The central and East European currency phenomenon reconsidered

Abstract

SIx YEARS OF TRANSITION EXPERIENCE in Central and Eastern Europe (CEE) provide unique evidence on patterns of economic transformation in these countries. One of the most remarkable achievements of economic reforms has been the early introduction of currency convertibility. While the introduction of full convertibility in some West European countries took several decades,1 most of the CEE reform countries declared convertibility-at least on current account and for residents-in the first year of economic reforms.2 In spite of a substantial reduction of trade barriers, and a deep recession, as a consequence of necessary economic adjustments, all of the CEE countries were able to maintain current account convertibility. The convertibility was established and maintained under different exchange rate regimes. The countries in transition have adopted all possible sorts of regimes, ranging from a fixed to a freely floating exchange rate system.3 But independent of the chosen exchange rate policy, there were at least two important similarities among all reform economies.