Research Discussion Papers, Bank of Finland
No 25/2001:
Finnish monetary and foreign exchange policy and the changeover to the euro
Tapio Korhonen
Abstract: This paper presents the salient aspects of Finland’s
monetary and exchange rate policies during the run-up to monetary union in
the 1990s. In the course of slightly more than a decade, Finland’s monetary
and exchange rate policies were thoroughly revamped. The remnants of heavy
regulation were removed and a market-based financial system was put in
place. There were serious problems associated with the liberalisation
process in the early part of the decade, the most noteworthy being an
economic and banking crisis. Finland’s financial system nonetheless
developed rapidly and became a more integrated part of the global system.
As regards exchange rate policy, almost all varieties of exchange rate
regime were tried. A fixed rate regime based on a currency index fell apart
in the early part of the decade and was replaced by a floating rate system.
Later, in 1993, this was combined with an inflation-targeting monetary
policy strategy. At the start of 1995 Finland joined the European Union,
and in October 1996 the markka was joined to the EU’s Exchange Rate
Mechanism. The improvement in financial and price stability that followed
the economic crisis facilitated the adjustment to the euro area’s single
currency and single monetary policy at the start of 1999, which was
accomplished without serious problems.
Keywords: monetary policy; foreign exchange policy; EMU; euro; monetary policy arrangements; (follow links to similar papers)
51 pages, December 3, 2001
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