71% OF VOTES IN POLL SHOULD CURRENCY BOARD REMAIN IN BG POSITIVE

Business | January 20, 2002, Sunday // 00:00

The majority of the readers who cast their votes in the latest poll of the novinite.com support the currency board in Bulgaria. To the question “Should Currency Board remain in Bulgaria?,” 71% of those who voted, answered positively. The rest 29% voted against the system, imposed in 1997 by the International Monetary Fund. Following a period of deep crisis in 1996 and in early 1997, the Currency Board Arrangement (CBA) was acknowledged as the best tool for stabilization and a way out of the crisis for Bulgaria. It was introduced formally in July 1997. Proponents felt that the currency board offered an ideal solution to the problems of high inflation, lavish central bank lending to banks, and excessively high interest rates on government debt. The obvious advantages of a currency board are economic credibility, low inflation and low interest rates. But a currency board can prove limiting. With a currency board in place, the central bank can no longer serve as a lender of last resort. Another disadvantage is that with a currency board arrangement, it is not possible to use financial policies – that is, adjustments of domestic interest or exchange rates – to stimulate the economy, economic adjustment can be achieved only through wage and price adjustments, which can be both slower and more painful.
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