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Currency Board: the Case of Bulgaria

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Currency Board: the Case of Bulgaria
ISSN 0825-5822 The texts published in the series "Cahiers du CETAI" are solely the responsibility of their authors.

Cahier de recherche
THE NONORTHODOX CURRENCY BOARDS: THE CASE OF BULGARIA
Nikolay NENOVSKY* and Kalin HRISTOV*
2001-01 January 2001

*

Bulgarian National Bank, Research Department; University of National and World Economy, Department of Finance, Sofia, Bulgaria.

Copyright © 2001. Centre d’études en administration internationale (CETAI), École des Hautes Études commerciales (HEC-Montréal). Reproduction of this paper is forbidden without the author 's written authorization. École des Hautes Études Commerciales benefits from a subvention granted by the Fonds pour la Formation de Chercheurs et l 'Aide à la Recherche (FCAR) for the publication of its research papers.

ISSN 0825-5822 Legal deposit – 1st quarter 2001 National Library of Canada Bibliothèque nationale du Québec

THE NONORTHODOX CURRENCY BOARDS: THE CASE OF BULGARIA

Abstract

In recent years a number of countries have introduced currency boards (CB). The new generation currency boards, which is gaining swing and popularity, preserves to different degrees the central bank 's ability to perform the lender of last resort function (LOLR) and leaves room for intervention in case of systemic risk. Central bank flexibility was preserved in different forms in HongKong, Argentina, Estonia, Lithuania and Bulgaria. Macroeconomic and microeconomic implications of such departures from orthodox currency boards have not been thoroughly studied yet. In actual fact, construction of second generation currency boards (often called quasi CB) provides an opportunity for conducting monetary policy (certainly not in its typical form). The major questions that need answers are: (1) which are the new channels of monetary policy; (2) does an orthodox self-regulating mechanism work with second generation currency boards; (3) how are disequilibria in the economy adjusted? The theoretical


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