ABSTRACT
This chapter considers some aspects of exchange rate policy for centrally planned economies during their transition to "market economies". It examines the relationship between convertibility, capital outflows and policy credibility. These factors are mutually related, and their interaction is highlighted by focusing on the experiences of Poland and the Czech and Slovak Federal Republic. The chapter discusses the speed at which the emerging market economies could move to a fully convertible currency. Foreign exchange convertibility may be limited to current account transactions or extended through a spectrum of interim stages to full, current and capital account, convertibility. The chapter draws together the main elements of the analysis and suggests some criteria which can be employed to determine the timing of a move to full convertibility. It also discusses the appropriate exchange rate policy for emerging market economies at an earlier stage in their transition.
