Is Exchange Rate Regime Relevant for Transition from Plan to Market?

Laszlo Halpern

Deputy Director, Institute of Economics of Hungarian Academy of Sciences, CEPR, CEU, WDI, Budaorsi 45 Budapest 1112, Hungary, Tel: +36-1-309-2661, Fax: +36-1-309-2650 halpern@econ.core.hu

JEL Classification: E63, F31, P20

This paper offers guidelines to the future transformation of North Korea from the perspective of the exchange rate regime. For this reason first the paper reviews the relevant features of exchange rate regimes during the first period of transition from plan until the foundation of the major institutions of a market economy. The embarrassingly rich diversity does not explain success or failure, but permits analyzing the evolving role of exchange rate from fighting hyperinflation to arrive at a sustainable inflation with the possibility to join monetary integration. More specifically, exchange rate regimes of Hungary, Vietnam and the German reunification are analyzed. Finally, the options for North Korea are outlined.

Keywords:

Exchange rate regime, Transition, Monetary integration, North Korea

Acknowledgments

This is a revised version of a paper presented at conference on “Experience of Transition Economies and Implications for North Korea” organized by SNU, Seoul, 18 January 2008. Byung-Yeon Kim, two referees and participants of the conference provided helpful comments.

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