Abstract: The European countries that during the past two
decades based their exchange rate regimes on currency board
arrangement (CBA) are usually analysed from the perspective of
corner solution choice’s stabilisation effects. There is an open
discussion on the positive and negative background of a strict
exchange rate regime choice, although it should be seen as part of the
transition process towards the monetary union membership. The
focus of the paper is on the Baltic countries that after two decades of
a rigid exchange rate arrangement and strongly influenced by global
crisis are finishing their path towards the euro zone. Besides the
stabilising capacity, the CBA is highly vulnerable regime, with
limited developing potential. The rigidity of the exchange rate (and
monetary) system, despite the ensured credibility, do not leave
enough (or any) space for the adjustment and/or active crisis
management. Still, the Baltics are in a process of recovery, with fiscal
consolidation measures combined with (painful and politically
unpopular) measures of internal devaluation. Today, two of them
(Estonia and Latvia) are members of euro zone, fulfilling their
ultimate transition targets, but de facto exchanging one fixed regime
with another.
The paper analyses the challenges for the CBA in unstable
environment since the fixed regimes rely on imported stability and
are sensitive to external shocks. With limited monetary instruments,
these countries were oriented to the fiscal policies and used a
combination of internal devaluation and tax policy measures. Despite
their rather quick recovery, our second goal is to analyse the long
term influence that the measures had on the national economy.
Abstract: There are little subjects in macroeconomics that are so
widely discussed, but at the same time controversial and without a
clear solution such as the choice of exchange rate regime. National
authorities need to take into consideration numerous fundamentals,
trying to fulfil goals of economic growth, low and stable inflation
and international stability. This paper focuses on the countries of ex-
Yugoslavia and their exchange rate history as independent states. We
follow the development of the regimes in 6 countries during the
transition through the financial crisis of the second part of the 2000s
to the prospects of their final goal: full membership in the European
Union. Main question is to what extent has the exchange regime
contributed to their economic success, considering other objective
factors.