Exchange Rate Regimes in Selected Advanced Transition Economies: Coping with Transition, Capital Inflows, and EU Accession
IMF Policy Discussion Papers, April 1, 2000
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- Exchange Rate Regimes in Selected Advanced Transition Economies: Coping with Transition, Capital Inflows, and EU Accession
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Bibliographic details
- Published: April 1, 2000
- Series: IMF Policy Discussion Papers
- DOI: https://doi.org/10.5089/9781451974119.003
Summary
- Since beginning economic transition, the Czech Republic, Estonia, Hungary, Poland, and Slovenia have—with much success—employed diverse exchange rate regimes.
- As these countries approach EU accession, they will need to avoid the perils of too much or too little exchange rate variability when capital flows are likely to be large and volatile; narrow band arrangements in particular could be problematic.
- The exception is Estonia, where there are good arguments for retaining the currency board arrangement.
- Countries wishing to join the euro area at an early stage should not leave the removal of remaining capital controls to the last minute.
Key findings
- Diverse exchange rate regimes have been used successfully in the Czech Republic, Estonia, Hungary, Poland, and Slovenia during transition.
- Narrow band exchange rate arrangements may be problematic in the face of large and volatile capital flows.
- Estonia stands out as an exception, with arguments in favor of retaining its currency board arrangement.
- Timing of removal of remaining capital controls is crucial for countries aiming for early euro area membership.
Policy recommendations
- Avoid exchange rate regimes that expose the economy to either excessive or insufficient exchange rate variability during periods of likely large and volatile capital flows.
- Exercise caution with narrow band arrangements given their potential problems under volatile capital flows.
- Consider maintaining a currency board arrangement in cases similar to Estonia where arguments support retention.
- Do not postpone the removal of remaining capital controls until the last minute for countries wishing to join the euro area early.
Subject and keywords (as listed)
- Subject: Exchange rate arrangements, Exchange rate flexibility, Exchange rate policy, Exchange rates, Foreign exchange, Inflation, Prices
- Keywords: Eastern Europe, EU accession, Exchange rate arrangements, Exchange rate flexibility, Exchange rate policy, exchange rate regime, exchange rate volatility, Exchange rates, Exchange regime, Global, Inflation, managed float, PDP, Policy issue, rate of exchange rate crawl, regime choice, transition, Western Europe
International Monetary Fund. Exchange Rate Regimes in Selected Advanced Transition Economies: Coping with Transition, Capital Inflows, and EU Accession, Policy Discussion Paper No. 2000/003, April 1, 2000.