Does Macedonia Have to Abandon Its Fixed Exchange Rate of the Denar or Devaluate It?

Abstract

We are in the world economic crisis' swirl and the economies in transition are intervening in order to protect their currencies from devaluation, concretely Macedonia. Our research treats the issue if, in the actual crisis conditions, Macedonia has to keep its fixed exchange rate of denar or to pass into another exchange rateregime. The research also treats the alternative if Macedonia has to do an eventual devaluation of denar, in order to protect its economy from the actual world crisis.Because of its fixed exchange rate regime of denar, it is recommended arestrictive monetary policy in order to be ignored the possible risk of loaning as aresult of giving loans without cover up from the banks of the second level. This cancause serious damages in the banking system of Macedonia. A restrictive monetarypolicy also means an increase of interest rates in short terms which will have effects indecreasing the credits. This policy, in one hand, will affect negatively the components of Aggregate Demand (decreasing them), but will generate positive effects in keeping safe the banking system of Macdonia from any influence of the crisis, in the otherhand. Macedonia, through a fixed exchange rate of denar, will eliminate the possible importation of inflation from other countries. One of the elements that influences inthe current account is the possibility of speculation as a result of possible fluctuations of inflation and interest rates. Based on the Balance of Payments and the effects ofglobal financial crisis on the most important macroeconomic indicators we conclude that Macedonia needs to continue keeping its currency exchange rate fixed.