Steve Hanke: Scrapping Bulgaria's Currency Board Would Be Grave Mistake
The father of Bulgaria's currency board has warned against scrapping the regime as it gives the country "a big prestige", being the only sphere of governance that remains untarnished.
Prof Steve Hanke has told Bloomber TV Bulgaria that the currency board helps the country retain its fiscal sovereignty, a dangerous step against the backdrop of a tense political environment.
No-one knows what will happen to the Eurozone from this moment on, especially given the presidential election due in France this spring and the risk of Brexit-style developments, Hanke has warned.
In his words, the currency board allows one to issue their own currency which acts as a clone to an "anchor" (or "reserve") currency. The arrangement helped do away with hyperinflation back in 1997, he has recalled.
Steve Hanke, now a Professor of Applied Economics at The Johns Hopkins University in Baltimore, US, advised President Petar Stoyanov in 1997 on the introduction of the mechanism.
The currency board mechanism pegs the lev to the euro at a fixed exchange rate and ties the level of levs in circulation to the level of foreign exchange reserves.
His comments follow indications that Bulgaria's interim government is ready to seek accession into the ERM II mechanism, the so-called Eurozone "waiting room". The move would effectively place an end to the currency board arrangement applied to the lev, passing on fiscal authority to the European Central Bank.
During a visit to Bulgaria in May 2015, Hanke claimed Bulgaria had been an informal part of the Eurozone through its lev/euro peg and there was no need to take further steps which would result in a catastrophe.
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