Roles of Hard Pegs in Developing and Transition Countries: Cases of Argentina, Estonia, Bulgaria, and Ecuador

Abstract

Since the 1990s, some developing and transition countries have adopted hard peg exchange rate regimes. Hard peg exchange rate regimes consist of dollarization, currency boards, and currency unions. A currency board is an exchange rate regime under which the exchange rate is fixed and the monetary base is fully backed by foreign exchange reserves. Dollarization is an exchange rate regime under which a country unilaterally lets another country’s currency circulate in place of a national currency. Under both regimes, monetary policy autonomy is largely restricted.