Well, in the context of my current view of "managed devaluation in the ±15 percent range after global situation stabilizes" ... (probably earlier, if supported by ECB?) ...
... this is IMF's view of alternative exchange rate regimes:
The authorities and staff examined the merits of alternative exchange rate regimes. A widening of the exchange rate band to ±15 percent (as permitted under ERM2; currently Latvia has unilaterally adopted a ±1 percent band) would result in a larger initial output decline, since adverse balance sheet effects would reduce domestic demand. However, competitiveness would improve more quickly, reducing the current account deficit and fostering a more rapid economic recovery (Box 1). The case for changing the parity would be stronger if it could be accompanied by immediate euro adoption. Technically, this would address many of the risks described above, and give Latvia deeper access to capital markets. With its negligible public sector debt, the government would also find it easier to borrow in euros on international capital markets. However, the EU authorities have firmly ruled out this option, given its inconsistency with the Maastricht Treaty and the precedents it would set for other potential euro area entrants.
Some questions in my mind:
1) how do you "feel" about the balance sheets of households? Very important?
2) what happens, and it appears to me very likely, if the economic adjustment is much longer than officially expected at the moment?
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