How will adopting the Euro affect the TRNC?

Amid speculation and concern about the impact of the TRNC adopting the euro in the event of a settlement of the Cyprus problem, Fiona Mullen, Director of Sapienta Economics says that the euro is already in circulation. North Cyprus, she says is already a multi-currency zone.

Mullen points out that real estate is priced in UK pounds sterling and electrical goods are priced in US dollars. Other goods are prices in euros, although everyone is paid in Turkish lira.

You can, she says, pay for goods and services in the TRNC with euros and get change in euros.

Mullen makes the assumption that once the North adopts the euro post settlement, private businesses, in particular shops serving Turkish tourists will continue as before by taking payment in whatever currency the customer wants to use.

The benefits for working people in the North being paid in euros is that prices would remain stable. Despite the fact the Turkey and the TRNC use Turkish liras, exports are priced either in dollars or euros.

Noting that the lira has devalued by about 20% against the euro since the beginning of 2015, the cost of living has gone up but salaries have remained static. This is why inflation is much higher here compared to the South. In September inflation in the North was 6.4% while prices have fallen by 2.5% in the South.

Mullen writes that banks will feel some of the biggest impacts of a newly adopted currency and the legal changes required in banking practice.

There will be reams of pages on law covering oversight, supervision, capital and reserve requirements, rules against money-laundering etc.

The public finance sector will have to abide by strict rules governing growth and stability. It will be required to produce proper planning budgets, covering deficiency limits.

So now is the time to import technical assistance before a deal is signed, in order for the two economies to integrate and form a stronger economy in a united island.

Edited from In-cyprus

Fiona Mullen is Director of Sapienta Economics

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