Pros and Cons of Currency Board Arrangements in the Lead-Up to EU Accession and Participation in the Euro Zone

Historically, countries with currency board arrangements (CBAs) have experienced lower inflation and higher growth than those with other regimes. The experiences of three candidates for EU membership with CBAs (Estonia, Lithuania, and Bulgaria) have also been generally favorable. Can CBAs serve these transition countries well all the way up to the adoption of the euro? After considering the pros and cons, this paper provides an affirmative answer, but notes that to preserve the viability of their CBAs throughout the process, these countries need to maintain strict policy discipline and be prepared to deal with large capital inflows and asymmetric shocks.Currency boards;European Union;currency board, exchange rate, exchange rate regime, exchange rate regimes, current account, central bank, exchange rates, foreign exchange, nominal exchange rate, external shocks, exchange rate stability, fixed exchange rate, exchange rate arrangements, exchange rate peg, current account deficit, exchange rate policy, central banks, exchange rate flexibility, external debt, flexible exchange rate, real exchange rate, current account deficits, domestic financing, flexible exchange rate regime, exchange rate pegs, alternative exchange rate regimes, fixed exchange rate countries, fixed exchange rate peg, external debt management, currency pegs, domestic currency, exchange rate adjustments, debt problems, foreign exchange reserves, debt management, exchange markets, fixed exchange rate pegs, exchange rate guarantee, foreign exchange law, foreign exchange markets, floating exchange rates, alternative exchange rate, fixed exchange rates, exchange reserves