ABSTRACT
This chapter aims to develop arguments for the adoption of a fixed peg by six selected transitional economies: Bulgaria, the Czech Republic, Hungary, Poland, Slovakia and Slovenia. It explores the occurrence of real appreciation and, in the context of fostering credibility for the peg, examines the role of currency convertibility in these countries. There is almost universal agreement that the statutory prime objective of central bank policy is the maintenance of price stability. As has been pointed out elsewhere, the basic policy problem facing the central banks of economies in transition is how to best achieve this objective, i.e., with the least economic cost in terms of frictional unemployment. The challenge for governments and central banks is, therefore, to select a monetary regime that is conducive to the achievement and maintenance of price stability, to define the intermediate target(s), and to devise effective operating procedures.
