Exchange Rate Regimes - A periodical overview and a critical analysis of exchange rate regimes in Kosovo

AuthorFlamur Bunjaku
PositionUniversity of Pristina
Pages40-46
ISSN 2410-3918 Academic Journal of Business, Administration, Law and Social Sciences Vol 1 No 1
Acces online at www.iipccl.org IIPCCL Publishing, Tirana-Albania March 2015
40
Exchange Rate Regimes – A periodical overview and a critical analysis of
exchange rate regimes in Kosovo
MBA. Flamur Bunjaku
University of Pristina
Abstract
Exchange rate regimes and the monetary policy are the key instruments governments use to
achieve their economic and nancial objectives. Moreover, due to global nancial crisis the latter
instruments get more importance. Empirical evidences show that exchange rate regimes in Kosovo
and its monetary policy throughout their development were mainly inuenced by dierent political
and historical developments. In regard of Euroisation of monetary system in Kosovo it was found
that this action generated macro - nancial stability in terms of ination and price uctuation.
However, in terms of microeconomic aspects, the unilateral adaptation of Euro as the ocial
currency of Kosovo failed to provide microeconomic advantages such as to export stimulation,
and so forth. e main exchange rate regime systems were discussed focusing in their advantages
and disadvantages, and it was concluded that there is no commonly accepted theory regarding the
optimality of exchange rate regimes. In addition, the global nancial crisis impact in the nancial
system of Kosovo is also discussed and it was found that negative impacts of global nancial crisis
were moderate and indirect.
Keywords: Exchange rate regimes, monetary system.
Introduction
In a historical retrospective the governments all over the world in order to attain their
economic objectives have used various macroeconomic instruments. Monetary policy and
the instruments derived from it have been and remain to be one of the key tools in achieving
macroeconomic stability and nancial advantages for a certain country. Exchange rates regimes
are one of the key instruments governments use to achieve their nancial and economic
objectives. Exchange rates regimes as variable instruments change and are determined from
the domestic, regional and global political, economic and nancial situation. Frankel (1999)
in the article “No single currency regime is right for all countries or at all times” claims that
“e appropriate exchange rate regime varies depending on the specic circumstances of the
country in question (which includes the classic optimum currency area criteria, as well as
some newer criteria related to credibility) and depending on the circumstances of the time
period in question (which includes the problem of successful exit strategies” (p. 2). According
to Rose (2011) countries choose their exchange rate regimes based on national characteristics,
such as geographic, political, demographic, or institutional features. erefore, depending on
external and internal circumstances an exchange rate regime for a certain country may create
advantages, whereas for another one may cause disadvantages and monetary ineciency.
In correlation to the latter conclusion this paper is about to analyze various exchange rate
regimes and their advantages and disadvantages. Moreover, the paper is going to provide

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