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ECB warns Balkans over increased use of the euro

FILE PHOTO: European Union flags flutter outside the headquarters of the European Central Bank (ECB) in Frankfurt, Germany, April 21, 2016. REUTERS/Ralph Orlowski/File Photo

SARAJEVO (Reuters) - The increasing use of the euro in the Balkans is a serious policy challenge for the region as it could hinder monetary policy and may put the economy at risk due to exchange rate shifts, European Central Bank board member Benoit Coeure said on Friday.

"A high degree of foreign currency use also has serious drawbacks," Coeure said in Sarajevo. "Unofficial euroisation also impedes monetary policy transmission and may limit the overall room for manoeuvre of monetary policy."

"Households and firms may suddenly no longer be able to service their foreign currency-denominated debt, creating credit risk for banks," Coeure said, mentioning Serbia, Albania and Bosnia and Herzegovina.

(Reporting by Balazs Koranyi and Ivana Sekularac; Editing by Francesco Canepa)