Currency Board Arrangements. Rationale for Their Introduction, Advantages and Disadvantages

Diploma Thesis from the year 2002 in the subject Business economics - Trade and Distribution, grade: 1,5, Graduate Institute of International and Development Studies (unbekannt), language: English, abstract: Inhaltsangabe:Abstract:§Currency board arrangements, under which domestic currency can be issued only to the extent that it is fully covered by the central bank s holdings of foreign exchange, were long generally dismissed as throwbacks to the colonial era. It was argued that such a rigid, rule-based arrangement was not well suited to diversified economies in many of which the authorities had developed sophisticated skills in monetary management. Instead, currency boards were seen as desirable in very small open economies (such as city-states for example). In 1960, 38 countries or territories were operating under a currency board. By 1970, they were 20 and, by the late 1980s, only 9.§In the last decade the interest for Currency Board Arrangement (hereinafter CBA) renewed because of its simplicity, transparency, and rule-bound character. It became evident after the successful efforts made by two transition economies-Estonia and Lithuania-which quickly managed to achieve credibility for their newly established currencies. In 1997, a currency board arrangement was introduced in Bulgaria to end the economic crisis. Soon after, Bosnia and Herzegovina followed. In 1998 there have been discussions on establishing a currency board arrangement in Russia. More recently the newly appointed Finance Minister of Poland initiated a debate on pegging the Polish zloty to the euro through a CBA.§This paper previews the history of the colonial and modern currency boards and presents the benefits of such a system for the newly emerged transition economies in Eastern Europe and Bulgaria especially. First, we will present a brief description of the currency board system.§Currency Board Arrangements after falling into oblivion during much of the post-war period, staged a remarkable comeback mainly in Central and Eastern Europe countries. Estonia, Lithuania, Bulgaria and Bosnia and Herzegovina have introduced this particular monetary framework and as a result have managed to break inflationary inertia, to bolster the credibility of the monetary authorities and to instill macroeconomic discipline. §Inhaltsverzeichnis:Table of Contents:§I.Introduction§1.What is a currency board?§2.What a currency board is not?§II.Origins of the Currency Board§1.Intellectual origin of the currency board system§2.Early Currency Board Systems§3.Decline of the Currency Board system. Reasons§4.Currency board system in nowadays§III.Currency Board system and Countries in transition§1.Factors determining the choice of monetary regime in Central and Eastern Europe§2.Recent currency boars-like systems in the countries in transition. Estonia, Lithuania, Bosnia and Herzegovina§3.Advantages and Disadvantages from a country in transition view, theoretical discussion§4.Performance. Empirical evidence§IV.The case of Bulgaria§1.Reasons for introduction of the currency-board system in Bulgaria. The collapse of the financial system§2.Structure and Practical Implementation§3.Analysis of the Macroeconomic framework before and after the establishment of a CBA in Bulgaria. The role of the CBA in Bulgaria`s after-crisis stabilization§4.The benefits of the Currency Board system in Bulgaria. A critical regard five years after§V.Conclusion§VI.Bibliography