About the Euro Adoption in Lithuania
Euro and Lithuania
Criteria and Implementation
The Second Exchange Rate Mechanism
The Second Exchange Rate Mechanism
The second Exchange Rate Mechanism (ERM II) is exchange rate policy system for euro zone and European Union (EU) countries that have not adopted the euro. The main feature of this system is that the main euro exchange rate for a non-euro zone currency, in an EU country, is set within fluctuation limits that cannot be more than ± 15 percent. Countries that participate in ERM II must ensure that their main currency rate corresponds to its economic basis, and must guarantee competition.
The EU institutions have decided that Lithuania is within ERM II as of 28 June 2004 and maintains a stable litas and euro rate.
Lithuania was able to become an ERM II member right after joining the EU, because it successfully implemented a strict fixed currency rate regime vis-à-vis nominal convergence, as well as acceptable and balanced non-inflationary economic growth.
Though the litas is pegged to the euro, the EU’s common currency’s advantages are not all being used to their full potential. Economic entities incur litas – euro – litas exchange costs, a deeper commercial and financial integration with the rest of the EU is hindered. Thus, the delay in adopting the Euro is associated with bigger economic outlay.
The EU’s new members must participate in ERM II for two years in order to fulfill convergence criteria before being allowed to adopt the euro.
