Euroization Drivers and Effective Policy Response : An Application to the Case of Albania

This paper proposes a methodology to develop empirically based and theoreticallyconsistent deeuroization policies. It is derived from the experience of Albania. The paperis the first attempt to provide an empirical measure of the optimal level of euroization.The results indicate that euroization is trending above the estimated measure in Albania,calling for deeuroization policies. In the long term, deeuroization requires maintaining thecommitment to low and stable inflation in a context of greater exchange rate flexibility toencourage saving in local currency. In the short term, policies that mitigate the financialstability risk due to euroization contribute to deeuroization inasmuch as they makebanking intermediation in euro less financially attractive to the public