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This paper provides a comprehensive analysis of the attractions and disadvantages of currency board arrangements in their various institutional configurations. It asks what defines a currency board arrangement, what are their strengths and weaknesses, and what constraints they place on macroeconomic policies. It also reviews country experiences with these arrangements

Two common objections to currency boards are that they are dominated by more flexible policies and that they are unsustainable. The paper confronts these objections with the insights from a model economy in which several constituencies who compete for subsidies do not have the ability to monitor the allocation of government spending. Such assumptions are meant to capture important features of the reality of many countries for which currency boards have been proposed. The model suggests that, in such environments, flexible policies in a certain class have an inflationary bias that a sustainable currency board can – but not necessarily – eliminate.

Die Frage nach der richtigen geldpolitischen Strategie für Länder mit einer nur wenig gefestigten Währung ist nach wie vor offen. Der Wandel der wirtschaftspolitischen Empfehlungen wird wesentlich von Erkenntnissen aus neuen Fallbeispielen wirtschaftspolitischer Experimente bestimmt. Die Wirtschafts- und Finanzkrise von Argentinien bietet eine solche Chance zu lernen. Der Krisenausbruch war mit dem Scheitern des dortigen Currency board verknüpft, einer geldpolitischen Strategie, die in Osteuropa gegenwärtig von Bulgarien, Estland und Litauen verfolgt wird. Der Artikel analysiert anhand des Lehrstücks Argentinien die potenziellen Probleme dieser währungspolitischen Strategie und kommt zu Schlussfolgerungen, die auch für die genannten Länder Osteuropas von Bedeutung sind.

As the one Latin American emerging market country that has steadfastly adhered to a fixed exchange rate for more than a decade, this article examines the economic and political trade-offs that peso-dollar parity has entailed. In economic terms, the currency board has clearly fostered macroeconomic stability and fiscal prudence. Yet, the maintenance of a fixed currency regime in the context of volatile capital flows has also contributed to the steady appreciation of the peso over time. This trend, along with certain political deals (slow labor market reform and generous government transfers to the provinces) struck at the outset of the reform program, has greatly hampered the productivity and dynamism of the economy. (Rev Econ Pol/DÜI)

The lithuanian currency board established in april, 1994 came along with the monetary stability, but it did not benefit from the credibility effect which it was supposed to bring. The text tries to explain this lack of credibility. A first part examines the current hypothesis according to which the differences between the pure model of currency board, supposed to bring credibility by itself, and the lithuanian model, is at the origin of this default. A second part examines the circumstances and effects of the systemic banking crisis of 1995-96. A third part deals with the consequences of the exogeneous shocks on the Lithuanian economy. This leads to another hypothesis: the constraints of the currency board – may it be impure – induced the need to restore discretionary capacities, what was translated as a denaturation. The lack of credibility is then the product of the currency board itself. ; Si le currency board établi en Lituanie en avril 1994 s'est accompagné de la stabilité monétaire, il n'a pas pour autant bénéficié de la crédibilité qu'il était censé apporter. Ce texte s'interroge sur ce défaut de crédibilité. On examine d'abord l'hypothèse courante selon laquelle l'écart entre le modèle pur de currency board, censé apporter par lui-même la crédibilité, et le modèle lituanien, est à l'origine de ce déficit. On interroge ensuite les circonstances et les effets de la crise bancaire systémique de 1995-96. On traite enfin des conséquences des chocs exogènes sur l'économie lituanienne. Le tout conduit à avancer une autre hypothèse : les contraintes du currency board - fût-il impur - ont provoqué le besoin de restauration de marges de manœuvre discrétionnaires, ce qui a été traduit comme une dénaturation. Le défaut de crédibilité est alors le produit du currency board lui-même.

The lithuanian currency board established in april, 1994 came along with the monetary stability, but it did not benefit from the credibility effect which it was supposed to bring. The text tries to explain this lack of credibility. A first part examines the current hypothesis according to which the differences between the pure model of currency board, supposed to bring credibility by itself, and the lithuanian model, is at the origin of this default. A second part examines the circumstances and effects of the systemic banking crisis of 1995-96. A third part deals with the consequences of the exogeneous shocks on the Lithuanian economy. This leads to another hypothesis: the constraints of the currency board – may it be impure – induced the need to restore discretionary capacities, what was translated as a denaturation. The lack of credibility is then the product of the currency board itself. ; Si le currency board établi en Lituanie en avril 1994 s'est accompagné de la stabilité monétaire, il n'a pas pour autant bénéficié de la crédibilité qu'il était censé apporter. Ce texte s'interroge sur ce défaut de crédibilité. On examine d'abord l'hypothèse courante selon laquelle l'écart entre le modèle pur de currency board, censé apporter par lui-même la crédibilité, et le modèle lituanien, est à l'origine de ce déficit. On interroge ensuite les circonstances et les effets de la crise bancaire systémique de 1995-96. On traite enfin des conséquences des chocs exogènes sur l'économie lituanienne. Le tout conduit à avancer une autre hypothèse : les contraintes du currency board - fût-il impur - ont provoqué le besoin de restauration de marges de manœuvre discrétionnaires, ce qui a été traduit comme une dénaturation. Le défaut de crédibilité est alors le produit du currency board lui-même.

The lithuanian currency board established in april, 1994 came along with the monetary stability, but it did not benefit from the credibility effect which it was supposed to bring. The text tries to explain this lack of credibility. A first part examines the current hypothesis according to which the differences between the pure model of currency board, supposed to bring credibility by itself, and the lithuanian model, is at the origin of this default. A second part examines the circumstances and effects of the systemic banking crisis of 1995-96. A third part deals with the consequences of the exogeneous shocks on the Lithuanian economy. This leads to another hypothesis: the constraints of the currency board – may it be impure – induced the need to restore discretionary capacities, what was translated as a denaturation. The lack of credibility is then the product of the currency board itself. ; Si le currency board établi en Lituanie en avril 1994 s'est accompagné de la stabilité monétaire, il n'a pas pour autant bénéficié de la crédibilité qu'il était censé apporter. Ce texte s'interroge sur ce défaut de crédibilité. On examine d'abord l'hypothèse courante selon laquelle l'écart entre le modèle pur de currency board, censé apporter par lui-même la crédibilité, et le modèle lituanien, est à l'origine de ce déficit. On interroge ensuite les circonstances et les effets de la crise bancaire systémique de 1995-96. On traite enfin des conséquences des chocs exogènes sur l'économie lituanienne. Le tout conduit à avancer une autre hypothèse : les contraintes du currency board - fût-il impur - ont provoqué le besoin de restauration de marges de manœuvre discrétionnaires, ce qui a été traduit comme une dénaturation. Le défaut de crédibilité est alors le produit du currency board lui-même.

The lithuanian currency board established in april, 1994 came along with the monetary stability, but it did not benefit from the credibility effect which it was supposed to bring. The text tries to explain this lack of credibility. A first part examines the current hypothesis according to which the differences between the pure model of currency board, supposed to bring credibility by itself, and the lithuanian model, is at the origin of this default. A second part examines the circumstances and effects of the systemic banking crisis of 1995-96. A third part deals with the consequences of the exogeneous shocks on the Lithuanian economy. This leads to another hypothesis: the constraints of the currency board – may it be impure – induced the need to restore discretionary capacities, what was translated as a denaturation. The lack of credibility is then the product of the currency board itself. ; Si le currency board établi en Lituanie en avril 1994 s'est accompagné de la stabilité monétaire, il n'a pas pour autant bénéficié de la crédibilité qu'il était censé apporter. Ce texte s'interroge sur ce défaut de crédibilité. On examine d'abord l'hypothèse courante selon laquelle l'écart entre le modèle pur de currency board, censé apporter par lui-même la crédibilité, et le modèle lituanien, est à l'origine de ce déficit. On interroge ensuite les circonstances et les effets de la crise bancaire systémique de 1995-96. On traite enfin des conséquences des chocs exogènes sur l'économie lituanienne. Le tout conduit à avancer une autre hypothèse : les contraintes du currency board - fût-il impur - ont provoqué le besoin de restauration de marges de manœuvre discrétionnaires, ce qui a été traduit comme une dénaturation. Le défaut de crédibilité est alors le produit du currency board lui-même.

The European countries that during the past two decades based their exchange rate regimes on currency board arrangement (CBA) are usually analysed from the perspective of corner solution choice's stabilisation effects. There is an open discussion on the positive and negative background of a strict exchange rate regime choice, although it should be seen as part of the transition process towards the monetary union membership. The focus of the paper is on the Baltic countries that after two decades of a rigid exchange rate arrangement and strongly influenced by global crisis are finishing their path towards the euro zone. Besides the stabilising capacity, the CBA is highly vulnerable regime, with limited developing potential. The rigidity of the exchange rate (and monetary) system, despite the ensured credibility, do not leave enough (or any) space for the adjustment and/or active crisis management. Still, the Baltics are in a process of recovery, with fiscal consolidation measures combined with (painful and politically unpopular) measures of internal devaluation. Today, two of them (Estonia and Latvia) are members of euro zone, fulfilling their ultimate transition targets, but de facto exchanging one fixed regime with another. The paper analyses the challenges for the CBA in unstable environment since the fixed regimes rely on imported stability and are sensitive to external shocks. With limited monetary instruments, these countries were oriented to the fiscal policies and used a combination of internal devaluation and tax policy measures. Despite their rather quick recovery, our second goal is to analyse the long term influence that the measures had on the national economy.