currency crises, EMU, ERM II, Europe, exchange rate, Maastricht criteria, CASE Reports, CASE Network Studies and Analyses, Trade, economic integration and globalization

Exchange Rate Regimes and the Nominal Convergence


he paper examines theoretical literature, recent EMU accession examples, and current CEECs performance in search of the optimal currency regime for meeting the Maastricht criteria. Currency board arrangements seems to provide the fastest convergence. For other regimes, the markets may have theoretical and historical reasons to believe in the government's temptation to devalue on the ERM-2 entry. The government should announce the final date, and, possibly indicate the final exchange rate for the regime switch to avoid excessive currency and yield volatility. It should also underscore the central bank’s and EU authorities importance (even if non-existent) in the parity setting process to avoid excessive domestic debt inflation premium ahead of the accession. Recent experience shows that it will be easy to get rid of the remaining influence of cross rates on CEECs exchange rates.