Vakhtang N. Baramiya. Exchange-rate policy in the transition economies (the case of Ukraine).

The dissertation is devoted to the theoretical and practical aspects of formation, conduct and development of exchange-rate policy in the transition economies (TE) in case study for Ukraine. Reforms in exchange-rate policy of the TE are being performed under the impact of a gradual global shift from fixed (rules-based) to flexible (discretion-inclined) exchange rate arrangement due to liberalization of the International Monetary System. Such shift is driven by higher inflation, enhanced capital mobility, and accompanies the process of financial globalization. More flexibility results in the increased vulnerability to external shocks but less disposition towards misalignment with medium-run fundamentals and deviation from equilibrium level, and more capability of self adjustment. Thus higher currency flexibility boots foreign trade and economic development. Furthermore, more flexibility reduces prospective outcomes in case of currency crisis, and provides more incentive and discretion to leading monetary authority (central bank). But it is set forth in the dissertation that to avoid extreme currency fluctuations in particular conditions of transition economies the optimal exchange-rate policy should combine both elements of rules and discretion. It is emphasis in the paper that after initial stabilization most of the TE, with certain exemptions, practiced the same shift to greater exchange-rate flexibility. As a part of stabilization program currency reforms assumed initial devaluation, introduction of domestic and later current account convertibility (capital account convertibility is restricted), and choice of exchange-rate regime. It is pointed out that initial devaluation eliminates monetary overhang and provides transient favorable competitive positions for national exports. On the other hang, devaluation releases repressed inflation. But it is less harmful to err on devaluation than revaluation. The author defines hybrid exchange-rate arrangements as temporary pertinent under yeasty financial systemsin TE and refers freely floating exchange rate regime to advanced TE upon completion of transit to developed market economy. In the dissertation the author performed analysis of exchange-rate policy of Ukraine and estimated the impact of exchange rate on inflation stabilization through: a) currency market and money supply, b) export/import prices, c) wages, and d) change of foreign cash holdings in private sector. As requisite steps to improve exchange-rate policy in Ukraine the author recommends to adhere to managed floating as optimal under present macroeconomic conditions, to diminish defect of imports, to increase degree of autonomy and credibility for National Bank of Ukraine, and to promote exchange rate system towards free floating by introduction of forward (futures) currency deals.