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Estonia anticipates the euro

  • 1998-12-17
TALLINN (BNS) - On New Year's Eve the world will welcome a new European currency, the euro, which will eventually replace 11 national currencies.

As the Estonian kroon is pegged to the German deutschemark, the introduction of the euro will indirectly affect Estonia's monetary policy.

The Bank of Estonia said it does not plan any changes in its monetary policy yet, and the exchange rate of the kroon and the deutschmark will remain the same, 8:1.

But at the same time the kroon will also be pegged to the euro at the exchange rate of the euro and the deutschemark on Dec. 31, 1998, with the accuracy of six digits.

The bank's president, Vahur Kraft, said the successful launch of the common European currency is important for Estonia because it depends on a fixed exchange rate and foreign investments.

"This will add to the stability of those currencies which are important, as well as to the stability of interest levels. And for countries with a fixed peg there is a positive effect also in the euro countries' increased price stability," Kraft wrote in the Eesti Paevaleht newspaper.

After introduction of the euro, Kraft said, Estonia will have to make some technical changes - the kroon will have to be formally tied to the euro.

"Although on Jan. 1 this tie will become reality due to our link with the deutschemark," Kraft said. "Naturally, the technical changes will not mean a stop to the fixed exchange rate policy and they will take place under the currency board system."

The Bank of Estonia admitted that by 2002 Estonian legislation will have to be amended, replacing the present references to the deutschemark with references to the euro. The current exchange rate between the kroon and the deutschemark will be used when the kroon will be pegged to the euro.