The Impact of the Euro-Dollar Exchange Rate on Countries with a Currency Board: The Case of Estonia and Bulgaria

This article investigates the implications of the volatility of the euro-dollar rate for emerging economies that have linked with the euro through a currency board arrangement. It analyzes to what extent the economies of Estonia and Bulgaria are affected by a strong appreciation (depreciation) of the euro as their anchor currency. The article focuses on the exchange rate risk exposure with respect to trade, foreign reserves, and foreign public debt, and argues that currency risk cannot be neglected in transition countries pegged to euro.