Acta Universitatis Danubius. Œconomica, Vol 10, No 4 (2014)

Abstract

Kosovo, as one of the youngest countries in Europe, has a relatively new and very dynamic economy. From a conducted centralized economy, Kosovo’s economy became a free market after 1999. This fact made the economy of Kosovo to face a lot of challenges. One of them, and still a topic not studied and discussed among Kosovar economists is the Kosovo currency. Kosovo is not yet a member of EU but since 2002 is using euro currency. What are the advantages and disadvantages of using euro currency for the economy of Kosovo? Does Kosovo need to think and prepare the economy environment for a new currency? This was maybe not questionable in 2002, because Kosovo was still in the first steps of creating a financial system. But, today the importance of exchange rates in economy is crucial as a result of the internationalization of businesses and continuing growth of international trade. This made me to analyze, through quantitative and qualitative methods the development of exchange rate market in Kosovo and the effects of exchange rates movements in Kosovo economy. In the past, it was questionable why should we study exchange rates before having an academic answer on macroeconomics policy and international trade. But today the importance of exchange rate effects in economy is increased and this is a result of the internationalization of modern businesses, the continued increase of world trade with the national one and the rapid change of money transfer technology. One important role is also the fact that exchange rates are not only a variable but are very volatile. The worldwide growing importance of exchange rates was the reason for analyzing the connection and effects of exchange rates with prices, the role in GDP, inflation and in the overall economy of Kosovo. While working for years in the FX desk of the biggest commercial bank of my country, I was directly involved on exchange rate market and I was convinced that exchange rates is an interest variable for some of Kosovo businesses and it effects the economy even though we are a country in transition economy and we have not been exposed to exchange rates risk on macroeconomic variables.