Andrzej SawiskiPolands accession to the euro zone:

Choices and challenges

1.Floating exchange rate:

source of shocks or a shock absorber?

Speculative attacks against the EMS currencies (1992-1993)

-35%-30%-25%-20%-15%

-10%-5%0%5%

10%

1990M1 1991M1 1992M1 1993M1

Belgian franc French franc Irish pound Italian lira Portuguese escudo Spanish peseta Danish krone Norwegian krone Swedish krona Pound sterling

Richard Layard, Willem Buiter, Christopher Huhne, Will Hutton, Peter Kenen, Adair Turner, Why Britain should join the euro? 1 August, 2000

Damaging fluctuationsDamaging fluctuations in exchange rate will in exchange rate will increaseincrease

An independent exchange rate can be a An independent exchange rate can be a source of source of shocksshocks to an economy rather than offsetting themto an economy rather than offsetting them

It is likely that floating exchange rates It is likely that floating exchange rates will fluctuatewill fluctuatein the medium term in the medium term even moreeven more in future than in in future than in the past.the past.

Exchange rate Exchange rate fluctuations may increasefluctuations may increase as capital as capital washes ever more rapidly around the world. washes ever more rapidly around the world.

For a mediumFor a medium--sized country like Britain, such sized country like Britain, such fluctuations are fluctuations are extremely damagingextremely damaging

S. Holden, 2009S. Holden, 2009

REER based on relative ULC

70

80

90100

110

120

130

1990 1995 2000 2005

Germany Greece Italy Spain Sweden United Kingdom

Exchange Rate Volatility and World Trade: A Study by the ResearcExchange Rate Volatility and World Trade: A Study by the Research Department of the h Department of the IMFIMF, , IMF Occasional PaperIMF Occasional Paper, No. 28, IMF Washington, July 1984, No. 28, IMF Washington, July 1984Wei ShangWei Shang--jin, jin, Currency Hedging and Goods TradeCurrency Hedging and Goods Trade, , European Economic ReviewEuropean Economic Review, vol. , vol. 43, 1999, pp. 137143, 1999, pp. 1371--1394.1394.

A puzzle in A puzzle in empiricalempirical international finance is the international finance is the difficulty in identifyingdifficulty in identifying a large and a large and negative effectnegative effectof exchange rate volatility of exchange rate volatility on tradeon trade. .

REER Poland (2005 = 100)

Equilibrium Equilibrium exchange rateexchange rate

Natural rateNatural rateof interestof interest

Memebership Memebership in the euro zonein the euro zone

http://onemansblog.com/2011/05/16/impossible-lego-sculptures-and-optical-illusions/

Challenging triangle Challenging triangle for a catchingfor a catching--up economyup economy

2.Lessons for Poland from the euro zone experience:

The case forThe case for European supervision

but combined with effective local effective local macroprudential authoritiesmacroprudential authorities..

Maximum harmonization

Olivier Blanchard, Monetary Policy in the Wake of the Crisis. Presentationfor the IMF conference Macro and Growth Policies in the Wake of the Crisis, Washington, 7-8 March 2011.

Countercyclical and liquidity charges cannot be implemented globally but need to be handled nationally in accordance with national cycles. /Avinash Persaud, 2009/

Issues of excessive asset growth or cross-border banking flows that are of most interest to emerging economies policy makers have received less attention/ Hyun Song Shin, 2011/

Regulatory diversity is indeed costly for bankers, who would have to adjust to differences in regulations across national borders. Some financial segmentation is a price well worth paying for stronger regulations that are solidly backed by domestic politics./ Dani Rodrik, 2010

Slide 11. Floating exchange rate: source of shocks or a shock absorber?Slide 3Richard Layard, Willem Buiter, Christopher Huhne, Will Hutton, Peter Kenen, Adair Turner, Why Britain should join the euro? 1 ASlide 5Slide 6Exchange Rate Volatility and World Trade: A Study by the Research Department of the IMF, IMF Occasional Paper, No. 28, IMF WasREER Poland (2005 = 100)Slide 92. Lessons for Poland from the euro zone experience:Slide 11Slide 12Slide 13Slide 14Slide 15