{
  "title": "A Field Guide to Exchange Rate Regimes in Central, Eastern and Southeastern Europe",
  "publication": "IMF Blog, November 29, 2016",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2016/11/29/a-field-guide-to-exchange-rate-regimes-in-central-eastern-and-southeastern-europe",
  "canonical": "https://www.imf.org/en/blogs/articles/2016/11/29/a-field-guide-to-exchange-rate-regimes-in-central-eastern-and-southeastern-europe",
  "overlayPath": "/en/blogs/articles/2016/11/29/a-field-guide-to-exchange-rate-regimes-in-central-eastern-and-southeastern-europe/index.md",
  "summary": "Authors: Philip Gerson, Johannes Wiegand",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Authors: Philip Gerson, Johannes Wiegand\n- Date: November 29, 2016\n- Region examined: Central, Eastern and Southeastern Europe (CESEE)\n- Context: CESEE experienced a capital-flow-fueled boom in the early and mid-2000s, a sharp recession after the 2008 global financial crisis, and a gradual recovery over the past 15 years or so. The region exhibits almost every type of exchange rate regime: floating and inflation targeting, various pegs, unilateral use of the euro, and full euro area membership."
    },
    {
      "heading": "Key findings",
      "content": "- Flexible versus fixed regimes and boom-bust dynamics:\n  - Economies with flexible exchange rates experienced a more muted pre-2008 boom, a shorter and shallower recession, and a more robust recovery compared with economies with fixed exchange rates.\n  - Flexible exchange rates tended to mitigate the impact of capital in- and outflows, while fixed exchange rates magnified them (see Chart 1).\n  - Fixed exchange rates can amplify capital flows through pro-cyclical credit booms, a pattern clearly visible in CESEE.\n\n- Long-term effects on potential growth:\n  - Excessive boom and bust continues to affect economies long after episodes end.\n  - Potential growth in economies with fixed exchange rates is now, on average, almost a percentage point below that of economies with flexible exchange rates, as high private sector debt accumulated during the boom weighs on investment (see Chart 2).\n\n- Historical drivers of regime choice:\n  - Fixed exchange rates in CESEE are often rooted in experiences with hyperinflation during the 1990s (see Chart 3).\n  - Where populations suffered hyperinflation, distrust of local currencies persists; depositors are much more likely to hold bank deposits in euros.\n  - In such environments, tying the currency to a strong anchor like the euro can provide stability and instill confidence, which can be more important than better management of credit cycles."
    },
    {
      "heading": "Policy options and recommendations",
      "content": "- For countries with flexible exchange rates:\n  - Little need for reorientation; flexible regimes have generally served them well.\n  - Continued emphasis on good economic management across monetary, fiscal and structural policies remains critical.\n\n- For countries with fixed exchange rate regimes: two broad strategies\n  - Strategy 1 — Gradually increase exchange rate flexibility:\n    - Preconditions and measures: strong macroeconomic policies; regulatory measures that encourage the use of the domestic currency; an extended period of low inflation, solid growth and exchange rate appreciation to solidify confidence in the domestic currency.\n    - Feasibility: depends on country circumstances; some CESEE countries may now have sufficiently strong institutions to transition, others may need the fixed exchange rate as a stability anchor for some time.\n    - Considerations for euro adoption: for countries expecting to adopt the euro soon, the upfront costs of transitioning to more flexibility may not be worthwhile.\n    - Role for European institutions:\n      - Greater acceptance of prudential measures that promote the use of local currencies, rather than interpreting these as quasi-capital controls inconsistent with European treaties.\n      - A financial safety net during the transition to flexibility—for example in the form of unsecured European Central Bank swap lines—could help overcome populations’ entrenched distrust in floating currencies.\n\n  - Strategy 2 — Make existing fixed regimes work better:\n    - Required elements: high wage flexibility; much stronger use of countercyclical fiscal and macro-prudential policies.\n    - Implementation challenges:\n      - Running countercyclical fiscal policy is challenging for emerging economies because of low fiscal multipliers, financing constraints, and political economy pressures.\n      - Macro-prudential policies that restrict bank lending suffer from evasion, with banks circumventing regulations in one country by providing loans cross-border from another.\n      - Therefore, effective macro-prudential measures require a coordinated European anti-evasion effort."
    },
    {
      "heading": "Synthesis and outlook",
      "content": "- No single exchange rate regime is inherently superior; suitability depends on local conditions and historical legacies.\n- Regimes need to evolve as conditions change; failure to adapt risks economies falling behind.\n- The trade-off for CESEE policymakers is balancing stability (often provided by fixed regimes anchored to the euro) against greater shock absorption and potentially less pronounced boom-bust cycles under more flexible regimes.\n\nSource: A Field Guide to Exchange Rate Regimes in Central, Eastern and Southeastern Europe — Philip Gerson, Johannes Wiegand, November 29, 2016\n\n---\n\n Content in this bundle\n\n- BROWN—The Euroization of Bank Deposits in Eastern Europe\n  - BROWN—The Euroization of Bank Deposits in Eastern Europe (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - BROWN—The Euroization of Bank Deposits in Eastern Europe (PDF){rel=\"external\" type=\"application/pdf\"}\n- Wp1241\n  - Wp1241 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Wp1241 (PDF){rel=\"external\" type=\"application/pdf\"}\n- Wp1629\n  - Wp1629 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Wp1629 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- new paper\n- https://www.imf.org/wp-content/uploads/2016/11/eur-excratesreg-chart1.jpg\n- https://www.imf.org/wp-content/uploads/2016/11/eur-excratesreg-chart2.jpg\n- https://www.imf.org/wp-content/uploads/2016/11/eur-excratesreg-chart3.jpg\n\nSource: https://www.imf.org/en/blogs/articles/2016/11/29/a-field-guide-to-exchange-rate-regimes-in-central-eastern-and-southeastern-europe"
    }
  ],
  "bullets": [
    "[Markdown version](/en/blogs/articles/2016/11/29/a-field-guide-to-exchange-rate-regimes-in-central-eastern-and-southeastern-europe/index.md)",
    "[Structured JSON version](/en/blogs/articles/2016/11/29/a-field-guide-to-exchange-rate-regimes-in-central-eastern-and-southeastern-europe/index.json)",
    "[Bundle manifest](/en/blogs/articles/2016/11/29/a-field-guide-to-exchange-rate-regimes-in-central-eastern-and-southeastern-europe/bundle-manifest.json)",
    "Authors: Philip Gerson, Johannes Wiegand",
    "Published: November 29, 2016",
    "Authors: Philip Gerson, Johannes Wiegand",
    "Date: November 29, 2016",
    "Region examined: Central, Eastern and Southeastern Europe (CESEE)",
    "Context: CESEE experienced a capital-flow-fueled boom in the early and mid-2000s, a sharp recession after the 2008 global financial crisis, and a gradual recovery over the past 15 years or so. The region exhibits almost every type of exchange rate regime: floating and inflation targeting, various pegs, unilateral use of the euro, and full euro area membership.",
    "Flexible versus fixed regimes and boom-bust dynamics:",
    "Long-term effects on potential growth:",
    "Historical drivers of regime choice:",
    "For countries with flexible exchange rates:",
    "For countries with fixed exchange rate regimes: two broad strategies",
    "No single exchange rate regime is inherently superior; suitability depends on local conditions and historical legacies.",
    "Regimes need to evolve as conditions change; failure to adapt risks economies falling behind.",
    "The trade-off for CESEE policymakers is balancing stability (often provided by fixed regimes anchored to the euro) against greater shock absorption and potentially less pronounced boom-bust cycles under more flexible regimes.",
    "**BROWN—The Euroization of Bank Deposits in Eastern Europe**",
    "**Wp1241**",
    "**Wp1629**",
    "[new paper](http://www.imf.org/external/pubs/cat/longres.aspx?sk=44425.0)",
    "[https://www.imf.org/wp-content/uploads/2016/11/eur-excratesreg-chart1.jpg](https://www.imf.org/wp-content/uploads/2016/11/eur-excratesreg-chart1.jpg)",
    "[https://www.imf.org/wp-content/uploads/2016/11/eur-excratesreg-chart2.jpg](https://www.imf.org/wp-content/uploads/2016/11/eur-excratesreg-chart2.jpg)",
    "[https://www.imf.org/wp-content/uploads/2016/11/eur-excratesreg-chart3.jpg](https://www.imf.org/wp-content/uploads/2016/11/eur-excratesreg-chart3.jpg)"
  ],
  "related": [
    {
      "title": "BROWN—The Euroization of Bank Deposits in Eastern Europe",
      "role": "document",
      "sourceUrl": "http://www.economic-policy.org/wp-content/uploads/2014/06/BROWN-The-Euroization-of-Bank-Deposits-in-Eastern-Europe.pdf",
      "summary": {
        "path": "/wp-content/uploads/2014/06/BROWN-The-Euroization-of-Bank-Deposits-in-Eastern-Europe.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/wp-content/uploads/2014/06/BROWN-The-Euroization-of-Bank-Deposits-in-Eastern-Europe.pdf",
        "mime": "application/pdf"
      }
    },
    {
      "title": "Wp1241",
      "role": "document",
      "sourceUrl": "https://www.imf.org/external/pubs/ft/wp/2012/wp1241.pdf",
      "summary": {
        "path": "/external/pubs/ft/wp/2012/wp1241.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/external/pubs/ft/wp/2012/wp1241.pdf",
        "mime": "application/pdf"
      }
    },
    {
      "title": "Wp1629",
      "role": "document",
      "sourceUrl": "https://www.imf.org/external/pubs/ft/wp/2016/wp1629.pdf",
      "summary": {
        "path": "/external/pubs/ft/wp/2016/wp1629.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/external/pubs/ft/wp/2016/wp1629.pdf",
        "mime": "application/pdf"
      }
    }
  ],
  "alternates": {
    "markdown": "/en/blogs/articles/2016/11/29/a-field-guide-to-exchange-rate-regimes-in-central-eastern-and-southeastern-europe/index.md",
    "json": "/en/blogs/articles/2016/11/29/a-field-guide-to-exchange-rate-regimes-in-central-eastern-and-southeastern-europe/index.json",
    "bundleManifest": "/en/blogs/articles/2016/11/29/a-field-guide-to-exchange-rate-regimes-in-central-eastern-and-southeastern-europe/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-08-27T22:47:02.384Z"
}