Monetary Integration of Central and Eastern Europe: How to Proceed?
University of Birmingham, International Finance Group Working Paper IFGWP-95-08
Posted: 7 Sep 1999
Date Written: June 1995
Abstract
A decade ago, Central and Eastern European countries were isolated economically from Western economies and integrated among themselves through the Council for Mutual Economic Assistance (CMEA). Now that the CMEA along with Czechoslovakia, the Soviet Union and Yugoslavia have disintegrated, one question is whether some form of integration or re-integration would benefit these Central and Eastern European countries and their neighbours to the West. This paper examines monetary integration from the perspective of the Central and Eastern European countries. Section 2 investigates the possible forms of monetary integration in Central and Eastern Europe from the weakest in the form of a convertible but floating exchange rate to the strongest in the form of adoption of a Western currency. It includes some discussion of whether multiple monies can coexist. Section 3 explores the question: Why Integrate? In Section 4, we turn our attention to the prerequisites for and mechanics of exchange-rate or monetary integration. Section 5 examines the question: When? The main conclusion that substantial monetary integration with the West would best be postponed until prerequisites on the real side, particularly in terms of fiscal balance, are fulfilled is reiterated in section 6.
JEL Classification: F02
Suggested Citation: Suggested Citation