The triangle of impossibility versus possible modifications of the Polish exchange rate regime during the preparations for the Euro currency?s adoption
DOI:
https://doi.org/10.12775/EQUIL.2009.018Abstract
The main objective of this paper is to analyze whether and how the Polish exchange rate regime should be modified before Zloty?s adoption to European Rate Mechanism II (ERM II). Possible solutions (it means: currency board, managed floating and adjustable peg) are presented as different nodes of the triangle of impossibility. The conducted research leads to the conclusion that neither currency board nor dirty floating can provide appropriate base for the calculation of the Zloty/Euro central rate. It seems the temporary introduction of adjustable peg, which allows to adjust Polish exchange rate regime to the rules of ERM II in gradual way would be the best solution. Moreover, this option provides The National Bank of Poland with the ability to intervene with the currency market in order to achieve economic stabilization. However, adjustable peg is a good solution for our country as long as both monetary and fiscal authorities cooperate and unify their policy regarding entering the ERM II. Only then can Poland meet all of the convergence criteria.
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