Nearly twenty years have passed since the beginning of the transition from the planned economy to the market economy system in Estonia. A successful transition to a market economy requires a sound currency and Estonia introduced its own currency in June 1992. Estonia has been quite successful in...

The paper compares the credibility of currency boards and (standard) pegs. Abandoning a currency board requires a time-consuming legislative process and an abolition will thus be previously expected. Therefore, a currency board solves the time inconsistency problem of monetary policy. However,...

One of the main disadvantages of currency boards is the rule-based character of this system and the resulting inflexibility in case of shocks, a frequently recurring event in transition countries. Accordingly, central banks under currency board arrangements (CBA) are unable to respond to...

Countries in transition often face high levels of inflation. This paper discusses two ways to reduce inflation: the creation of an independent central bank and the introduction of a currency board. It is shown that both options have advantages and disadvantages. This framework is used for a...

The paper reviews exchange rate options for Mercosur countries. We start from the observation that most of the countries in the region have a longstanding tendency to adopt fixed exchange rates, and ask how such a system could best be designed. The Argentine crisis has demonstrated that...

In 1996/1997 Bulgaria was hit by a severe financial crisis, spreading from a banking crisis to a currency crisis. However, in comparison to the Asian, the Russian or the recent Tango Crisis the Bulgarian Crisis did arouse relatively low international interest. We argue that the Bulgarian...

The rule bounded currency board-system is a contribution to a process of convergence between the price level of the currency board-country and the anchor currency-country. However this strategy includes the risk of an inadequate provision with liquidity in the currency board-country. In the long...

On its way to become a member of the European Monetary Union (EMU) Estonia needs to participate in the new European Exchange Rate Mechanism (ERM II). The need to participate in this Exchange Rate Mechanism arises quite simply from the necessity of being treated equally with the countries already...