Challenges and Prospects
Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 11: Euroization in Montenegro: benefits, weaknesses and economic implications
11. Euroization in Montenegro: beneﬁts, weaknesses and economic implications Ljubisa Krgovic ˇ ´ 1. INTRODUCTION The last decade was characterized by an accelerated development of monetary theories, as well as the implementation of new ideas and ﬁnancial innovations. These developments have conﬁrmed yet again that there is no generally accepted monetary theory, that is, no common pattern of monetary policy to be followed by central banks. Although this decade was also characterized by a more intensiﬁed implementation of inﬂation targeting, we can still conclude that, in practice, central banks are dominantly focused on exchange rates. This hypothesis has been conﬁrmed by research conducted by Fry (2000) on a sample of 94 countries. Figure 11.1 shows the most important results of this research. The ﬁgure clearly shows that of the 94 central banks analysed, for 33 the exchange rate represents the main objective, and for 34 an important objective. In other words, 67 central banks recognize the exchange rate as an important objective, while inﬂation represents an important objective for 61 central banks. There are a great number of diﬀerent currency regimes in the world today. The following 11 regimes have been distinguished both in theory and practice: 1. 2. 3. 4. 5. 6. 7. 8. Currency union Currency board Fixed peg to one currency Fixed peg to a group of currencies Horizontal band Crawling peg Crawling band Tightly managed ﬂoat 155 156 Monetary and exchange rate policies 9. Other managed ﬂoat 10. Free ﬂoating 11....
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