Estonia and Lithuania, immediately upon regaining independence, pegged their currencies to the German mark and the dollar in an effort to make their small economies stable and thus attractive to foreign investors. The strategy paid off, but Lane says that over the long term, the price may be slower growth. The other examples, of Lithuania and Estonia, are of countries which have had currency boards almost throughout the transition period. And in that situation, what you have is the question of whether a currency board is a good idea for a long period of time such as a decade or longer. Transition economies would tend to grow more quickly than Western economies because they are in the catch-up phase, and it's not clear whether these countries might now do better by moving from a currency board to a more flexible exchange rate policy.
Economists remain divided about the longer-term merits of currency boards.
By giving up its ability to set interest rates, a country's central bank sacrifices important leverage. Even among countries now part of the euro zone, there is significant concern that the European Central Bank's binding decisions on interest rates will adversely affect some countries, to the benefit of others. But, Lane notes, for small countries dependent on foreign trade for most of their revenue, a currency peg may still prove to be the most advantageous solution. From independence in 1922 until 1979, Ireland had a currency board fixed to the British pound. But from 1979 until 1998, the Irish currency was partially floated.