Important aspect of ongoing discussions on the choice of exchange rate regime is its reaction to crisis as a strong and unexpected external shock; such was the case of Great Recession from 2008.-onwards. It is generally accepted that pegged exchange rate regimes are more sensitive to external shocks that might cause their long-term destabilization. Still, the soft pegged regimes (also entitled intermediate regimes) have fewer limits, with rules that allow more maneuver space for national strategy. The group of soft pegged regimes is wider, both in structure and scope, then those of hard pegged regimes. While countries with more flexible regimes might use exchange rate fluctuations as automatic stabilisator, (hard and/or soft) pegs impose some limitations. In the first place, there is stability goal that, in combination with strict regulatory rules, limits the monetary and exchange rate policy, demanding the use of other strategies, such is the internal devaluation. Secondly, these countries do not use wide scope of instruments and their crisis strategy is more rigid than those of other regimes. Finally, there are dilemmas on the optimality of exchange rate strategy during the pre-eurozone membership period, including the euro introduction strategy. These dilemmas deepen in terms of crisis.
This paper focuses on comparison of hard and soft pegged regimes (the latter also entitled intermediate regimes) in selected European union accession countries, using „de facto“classification scale developed by International Monetary Fund. Despite the crisis, there have not been dramatic turbulences in terms of exchange rate policy in observed countries, but the general economic indicators clearly show the real depth of crisis and slow recovery. The question open for further discussion is whether such regimes should be obtained or abandoned during the crisis and what is their contribution to national economy. Furthermore, there are pros and cons of possible strategies, considering the European integration process.
The choice of an exchange rate regime: Outcomes and constraints