In a fortnight’s time Croatia will have taken its place as the European Union’s 28th member. Hrvatska Narodna Banka Governor Boris Vujcic reiterated last week his belief that the country should join the join the common currency area “as soon as possible” because the kuna already tracks the euro and almost three quarters of savings are held in euros. As for timing, the governor thinks it is still too soon to discuss specifics; euro membership would take at least three years and would require an improvement in the country’s economic performance as well as a reduction in the ratio of government debt to gross domestic product. In the meantime, the central bank will prevent “large fluctuations” in the exchange rate in either direction, as it has for the last eight years.

The kuna is not pegged rigidly to the euro as are, say, the Danish krone and the Bulgarian lev, but it makes a pretty good proxy for the single European currency. In the last year it has averaged 7.50kn to €1 and in the last two years 7.55. The extremes over that period were 7.1 and 7.9. With no life of its own the value of the kuna against the pound is determined by the value of the euro.

 

The last two years have seen a rather wider range for sterling/euro, roughly between €1.1 and €1.3 to the pound. Perhaps coincidentally, the pound’s average price over the last year was €1.21 and for the last two years it was €1.20. In fact for the last four years it has been going nowhere fast, averaging €1.18.

In some ways this is reassuring to investors in Croatian real estate and to British expats who depend on a pension or UK investments. But it also means that anyone turning a sterling income into euros or kuna should take care to time the transaction properly. A £15k annual pension switched last July at €1.28 would provide €1,600 or 12,000 kn a month. Had the rate been fixed in February this year the sterling/euro exchange rate would have looked more like 1.14, generating a monthly €1,430 or 10,730 kn. Granted, the lack of 170 euros a month is not going to mean no bread on the table but anyone who bought euros at their peak will wince every time they look at their bank statement.

For the last three months sterling has been becalmed between €1.16 and €1.19. Over that time its daily average has been €1.1750. Exactly where it is trading at the time of writing. Anyone with a sterling income and euro or kuna expenditure should consider having a chat with their broker, with a view to fixing an exchange rate for at least a portion of their income when next the pound spikes higher.