Exchange Rate Regimes in Central and Eastern European Transition Economies, with Lessons for Ukraine

This paper begins by reviewing the debate about exchange rate regimes in the transition countries of Eastern and Central Europe (CEECs), and suggests that prototypically such countries move through three stages: from fixed rates to flexible rates or, typically, managed floats, and then back to fixed rates again in preparation for adopting the euro. The paper then analyzes dilemmas associated with managed floats, or, more generally, “intermediate” regimes. It then looks at de facto adoption of foreign currencies in CEECs (i.e. dollarization and euroization), and analyzes the incentives for unilateral adoption of the euro: that is, without endorsement by the EU. Finally, it explores some implications for the embryonic debate about “currency cooperation” in East Asia.