This diversity of exchange rate regimes can be explained in terms of the progress made thus far by these countries in disinflating their economies; their degree of openness; the extent of capital account liberalisation; and the adequacy of their reserves. Generally speaking, during the early phase of transition when many accession countries were faced with the task of disinflating their economies and restoring the credibility of monetary policy, fixed exchange rate regimes were the norm. Then, a credible anchor in the form of the currency of a low-inflation trading partner was viewed as the best strategy for meeting these objectives. The rationale is not difficult to understand. The persistence of inflation differentials under a fixed exchange rate regime would lead to an appreciation of the real exchange rate, undermining a country’s external competitiveness. The mere adoption of a fixed exchange rate indeed signals the intention to subordinate monetary policy to exchange rate policy, adding to the credibility of anti-inflationary monetary decisions. As these countries progressed with disinflation and as the emphasis shifted towards integration with the EU, the continuation of structural reforms and attracting sufficient capital flows to enhance real convergence, a gradual move to more flexible regimes become feasible. At first sight, such a shift would also seem to be indicated for Malta, particularly as the capital liberalisation programme approaches full implementation.
The Central Bank of Malta has been collaborating with the Ministry of Finance and the Ministry of Economic Services in the preparation of the necessary documentation. To date, like all other accession countries, Malta has submitted two PEPs. Conclusion The road to EMU is clearly not an easy one as the tasks involved are both numerous and difficult. For a small central bank with limited resources they represent a formidable challenge. On a policy level,  BIS Review 70/2002  5  there are reasons to believe that the current fixed exchange arrangement should ideally be maintained until Malta adopts the euro. It should also be clear, however, that the Government’s commitment to contain the fiscal deficit and to pursue structural reforms is a vital prerequisite for the sustainability of the fixed exchange rate regime. The importance of fiscal discipline and of product and factor market flexibility will indeed increase as Malta progresses towards EMU. 6  BIS Review 70/2002