Working Paper: CEPR ID: DP500
Authors: Richard Portes
Abstract: This paper discusses when and how to introduce foreign exchange convertibility in the process of transformation of the socialist centrally-planned economies into market economies based on private property. It elucidates the need for `robust sequencing' in a programme of economic reforms and the importance of establishing the credibility of the programme. It then discusses why convertibility is so important in the sequence, and it goes on to deal with implementation and exchange rate policy. Macroeconomic stabilization is treated as a central issue in the strategy for achieving convertibility. Finally, the paper comments on alternative sequences and the role of external financial support for convertibility.
Keywords: convertibility; eastern europe; exchange rate; sequencing
JEL Codes: 431
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| early convertibility (F31) | enhanced policymakers' credibility (E61) |
| convertibility (F31) | transformation from socialist economies to market economies (P30) |
| maintaining convertibility at a pegged rate requires realistic exchange rate (F31) | successful convertibility (F31) |
| financial discipline (G53) | sustainability of convertibility (F31) |
| timing of convertibility (F31) | successful implementation of convertibility (F33) |
| external financial support (O36) | facilitation of the transition to convertibility (F33) |