European Economic Integration and South-East Europe
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European Economic Integration and South-East Europe

Challenges and Prospects

Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald

With both transition dynamics and the EU integration process having shifted to the south-east of Europe, a region fairly marginalized in the literature, this book fills a gap by taking stock of where South-East Europe’s economies and institutions stood in 2004. The authors evaluate the potential for investment and growth within the South-East European region, including the role of trade and FDI, and discuss the challenges associated with unemployment, poverty and ‘brain drain’. The book also provides insights into the particular monetary and exchange rate policies applied, including cases of ‘euroization’, and finally makes an assessment, against this background, of the European perspective of the countries of South-East Europe.
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Chapter 11: Euroization in Montenegro: benefits, weaknesses and economic implications

Ljubisa Krgovic


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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