Optimum currency area theory: evidence from post-Soviet countries and implications for Eurasian Economic Union

Substitution of Anchor Currency: Challenges for Trade Between Iran and Its Major Trading Partners

“…Lower OCA index indicates that it is suitable for the economy to join a monetary union or it shows that the given exchange rate is a suitable anchor. In the case of selecting between one anchor and several currencies in the basket, the minimum deviation of the exchange rate or OCA index can be the guideline (Bénassy-Quéré & Lahrèche-Révil, 1998;Barseghyan & Baghdasaryan, 2019). Fischer (2016), Baran andWitzany (2018), andThanarerk (2016) reconsider an anchor currencies after the global financial crisis on the basis of OCA approach from the global point of view and in South Asian countries respectively.…”

Real Exchange Rate Misalignments and Currency Crises in the Former Soviet Union Countries

“…Until the slump in the oil prices of 2014-2015, the effect of which was reinforced by the Western sanctions against Russia and unprecedented capital flee from the region, many FSU countries enjoyed a degree of both NER (nominal exchange rate) and RER stability never observed before (Dabrowski 2016). The appreciating trend persisted mostly in resource-rich states less damaged by the previous crisis (such as Azerbaijan, Kazakhstan and Mongolia), where the conjunction between pegged exchange rate and high inflation persisted to weigh on their RERs (Vinokurov et al 2017;Barseghyan and Baghdasaryan 2019). A remarkable exception could be found in Belarus-the only FSU state to go through a devastating monetary constriction in the mid-crisis period.…”

“…Combined with pegged regime, the repercussions of such actions revealed themselves in 2011 in form of foreign currency deficit and subsequent forced devaluation for more than 150 % (Dabrowski 2016). Nevertheless, an alike situation reoccurred in most of the region when the commodity prices dwindled in 2014-the attempts to maintain the pegged rates exhausted the nations' foreign exchange reserves, and even those surviving the 2008 crisis without greater adjustments to their exchange rates were engulfed by painful recessions and currency slumps (Vinokurov et al 2017;Barseghyan and Baghdasaryan 2019). This time, the encountered economic shocks were of more protracted nature and even the wealthiest oil-states of the FSU were not able neither to outlive their negative consequences with help of foreign reserves, nor make do with a one-time devaluation as during the previous crises (Vinokurov et al 2017).…”

“…An extensive amount of academic research has already been dedicated to those sorrowful events of abrupt devaluations and subsequent real economy downfalls common for the FSU countries in the twenty-first century; the unveiled explanations vary depending on the concrete situations in the individual countries, but usually include the discrepancies between monetary and fiscal policies, incorrect choice of the exchange rate regime, repercussions of the unconventional political experiments and inability (or unwillingness) to adjust the exchange rate policy to the external shocks (Korhonen and Wachtel 2006;Vinokurov et al 2017; Barseghyan and Baghdasaryan 2019).…”