ABSTRACT
The purpose of exchange rate pegging was to create an anti-inflationary mechanism, and the currency board arrangement was designed to increase the credibility of the litas, the Lithuanian currency. This chapter discusses the operation of the Lithuanian currency board system. Of particular interest is whether the currency board system has contributed to the credibility of the exchange rate peg and Lithuania's monetary policy. On March 17, 1994, the Lithuanian parliament adopted a quasi-currency board arrangement almost identical to the Estonian model. The Hanke proposal was strongly supported by the International Monetary Fund and the Lithuanian prime minister, but strongly opposed by the Bank of Lithuania, the commercial banks and some industrialists. The Lithuanian arrangement is only a partial currency board, "if it is a currency board at all," according to the Bank of Lithuania's vice-chairman, Jonas Niaura. In 1994, the Lithuanian bank held 19 auctions of government securities, selling securities worth 563.3 million litas.
