The currency board trap: the case of Bosnia and herzegovina

Type Journal Article - International Journal of Applied Econometrics and Quantitative Studies
Title The currency board trap: the case of Bosnia and herzegovina
Volume 2
Issue 2
Publication (Day/Month/Year) 2005
Page numbers 47-79
This paper provides a comprehensive analysis of the attractions and disadvantages of fixed exchange rates and currency board arrangements (CBA) principally drawing on the experience of Bosnia and Herzegovina (BiH). It assesses merits and costs related to this arrangement, primarily looking at the rigidities and constraints the regime imposes on macroeconomic policies, and the subsequent impact on growth and development. Finally, the paper elaborates if and under which conditions, the weaknesses associated with theregime are off set with its repeatedly assigned advantages of i.e.macroeconomic stability, low inflation, increased confidence andestablished credibility as well as reduced “costs” to businesstransactions and investments. The paper concludes that Bosnian currency board was viable temporary solution and that serious consideration shall be given to exiting the regime.

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