Bulgaria’s Euro Adoption & Its Potential Implications

Bulgaria's plan to adopt the euro and become a member of the eurozone holds far-reaching implications, especially for the economy, political scene, and international relations; the Southeast European nation is looking to improve its economic conditions and become a recognised voice in the European Central Bank (ECB).

Bulgaria and the Euro

Bulgaria's currency, the Lev (BGN), is pegged to the euro at a rate of 1.95583, a move that has seen the country through several external economic crises and kept inflation low for a long time (although inflation has increased to over 14% now), and has helped its manufacturing industries maintain their production line and profitability. Trading forex (foreign exchange), stocks, and other financial markets in Bulgaria is also possible thanks to BGN's stability.

The BGN is less recognised and stable than the euro; Bulgarian companies, therefore, incur more costs when engaging in international trade with non-eurozone countries, and the price of imported goods is often high. These challenges are not damning for the country's economy, but adopting the common European currency brings more benefits to them.

Bulgaria's decision to adopt the euro is not sudden; it has been expected to do so since 2007, when it joined the European Union but has not actualised the goal. The government has slowed down its moves in adopting the euro but maintains a strong commitment to seeing it through, potentially by 2025. How will this impact forex and the BGN?

The euro/BGN peg will be the first to feel the impact as it will no longer exist. The BGN will diminish in use, typically over a fixed period, until the euro dominates Bulgaria's local and international trades. The removal of this currency peg means that Bulgaria...