Date set to switch litas peg from dollar to euro

  • 2001-07-12
  • Brent W. Walsh
VILNIUS - Lithuania's central bank announced June 28 that the transition of the Lithuanian national currency, the litas, to a fixed rate against the euro would begin Feb. 2, 2002. The market rate will be based on the European Central Bank's daily euro exchange rate against the U.S. dollar on Feb. 1, 2002.

The formal repegging announcement was the culmination of long-term discussions between the ECB, the Bank of Lithuania, the International Monetary Fund and Lithuanian government officials.

According to Mark Horton, chief of the International Monetary Fund in Lithuania, there are still a few technical considerations awaiting approval.

"The central bank has not announced what percentage of Lithuania's foreign currency reserves will be converted into euros. The IMF has provided technical consultants, aided in questions of timing, and we have been impressed with Lithuania's policy framework and progression," Horton said.

The plans to change from a fixed 4-to-1 rate against the U.S. dollar, which has been in place since April 1, 1994, is a natural response to Lithuania's ever increasing economic integration with the economies of the European Union.

Horton feels that Lithuania has met major economic measurements with success throughout the past two years.

"Since 1999, Lithuania's fiscal deficit and its current account deficit have both been decreased," he said. "Lithuania's export growth also increased by 21 percent last year.

"Barometers such as these took away any doubt as to the viability of a successful repegging."

According to a statement from the central bank, the change to the euro peg and the date of the change both bode well for Lithuanian business. "With the emergence of a corresponding export structure, it has become increasingly important to reduce the fluctuations of the real exchange rate of the litas against the currencies of (Lithuania's) main trading partners," the statement read.

Arvydas Kregzde, deputy chairman of the central bank's board, said that response to the announcement has been encouraging.

"Once we overcame the initial psychological hesitation and answered people's questions, the response we have seen is overwhelmingly positive. This is an important change for Lithuanian business, and our timing of early 2002 compliments the fiscal schedules of private business. Also, the central bank's international and public relations departments will have prepared a full informational group to help with the transition," Kregzde said.

The litas' fixed relationship with the euro is one of many steps in growing and expanding Lithuania's current monetary policy. According to the Parliament's budget and finance committee chairman, Kestutis Glaveckas, the change will help an already healthy export atmosphere.

"Last year, 50 percent of Lithuania's exports were to Western Europe. The change will help businessmen and may aid our capital market situation. It will also allow more flexibility with our national monetary policy," he said.