Minimal reserve and the Eurozone

External question — Economics Stack Exchange Author: rumtscho Original post: https://economics.stackexchange.com/questions/60478 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. The next expected member of the Eurozone is Bulgaria, which is supposed to join on January 1. 2026. Currently, the Bulgarian lev has a fixed exchange rate with the euro. The price levels in Bulgaria are quire low compared to other EU countries, but experienced relatively high inflation in 2024. The citizens of Bulgaria are concerned about possible inflation from the new currency. I assumed this would be mostly due to "soft" effects such as self-fulfilling expectations and sellers using psychological effects, but I saw an interesting comment online: [Yeah, we have noticeable inflation now, but if everything goes to plan and we get] the euro on 01.01. and we get under ECB and the required reserves of the banks get from 12% to 2% (as is in the Eurozone) and the banks pour 7-8 billions as credits onto citizens and businesses... then we'll see real inflation... Is this comment correct stating that joining the Eurozone requires a change in the minimum reserve? If yes, is this for some reason an economic imperative, or is it a political decision made in the process of negotiating Bulgaria joining the Eurozone? Theoretically, what would be the potential advantages for the EU and for Bulgaria of changing the minimum reserves as opposed to changing the currency but leaving the reserve regulation untouched (if at all possible)?

External answer — Economics Stack Exchange Author: 1muflon1 Original post: https://economics.stackexchange.com/a/60479 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Is this comment correct stating that joining the Eurozone requires a change in the minimum reserve? If yes, is this for some reason an economic imperative, or is it a political decision made in the process of negotiating Bulgaria joining the Eurozone? That is the level for all Eurozone members. Once country joins monetary union it has to follow rules of that monetary union. All Eurozone members follow the same rules. Theoretically, what would be the potential advantages for the EU and for Bulgaria of changing the minimum reserves as opposed to changing the currency but leaving the reserve regulation untouched (if at all possible)? This is not really practically possible (it’s only possible in a sense that someone can write it into law like anything could be written in a law). A reserve requirement is part of monetary policy, so this would be like a single country deciding to have 2 independent central banks issuing the same currency with separate monetary policies. They would either pursue exactly the same policy, in which case having 2 is not necessary, or pursue different policies and in that case they are undermining each others policies and the more they differ the more they undermine each other. This could only work if Bulgaria would implement strict capital controls vis a vis all other Eurozone members, which is not even allowed on EU level (i.e. even EU but non-Eurozone members aren’t allowed to have strict capital controls against other EU members). Moreover, result of this would be that Bulgaria could operate little bit more like having its own separate currency even though the currency would have the same “name” but it would still much worse and constraining than Bulgaria just keeping its own currency if the goal is to keep separate monetary policies to rest of Eurozone.