Bulgaria's Currency Board Targeted by Speculators in 2009 - FinMin
Bulgaria's Finance Minister Simeon Djankov. Photo by Sofia Photo Agency
International speculators have targeted Bulgaria's currency board at the beginning of the ruling party term in 2009, the finance minister has revealed for the first time.
"The topic was kept secret in a bid to avoid panic that speculators may force Bulgaria into devaluation, just as it happened in Hungary, for instance," Minister Simeon Djankov said in an interview for Sega daily.
"If we had not made it clear back then that we are ready to take difficult decisions, the same fate would have befallen us too," he commented, taking up a question about the government's tight fiscal policy.
Speculators used for their attack the so-called credit default swap (CDS) with spreads widening to 700bp at the beginning of 2009.
In February the same year the currencies of Poland, Ukraine and Hungary dipped by more than 30%.
"From the end of 2008 till May 2010 international speculators flocked to buy foreign exchange, wanting to make the peg unviable and coerce authorities into eventually breaking the peg between the lev and euro.
"These things are always discussed after they are over to make speculators understand you are strong enough," the minister added.
Bulgaria currently operates in a currency board regime and the lev is pegged to the euro.
The country installed its currency board system (CBS) on the first of July fifteen years ago, ending its hyperinflation, which had peaked with a monthly inflation rate of 242%, in February 1997.
This mechanism ensures that all the local currency in circulation is covered by foreign exchange reserves in the coffers of the Central bank. All, government, and Central Bank alike - cannot print money and must operate within the straitjacket.
The Currency Board regime has proved to be one of the most trusted institutions, according to surveys.
Bulgarians prefer to use the lev instead of switching to the euro, even though the local currency is pegged to the euro, analysts say.
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