| Summary: | Using Montenegro as a case study, this paper evaluates the viability of currency substitution, in
this case euroization, as a response to increased financial volatility. Proponents of euroization
outline a series of expected benefits, while critics point to what they perceive as much larger costs.
The paper contrasts the macroeconomic developments of Montenegro and how it fared during the
Global Financial Crisis and the shock triggered by the Covid-19 pandemic with the performance of
its regional peers and the euro area overall. The findings are contrasted to how the various
expectations played out for Montenegro, drawing further lessons on the role of monetary policy and
domestic monetary sovereignty.
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