Currency Board: the Case of Bulgaria

Topics: Central bank, Monetary policy, Federal Reserve System Pages: 25 (6992 words) Published: February 28, 2013
ISSN 0825-5822 The texts published in the series "Cahiers du CETAI" are solely the responsibility of their authors.

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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



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 hypotheses presented are checked empirically based on Bulgarian data.


Ces dernières années, un certain nombre de pays ont mis sur pied des caisses d'émission. Cette nouvelle génération de caisses d'émission, en plein essor, préserve à différents degrés le rôle de la banque centrale en tant que prêteur de dernier recours et laisse une certaine marge de manœuvre en cas de risque systémique. La flexibilité de la banque centrale a été maintenue sous différentes formes à Hong Kong, en Argentine, en Estonie, en Lituanie et en Bulgarie. On n'a pas encore examiné à fond les implications macroéconomiques et microéconomiques de cette divergence par rapport aux caisses d'émission orthodoxes. En fait, la mise en place des caisses d'émission de seconde génération (souvent appelées en anglais les « quasi CB » – pour currency board) donne l'occasion de conduire une politique monétaire (qui diffère bien sûr du modèle typique). Les principales questions qui se posent sont les suivantes : 1) Quelle est la nouvelle filière de la politique monétaire ?; 2) Est-ce qu'un mécanisme d'autoréglementation orthodoxe convient à des caisses d'émission de seconde génération ?; 3) Comment corriger les instabilités dans l'économie ? Les hypothèses théoriques formulées sont vérifiées de façon empirique à la lumière de données sur la Bulgarie.

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Tables of Contents
1. 2. INTRODUCTION ..........................................................................................................................1 THE MAIN CHANNELS OF MONETARY POLICY UNDER THE QUASI CURRENCY BOARD ......2 2.1 Traditional channels......................................................................................................3 2.2 New channels..................................................................................................................3 2.3 The structure of the balance sheet of...

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The Nonorthodox Currency Boards: The Case of Bulgaria
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