesses get more bang for their buck in the Czech Republic than they do in the eurozone, because the US dollar is worth more there than in countries that use the euro.
If Czechia adopts the euro, US businesses currently operating, or looking to operate there, are obligated to trade in the local currency. Goods shift to euro prices, and suppliers charge more for their products as a result.
But, this isn’t the case, and US businesses can still reap the benefits of the greatly favorable exchange rate.
Then, why EU?
Member states of the European Union get a ton of benefits for joining. One of the major ones is diminishing border securities and slashing fees, which eases trade and promotes inter-union export and import relationships.
This basically means that being part of the EU means you can buy and sell things easier in other EU countries.
But, a big part of this easy-trading incentive is currency exchange. As we’ve said, the “eurozone” makes up 19 countries whose official currency is the euro. These countries not only take advantage of zero-tariffs and soft borders, but also don’t have to deal with foreign exchange rates.
Because they’re all using the same currency, eurozone countries can trade goods across borders at face value, without needing to consider losses or gains from exchanges.
But, for those that don’t use the euro, like our friends the Czechs, this luxury isn’t available.
So, Czech suppliers may end up looking outside of the European Union for better exchange rates. As well, the incentive to trade with EU nations just isn’t as high for the Czechs because of the issues with adopting the euro.
Because the US-CZK exchange rate is better than the Euro-CZK exchange, Czech suppliers may find it’s cost-effective to work with US businesses.
As well, because of the high purchasing power and popularity of US trade, Czechs may continue to look across the sea for business opportunities, rather than in their own continent.
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You’re probably seeing a trend here.
Foreign exchange rates are at the heart of buying goods internationally, and sending payments. Much the same as goods being “cheaper” in places with more favorable exchange rates, US businesses sending money to Czechia in any form have an advantage.
If Czechia adopts the euro, this favored exchange disappears, and US businesses have to send more USD to get less.
By sticking with the koruna, Czechia remains a popular destination for foreign exchange. For US businesses, it means cheaper payments, and money back on transferred funds.
But, to take full advantage, you’ll need a payments solution that not only sends your money safely and quickly, but doesn’t gouge you with hidden fees.
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