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This is a qualitative case study of the adoption of a currency board in Argentina in 1991. It presents a discursive analysis and intellectual history of four overlaying and mutually influencing stories of Convertibility’s adoption. It is (1) the story of how Menem aligned himself to the Washington Consensus as a means to win a Presidential election. This ideological alignment influences and is influenced by a (2) reconstitution of the Peronist Party’s historically entrenched identity. This in turn re-fashion the whole system of interest articulation and relative power of interest groups in Argentina. The adoption of a currency board also marks the pace of (3) the entrenchment neoliberal interests across a domestic network of neoliberal think-tanks, technocrats, politicians, and “technopoles” articulating neoliberal interests outside of the Washington Consensus, within an International Neoliberal Network. Argentina’s adoption of a currency board falls in line with the Corner Solutions, a neoliberal doctrine promoted to influence developing countries to adopt two forms of exchange rate regimes that allow for less government involvement, including a currency board. Argentina starts as a test country and then becomes (4) an ideological stepping stone to help promote the creation of currency boards across more “developing” countries. These stories are not sequential but concurrent, and they help advance an alternative critique of neoliberalism that focuses on specifics to induce case-specific lessons versus a theory claiming to provide any universal truth.

Jedno od ključnih pitanja za procjenu monetarnog sistema i monetarne politike u nekoj zemlji predstavlja analiza monetarnog transmisionog mehanizma – veza i kanala putem kojih odluke o monetarnoj politici utiču na likvidnost i prinose na finansijskim trištima, što u konačnom utiče na odluke o potrošnji i investicijama domaćinstava i preduzeća. Transmisioni kanali preko kojih funkcioniše monetarna politika su najčešće kompleksni i međusobno isprepleteni, pri čemu se efekti mjera monetarne politike na ključne makroekonomske varijable, kao što su inflacija i autput, javljaju uz duge i varijabilne vremenske pomake. Njihova identifikacija je značajna zbog toga što oni determinišu najefikasniji set instrumenata monetarne politike, tajming promjena politike, a samim time i osnovna ograničenja sa kojima se centralna banka suočava pri donošenju odluka o monetarnoj politici. U literaturi je identifikovano nekoliko kanala: kanal kamatnih stopa, kanal (ostalih) cijena aktiva, kanal deviznog kursa, kreditni kanal, kanal očekivanja i kanal preuzimanja rizika, pri čemu se nerijetko izdvaja i kanal troškova kao zaseban kanal monetarne transmisije. Jačina pojedinačnih kanala mijenja se tokom vremena, tako da se proces monetarne transmisije mora kontinuirano izučavati i iznova procjenjivati. Značaj svakog od tih kanala zavisi od niza faktora, prije svega od ekonomske, zakonske i finansijske strukture posmatrane zemlje. Monetarni transmisioni mehanizam u zemljama u razvoju i tranziciji može biti u značajnoj mjeri različit od onoga koji se obično opisuje u ekonomijama sa sofisticiranijim finansijskim sistemima. Specifično makroekonomsko i finansijsko okruženje tih zemalja ima značajne implikacije na različite konvencionalne kanale monetarne transmisije. Niz faktora, kao što su slabi institucionalni okviri, umanjena uloga tržišta hartija od vrijednosti, nesavršena konkurencija u bankarskom sektoru, rezultirajući visoki troškovi bankarskih kredita privatnim preduzećima i druge slabosti p, One of the key issues in assessing monetary system and monetary policy in an economy is the analysis of the monetary transmission mechanism – links and channels through which monetary policy decisions influence liquidity and returns in financial markets, and ultimately spending and investment decisions of households and enterprises. The transmission channels through which monetary policy operates are often complex and intertwined, while the effects of monetary policy measures on key macroeconomic variables, such as inflation and output, appear with long and variable time lags. Their identification is significant because they determine the most efficient set of monetary policy instruments, the timing of monetary policy changes, and thus the main limitations a central bank is facing in making monetary policy decisions. Several channels have been identified in the literature: interest rate channel, (other) assets prices channel, exchange rate channel, credit channel, expectations channel and risk taking channel, while the cost channel is often singled out as a separate channel of the monetary transmission. The strength of individual channels changes through time so the process of the monetary transmission has to be continuously analyzed and repeatedly assessed. The significance of those channels depends on several factors, primarily on economic, legal and financial structure of the observed economy. Monetary transmission mechanism in developing and transitional economies may to a significant degree be different from that often depicted in economies with more sophisticated financial systems. The specific macroeconomic and financial environment of those economies has significant implications on different conventional channels of monetary transmission. Various factors, such as weak institutional frameworks, diminished role of securities market, imperfect competition in the banking sector, resulting high costs of bank credits to private enterprises and other weaknesses imp

This paper examines which direction the sovereign debt crisis will take, considering whether or not there are circumstances that will lead to the integration of the European Union. Germany, as a consolidated economy, although with a misguided vision of the crisis, can choose to act as a cooperative leader or a hegemonic leader, in order to go beyond the current logic of the euro and design a scheme where the ECB has greater weight in the creation of common objectives, which will give new impetus to the project of political union. On the other hand, the paper will also compare the experience of the United States in the area of fiscal union, to conclude that it is necessary to strengthen the idea of political unity in Europe. However, this will be a long journey with an unforeseeable ending., En este trabajo, se plantea la cuestión hacia qué dirección se dirigirá la crisis de la deuda soberana, evaluando, si existen circunstancias que lo encaminen hacia la integración o no, de la Unión Europea. Alemania como economía consolidada, aunque con una visión equivocada de la crisis, puede escoger actuar como líder cooperante o hegemónico para tratar de ir más allá de la lógica actual del euro, diseñando un esquema donde el BCE tome más importancia en la creación de objetivos comunes, que den un nuevo impulso al proyecto de unión política. Por otro lado, se realizará una comparativa con la experiencia de Estados Unidos en materia de unidad fiscal, para concluir en que es necesario fortalecer la idea de unidad política Europa. Sin embargo, este será un largo tránsito y de final desconocido.

This paper examines which direction the sovereign debt crisis will take, considering whether or not there are circumstances that will lead to the integration of the European Union. Germany, as a consolidated economy, although with a misguided vision of the crisis, can choose to act as a cooperative leader or a hegemonic leader, in order to go beyond the current logic of the euro and design a scheme where the ECB has greater weight in the creation of common objectives, which will give new impetus to the project of political union. On the other hand, the paper will also compare the experience of the United States in the area of fiscal union, to conclude that it is necessary to strengthen the idea of political unity in Europe. However, this will be a long journey with an unforeseeable ending., En este trabajo, se plantea la cuestión hacia qué dirección se dirigirá la crisis de la deuda soberana, evaluando, si existen circunstancias que lo encaminen hacia la integración o no, de la Unión Europea. Alemania como economía consolidada, aunque con una visión equivocada de la crisis, puede escoger actuar como líder cooperante o hegemónico para tratar de ir más allá de la lógica actual del euro, diseñando un esquema donde el BCE tome más importancia en la creación de objetivos comunes, que den un nuevo impulso al proyecto de unión política. Por otro lado, se realizará una comparativa con la experiencia de Estados Unidos en materia de unidad fiscal, para concluir en que es necesario fortalecer la idea de unidad política Europa. Sin embargo, este será un largo tránsito y de final desconocido.

Starting July the 1st 1997, Bulgaria adopted a Currency Board (CB) monetary system. This paper aims at investigating if the adoption of the CB monetary system, which involves the cost of loosing monetary autonomy, has provided a relatively better (with respect to other CEEC) monetary integration of Bulgaria with the European Monetary Union (EMU). Since Bulgarian monetary variables are endogenous under a CB, we focus on the ECB and FED interest rates as the main sources on monetary volatility. First, we find that ECB shocks are more rapidly absorbed and have less significant impact of domestic variables, with respect to other external monetary shocks (FED rate changes). Second, the responses of Bulgarian variables following changes in the ECB interest rate present lower persistence and significance, with respect to what the previous literature emphasized for other CEEC with monetary autonomy. This latter result still holds when accounting for different sources of cross-country heterogeneity outlined in the literature, thus supporting that the adoption of the CB may have worked as a rather good device in terms of integration of Bulgaria into the EMU.

This paper examines the sustainability of the currency board arrangements in Argentina and Hong Kong. We employ a Markov switching model with two regimes to infer the exchange rate pressure due to economic fundamentals and market expectations. The empirical results suggest that economic fundamentals and expectations are key determinants of a currency board’s sustainability. We also show that the government’s credibility played a more important role in Argentina than in Hong Kong. The trade surplus, real exchange rate and inflation rate were more important drivers of the sustainability of the Hong Kong currency board.

This paper examines the sustainability of the currency board arrangements in Argentina and Hong Kong. We employ a Markov switching model with two regimes to infer the exchange rate pressure due to economic fundamentals and market expectations. The empirical results suggest that economic fundamentals and expectations are key determinants of a currency board’s sustainability. We also show that the government’s credibility played a more important role in Argentina than in Hong Kong. The trade surplus, real exchange rate and inflation rate were more important drivers of the sustainability of the Hong Kong currency board.

In 1996/1997 Bulgaria was hit by a severe financial crisis, spreading from a banking crisis to a currency crisis. However, in comparison to the Asian, the Russian or the recent Tango Crisis the Bulgarian Crisis did arouse relatively low international interest. We argue that the Bulgarian Financial Crisis might serve as an illustrative example of a twin crisis involving both a currency and a banking crisis. While the Bulgarian Crisis had some properties of so-called fundamental crises, as explained by first generation models of currency crises, the severity of the crisis was primarily due to systematic moral hazard behaviour of the banking sector. Special attention is paid to the crucial role the Bulgarian National Bank played in the pre-crisis and during the crisis period when acting more as a lender of first than a lender of last resort. We also show how Bulgaria managed to overcome the crisis by introducing a second generation currency board allowing the central bank to act as a strictly limited lender of last resort thereby making the country less prone to a financial crisis in the future.

Hong Kong’s 'linked exchange rate' (also known as the 'peg') is a currency board system under which the Hong Kong dollar notes are fully backed by the U.S. dollar at the rate of HK$7.8 per US dollar. In this paper we present an event analysis of the credibility of the peg as measured by the forward premium recovered from forward exchange rates. Based on the forward premium from January 1997 to December1998, the devaluation probability of the Hong Kong dollar as perceived by the foreign exchange market is calculated. We examine the evolution of credibility during this period using the theoretical framework of a target zone model. The relationship between Hong Kong dollar’s risk premium during the recent Asian financial crisis and four fundamental economic variables whose deterioration is widely regarded as conducive to currency crisis is explored.

The currency board system has sometimes been identified as the solution to the recent financial turmoil in many countries. Hong Kong, having the experience of abandoning and re-adopting the currency board, offers a natural opportunity to test its macroeconomic implications. We use the method of Blanchard and Quah (1989) to show that the structural equations and the characteristics of permanent and transitory shocks have significantly changed since re-adopting the regime in 1983. The evidence indicates that its currency board is less susceptible to supply shocks, but demand shocks can create greater volatility. Hong Kong’s decent performance is due mainly to the stable fiscal policy. Our analysis shows that two-thirds of the reduction in observed output and inflation volatility are explained by the adoption of the currency board, while the remainders are explained by changes in the external environment. The system does not rule out monetary collapse, however.

The paper reviews the circumstances under which speculative attacks on the currency board of Hong Kong occurred during the Asian financial turmoil. It argues that interest rate arbitrage as a defense mechanism would not function properly unless the risk premium of holding Hong Kong dollar could be reduced by restoration of confidence. A proposal to issue structured notes, or put options to strengthen the currency board is made. Arguments for and against the proposal are reviewed. We show that the 'technical' measures eventually undertaken by the Hong Kong Monetary Authority are analytically equivalent to issuing the structured notes. Empirical tests indicate that interest rate arbitrage had been working properly until the rule-bound currency board had been eroded by discretion introduced by the Monetary Authority. However, after implementing the structured notes proposal, interest rate arbitrage appeared to be effective again.

The paper shows that Hong Kong's currency board in recent years has gone through three stages, a rule-bound regime, a regime based on discretion, and a return to fixed rules. A number of methods developed in the target zone literature has been used to measure the credibility of the system. The empirical results show that the currency board was most credible when the monetary authority adhered to fixed rules. Reliance on discretion contributed not only to the erosion of market confidence in the system, but also made speculative currency attacks during the Asian financial turmoil easier.

The currency board system has sometimes been identified as the solution to the recent financial turmoil in many countries. Hong Kong, having the experience of abandoning and re-adopting the currency board, offers a natural opportunity to test its macroeconomic implications. We use the method of Blanchard and Quah (1989) to show that the structural equations and the characteristics of permanent and transitory shocks have significantly changed since re-adopting the regime in 1983. The evidence indicates that its currency board is less susceptible to supply shocks, but demand shocks can create greater volatility. Hong Kong’s decent performance is due mainly to the stable fiscal policy. Our analysis shows that two-thirds of the reduction in observed output and inflation volatility are explained by the adoption of the currency board, while the remainders are explained by changes in the external environment. The system does not rule out monetary collapse, however.

Hong Kong’s 'linked exchange rate' (also known as the 'peg') is a currency board system under which the Hong Kong dollar notes are fully backed by the U.S. dollar at the rate of HK$7.8 per US dollar. In this paper we present an event analysis of the credibility of the peg as measured by the forward premium recovered from forward exchange rates. Based on the forward premium from January 1997 to December1998, the devaluation probability of the Hong Kong dollar as perceived by the foreign exchange market is calculated. We examine the evolution of credibility during this period using the theoretical framework of a target zone model. The relationship between Hong Kong dollar’s risk premium during the recent Asian financial crisis and four fundamental economic variables whose deterioration is widely regarded as conducive to currency crisis is explored.

The paper reviews the circumstances under which speculative attacks on the currency board of Hong Kong occurred during the Asian financial turmoil. It argues that interest rate arbitrage as a defense mechanism would not function properly unless the risk premium of holding Hong Kong dollar could be reduced by restoration of confidence. A proposal to issue structured notes, or put options to strengthen the currency board is made. Arguments for and against the proposal are reviewed. We show that the 'technical' measures eventually undertaken by the Hong Kong Monetary Authority are analytically equivalent to issuing the structured notes. Empirical tests indicate that interest rate arbitrage had been working properly until the rule-bound currency board had been eroded by discretion introduced by the Monetary Authority. However, after implementing the structured notes proposal, interest rate arbitrage appeared to be effective again.

The paper shows that Hong Kong's currency board in recent years has gone through three stages, a rule-bound regime, a regime based on discretion, and a return to fixed rules. A number of methods developed in the target zone literature has been used to measure the credibility of the system. The empirical results show that the currency board was most credible when the monetary authority adhered to fixed rules. Reliance on discretion contributed not only to the erosion of market confidence in the system, but also made speculative currency attacks during the Asian financial turmoil easier.

The paper reviews the circumstances under which speculative attacks on the currency board of Hong Kong occurred during the Asian financial turmoil. It argues that interest rate arbitrage as a defense mechanism would not function properly unless the risk premium of holding Hong Kong dollar could be reduced by restoration of confidence. A proposal to issue structured notes, or put options to strengthen the currency board is made. Arguments for and against the proposal are reviewed. We show that the 'technical' measures eventually undertaken by the Hong Kong Monetary Authority are analytically equivalent to issuing the structured notes. Empirical tests indicate that interest rate arbitrage had been working properly until the rule-bound currency board had been eroded by discretion introduced by the Monetary Authority. However, after implementing the structured notes proposal, interest rate arbitrage appeared to be effective again.

Hong Kong’s 'linked exchange rate' (also known as the 'peg') is a currency board system under which the Hong Kong dollar notes are fully backed by the U.S. dollar at the rate of HK$7.8 per US dollar. In this paper we present an event analysis of the credibility of the peg as measured by the forward premium recovered from forward exchange rates. Based on the forward premium from January 1997 to December1998, the devaluation probability of the Hong Kong dollar as perceived by the foreign exchange market is calculated. We examine the evolution of credibility during this period using the theoretical framework of a target zone model. The relationship between Hong Kong dollar’s risk premium during the recent Asian financial crisis and four fundamental economic variables whose deterioration is widely regarded as conducive to currency crisis is explored.

The currency board system has sometimes been identified as the solution to the recent financial turmoil in many countries. Hong Kong, having the experience of abandoning and re-adopting the currency board, offers a natural opportunity to test its macroeconomic implications. We use the method of Blanchard and Quah (1989) to show that the structural equations and the characteristics of permanent and transitory shocks have significantly changed since re-adopting the regime in 1983. The evidence indicates that its currency board is less susceptible to supply shocks, but demand shocks can create greater volatility. Hong Kong’s decent performance is due mainly to the stable fiscal policy. Our analysis shows that two-thirds of the reduction in observed output and inflation volatility are explained by the adoption of the currency board, while the remainders are explained by changes in the external environment. The system does not rule out monetary collapse, however.

The paper shows that Hong Kong's currency board in recent years has gone through three stages, a rule-bound regime, a regime based on discretion, and a return to fixed rules. A number of methods developed in the target zone literature has been used to measure the credibility of the system. The empirical results show that the currency board was most credible when the monetary authority adhered to fixed rules. Reliance on discretion contributed not only to the erosion of market confidence in the system, but also made speculative currency attacks during the Asian financial turmoil easier.