Today the ECOFIN Council has taken the final decision on Latvia's full participation in the Economic and Monetary Union (EMU) as of 1 January 2014, thereby cancelling the derogation applied to Latvia so far in this respect. At the same time, the exchange rate of the lats to the euro set by the Bank of Latvia already in 2005, i.e. 0.702804, has been approved as the irrevocably fixed exchange rate for the euro changeover.
Consequently, as the Bank of Latvia has already notified before, the changeover to the euro as of 1 January 2014 will be based on the current exchange rate of the lats to the euro set by the Bank of Latvia, whereby each lats equals 1.42 euro.
As of 1 January 2014, the Law on the Procedure for Introducing the Euro provides for an obligation to exclusively apply the exchange rate of 0.702804, set by the Council, both in the lats cash and non-cash exchange transactions to the euro, to be carried out by credit institutions, the State Joint Stock Company Latvijas Pasts, as well as the Bank of Latvia; the exchange shall be free of charge. Before the euro changeover day the procedure for euro purchase and sale remains unchanged; hence, the euro purchase or sale market rates may differ from the exchange rate set by the Council.
By joining the European Union in 2004, Latvia, the same as other new Member States, became a participant with a derogation whose full participation in the EMU was postponed until it would comply with the Maastricht criteria. The Convergence Reports concerning Latvia's compliance with the Maastricht criteria prepared by the European Commission and the European Central Bank in spring 2013 were favourable, followed by cancelling the derogation applied to Latvia.
In the course of more than eight years, the pegging of the lats to the euro has proved both its suitability for the economy as well as sustainability: the lats has been pegged to the euro since May 2005 in compliance with the euro changeover strategy of the government. The stable exchange rate of the lats alongside with swift budgetary consolidation and structural reforms also served as a safe anchor to more rapid recovery of the Latvian economy from the recent crisis.
The peg rate of the lats, 0.702804, is well-known to the financial markets and a wide range of money users. We hope that the irrevocable fixing of the lats conversion rate at this level will increase the support to the euro changeover in Latvia in the coming months (currently close to 40%), once the general public becomes more aware that it will be a simple and transparent exchange of the lats for the euro based on the irrevocably fixed exchange rate approved on 9 July 2013.