Exchange Rate Strategies towards EMU for Accession Countries with Currency Boards
AbstractThis paper investigates the transition of the EU candidate countries with a currency board arrangement (CBA) to the euro-zone. The arguments for and against retaining a CBA while participating in the Exchange Rate Mechanism of the EU (ERMII) are discussed. Then, we show in the framework of a signalling model that abandoning a CBA and allowing the exchange rate to fluctuate within the bands of ERMII can signal to markets the sustainability of nominal convergence and, hence, diminish uncertainty in the pre-accession period and increase the probability of being accepted into the eurozone.
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Bibliographic InfoPaper provided by European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS) in its series EUI-RSCAS Working Papers with number 18.
Date of creation: 15 Oct 2004
Date of revision:
international trade; EMU; enlargement;
This paper has been announced in the following NEP Reports:
- NEP-EEC-2004-11-07 (European Economics)
- NEP-MON-2004-12-21 (Monetary Economics)
- NEP-TRA-2004-11-07 (Transition Economics)
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