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Partial or total, official or unofficial dollarization reflects a lack of monetary credibility and confidence in the countries concerned. In Lebanon, the irreversible high partial dollarization since the 1980s concerns deposits, credits, and even public debt. The accumulated deficits of the balance of payments since 2011 with the maintenance of the exchange rate peg USD/LBP have gradually depleted the USD reserves of the Central Bank of Lebanon. The collapse in 2019 is reflected in the fall of the pegged exchange rate regime, the default on payment of the public debt in USD, and the inability of banks to meet withdrawal requests and deposit transfers in USD. The scientific literature and empirical studies show that, in a situation of very high partial dollarization, this is incompatible with a free float regime. The stabilization based on the exchange rate anchor cannot be repeated after the loss of confidence in the ability of the Central Bank to maintain it. The choice of a hard peg regime (currency board or full dollarization) seems dominant although it is difficult to consider it as an optimal solution. However, the Lebanese economy seems to be moving currently toward full dollarization even if only unofficially at the beginning. [ABSTRACT FROM AUTHOR]

In the research, we evaluated the equilibrium real effective exchange rate of the convertible mark and identified a significant deviation of the real effective exchange rate of the convertible mark concerning the equilibrium level, especially during the period of the coronavirus pandemic and global inflation growth. During the period of globally high inflation, the main determinant of REER appreciation was the faster growth of BH price from foreign prices and slower growth of productivity in BH compared to the environment, and to a lesser extent the growth of the domestic real interest rate and changes in terms of exchange. In addition to these appreciation pressures, the impact of uncovered interest rate parity on the depreciation of REER was expressed, due to the extremely restrictive monetary policy of the ECB and the lower degree of restrictiveness of the monetary policy in BH, from the aspect of the level of foreign and domestic interest rates. The volatility of the REER deviation from the equilibrium REER is higher in crisis periods. The isolated determinants of REER of the convertible mark provide a good analytical basis for the creation of BH monetary policy and regulation of the banking sector.

This paper takes stock of the literature on the monetary transmission mechanism in currency boards and analyzes the process of monetary transmission in Bosnia and Herzegovina. The transmission of monetary signals through the economy is based on the automatic adjustment mechanism of the currency board. Three channels of monetary transmission are discussed in this paper: the interest rate channel, the narrow credit channel, and the exchange rate channel. The empirical analysis shows how exogenous monetary shocks are transmitted through different channels and how long it takes for the automatic adjustment mechanism to restore equilibrium in the economy. [ABSTRACT FROM AUTHOR]

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RESUMO Um programa de estabilização bem-sucedido é um conjunto harmônico de reformas estruturais. O equilíbrio fiscal não é uma condição suficiente. É necessário restabelecer a credibilidade monetária. Três alternativas para estabelecer uma referência monetária com base em uma moeda estrangeira são examinadas. Uma nova moeda emitida por uma instituição independente totalmente lastreada por uma moeda de reserva aceita internacionalmente é a alternativa proposta. Argumenta-se que a instituição responsável pela emissão da nova moeda deve se basear na experiência dos Conselhos de Moeda. A supervalorização da moeda devido à inflação inercial residual é um problema frequente. A introdução gradual da nova moeda conversível é proposta como uma tentativa de reduzir o grau de referência à inflação passada na formação de preços. Os riscos associados a um período de circulação paralela de duas moedas são examinados. Finalmente, alguns dos argumentos contra esse tipo de reforma monetária são analisados brevemente.

Resumo Este artigo discute alguns aspectos dos conselhos monetários. Analisa a formação dessas instituições, as experiências históricas de Cingapura e do Brasil e a proposta do currency board de Lara Resende.

The research answered the question of what affects BH foreign exchange reserves and what is the lower limit of the optimal level of foreign exchange reserves of the Central Bank of Bosnia and Herzegovina (CBBH). We defined excess foreign exchange reserves as the difference between the balance of foreign exchange reserves and the lower limit of the optimal level of foreign exchange reserves. In most of the analyzed period, foreign exchange reserves are significantly above the lower limit of the optimal foreign exchange reserves. In 2022, the banking sector had the largest excess of foreign exchange reserves in the scenario of a floating exchange rate, without considering the degree of euroization. The excess is the lowest in the fixed exchange rate regime, in which, through the money supply, we allowed a high impact of euroization on optimal foreign exchange reserves. Even under this most conservative scenario, the excess foreign exchange reserves amount to 1.9 billion KM or about 4% of nominal GDP in 2022. Changes in BH monetary regime, enabling the CBBH to lend to residents and a possible transition to a floating exchange rate, are possible while maintaining a satisfactory level of foreign currency liquidity of the CBBH.

The aim of the publication is to present opinions of prominent economists, politicians and researchers concerning the policy of introducing the euro in Bulgaria as the main monetary unit. The research method is content analysis of publications from specialized economic publications, from non-specialized publications, interviews of economists, politicians and businessmen. The scope of the research covers specificities of the process of switching from one currency unit to another influenced by policy decisions has a significant impact on the accounting estimates applicable in the financial statements of economic operators. Public attitudes both for introducing and refusing to maintain the currency board are analyzed. The practical implication of the paper concerns new rules that have to be adapted directly relevant to the introduction of the single European currency (EUR).

Currency boards have had an enduring attraction as a solution to exchange rate and monetary credibility for small open economies, despite few successful examples. In this context, the case of Hong Kong stands out for its longevity; it survived the handover to China, the Asian financial crises in 1997, and the global crises in 2007–8 and 2020. The 1983 currency crisis and the decision to link the exchange rate to the US$ is usually treated as an outcome of local political uncertainty due to the Sino‐British negotiations which set the framework for how Hong Kong would fit with the rest of China after 1997. We present fresh archival evidence from Hong Kong and London to reveal the year‐long debates over Hong Kong's monetary system after a drop in the exchange rate in September 1982 and to demonstrate how most of the protagonists in Hong Kong and London came only reluctantly to accept the idea of re‐pegging the dollar once public expectations had been raised. We also show how the mixture of currency and banking instability affected the terms of the negotiations in 1982 and 1983 and set the framework for the one country, two currencies system that prevails today. [ABSTRACT FROM AUTHOR]

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The paper deals with initiation and destiny of the unique 1994 Program of combating the extreme Serbian hyperinflation. Despite the originality of the Program and decisiveness with which the related steps had been undertaken, the Program lasted not much more than half a year. It turned out to be unsustainable as it is collided with inefficient institutional framework where contracts and rule of law were not honored, and employees, in self-managed firms, decided on their own remuneration. We show that for lasting stabilization a farreaching institutional reform was needed, and for implementing such reform an equally radical reform of the political system was necessary. However, there was not political will for these reforms, since they would oust the then political and economic elite from the power.

This paper studies the economy of Hong Kong through the lens of a small open economy DSGE model with a currency board exchange rate commitment. It assumes flexible prices and a banking system that provides credit to entrepreneurial household firms; the money supply is fully backed by reserves under the currency board. We estimate and evaluate the model by Indirect Inference over the sample period of 1994Q1-2018Q3; we find that it matches the data behaviour as represented by a VAR. We examined the economy's volatility using bootstrapping of the model innovations, under both the estimated currency board model and a standard alternative regime with floating exchange rate and a Taylor rule; we found that Hong Kong welfare is higher in the currency board, which substantially reduces output volatility. [ABSTRACT FROM AUTHOR]

RESUMO Como o único país de mercado emergente da América Latina que aderiu firmemente a uma taxa de câmbio fixa por mais de uma década, este artigo examina as compensações econômicas e políticas que a paridade peso-dólar acarretou. Em termos econômicos, o conselho da moeda promoveu claramente a estabilidade macroeconômica e a prudência fiscal. No entanto, a manutenção de um regime de moeda fixa no contexto de fluxos voláteis de capital também contribuiu para a constante valorização do peso ao longo do tempo. Essa tendência, juntamente com certos acordos políticos (lenta reforma do mercado de trabalho e transferências generosas do governo para as províncias) ocorridas no início do programa de reformas, dificultou bastante a produtividade e o dinamismo da economia argentina. A fraca posição competitiva do país foi exacerbada pela desvalorização brasileira de 1999, e a lição desde então tem sido o quão difícil é formar uma coalizão política para enfrentar as formidáveis tarefas microeconômicas agora em mãos.

In this paper, a survey was conducted in five countries, Bosnia and Herzegovina, Bulgaria, Estonia, Lithuania and Hong Kong, whose monetary systems apply the currency board as a monetary policy regime. The research was conducted in the period from 1995 to 2018. The research is based on the use and analysis of Central Bank laws for each of these countries. The key points analyzed in each law are the legal basis and monetary operations. On the basis of exploratory research and comparative analysis of key points, it was found that significant differences appear in the mentioned monetary systems, which function in the currency board. The differences arise from the legal bases in the operational aspects of the application of monetary operations. Precisely on the basis of these differences, which are the facts defined in certain laws, the conclusion is that today we can rightfully talk about two types of currency boards, ie orthodox currency boards and second generation currency boards.

By adopting the currency board at the end of the last century, and by pegging its exchange rate to the Euro, a quarter of a century ago, Bosnia and Herzegovina surrendered a great part of its monetary policy in the hand of European Central Bank in the hope that the synchronization of the business cycle will make foreign monetary policy completely suitable for Bosnia and Herzegovina. At the same time during these two decades, the Central Bank of Bosnia and Herzegovina has been developing and using reserve requirement and remuneration as discretionary instruments of monetary policy. The research shows that the domestic business cycle and the foreign one are relatively weakly synchronized compared to other countries' degree of synchronization, and by this findings current discretionary monetary policy and its further development and enrichment with new instruments is fully justified. Bosnia and Herzegovina must continue with developing its own discretionary monetary policy without relying on foreign monetary policy.

In the past decade the world faced the consequences of the global economic crisis proclaimed in 2008. The common case for everyone was a financial crisis in which every country bore the burden of the crisis in its own way, and in each country generators of the crisis appeared in different segments. In the 1980s American economist Hyman P. Minsky wrote about this topic, explaining the characteristics of financial crises in rigid financial systems. The aim of this paper is to understand the causes and the consequences of the crisis through creation, growth and bursting of the credit bubble in separate market segments in Bosnia and Herzegovina through the system of currency board. Through the application of vector autoregression model (VAR) the responses to shocks, recorded on the side of demand for loans which were generated in the capital markets and in the construction sector, and the credit shock of demand, which formed, developed and then exploded after the proclamation of the global economic crisis in Bosnia and Herzegovina, were analyzed. Interpretation of the results through the light of hypothesis of Minsky moment is corroborated by an additional fact that a rigid monetary system like currency board did not provide the necessary mechanisms for the maintenance of financial stability. Stability of the financial system of Bosnia and Herzegovina was saved exclusively by the will of parent banks from abroad whose daughters participate in the financial system of Bosnia and Herzegovina.

External and internal economic shocks can threaten the macroeconomic stability of a small economy. In the currency board regime, there is no role for the Central Bank as a macroeconomic stabilizer in the event of an external or internal shock. In this paper, the research is based on the analysis of eight countries with small economies with currency boards or discretionary monetary policy. The impact and connections between changes in EURIBOR, interest rates, inflation measured by the GDP deflator, money supply and GDP in the period 1997-2015 are analyzed. The paper proves that in countries with a currency board, whose regimes have a harmonized relationship with the European Central Bank and EURIBOR, interest rate shocks are less pronounced. The analysis of the links between EURIBOR, interest rates, money supply, inflation and GDP is not statistically significant in the "experiment" countries. In the control sample of countries with a variable exchange rate, the situation is heterogeneous for individual countries, but statistical significance has been determined in relation to EURIBOR and inflation. We conclude that EURIBOR may be one of the generators of exogenous shocks. In the case of Bosnia and Herzegovina (B&H), there are much more significant internal transmission mechanisms that lead to macroeconomic imbalances. The growth of deposits was preceded by the growth of loans and money supply. This led to a fall in interest rates which the Central Bank of BiH (CBB&H) could not influence due to the currency board. However, the fall in interest rates did not yield the expected results. GDP has shrunk, inflation is falling, while at the same time the high unemployment rate has remained unchanged. The nominal exchange rate of the domestic currency was determined by law, but there was an appreciation of the real exchange rate, which affected the increase in the foreign trade imbalance. The result of the currency board is price stability, nominal exchange rate stability and money supply growth. Negative results are: appreciation of the real exchange rate, faster growth of imports and maintaining a very high unemployment rate. Macroeconomic developments in the BiH economy do not always have the right course that can be expected in mature economies. The achievements and applicability of standard macroeconomic policies are very limited.

The analysis of monetary variables and their impact on the economic growth rate has always been in the focus of economic research. In the broadest sense, economic theory distinguishes two basic views defined by the views of monetarists and Keynesians. Although the basic difference is reflected in the determination of price rigidity and money neutrality, specifics of modern economic systems shift the focus towards the positive influence of monetary on real variables. The aim of our research is to identify and quantify the impact of monetary variables on economic growth in Bosnia and Herzegovina. The research was conducted using data from the period 2000-2020. The paper starts with the hypothesis that money supply and inflation ultimately have a positive impact on the real economic growth in BiH. The money supply M2 and the annual inflation rate are taken as explanatory (monetary) variables in the research, while real growth is a dependent variable. The long-term relationship between monetary variables and real growth rates was tested, taking into account the specificity of the BiH monetary arrangement established in the form of a currency board. In order to prove the hypothesis, we applied econometric techniques such as VEC model, cointegration analysis, innovation analysis based on the impulse-responsive function, decomposition variance as well as a causality test. The research results showed the connection between the money supply and the inflation rate with the economic growth in BiH, the relation being positive and statistically significant in the long run. With this, we confirmed the initial hypothesis of the work.

The article studies two main aspects of functioning of the currency board in Bulgaria: its characteristics and its specifics and peculiarities. Concerning the characteristics of the currency board in Bulgaria, the attention is focused on several theoretical matters of the nature of the currency board: mechanism for introduction of the currency board; choosing the foreign currency, to which the local monetary unit is to be fixed; financing the initial currency reserve, in order for the currency board to start functioning; setting the fixed exchange rate to the reserve currency; establishing the amount of coverage of the quantity of cash in circulation by the currency reserves; administration of the currency board; implementation of the function "lender of last resort" in cases of liquidity crisis; supervision of the commercial banks' operation. Each country is characterized by its specifics in terms of management of public finances, condition of the real (non-financial) sector, service sector, monetary and banking system. These specifics are reflected in the monetary boards, introduced in the individual countries. The article provides a detailed analysis of the specifics of the currency board in Bulgaria. The options for an independent monetary policy of the central bank are heavily restricted, and on the other hand, the currency board attained the goal of its policy - ensuring of price stability. As of the present moment, Bulgaria joined the exchange rate mechanism (ERM II) in 2020 and makes every effort to cover the criteria for real convergence. [ABSTRACT FROM AUTHOR]

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This research presents the effects of discretionary and automatic instruments' application in four cases of monetary and macroprudential regulation in Bosnia and Herzegovina. The effectiveness of currency board policy is increasing if its orthodoxy is decreasing. We have measured monetary conditions before and after the global crisis. Monetary conditions had been improving since Q2 2014. The effects of negative remuneration on excess reserves on BH public debt's primary market are isolated. We have also estimated the effects of the differentiated reserve requirement rate on the maturity structure of BH banking sector's liability. Finally, we tested the relationship between the reserve requirement as a monetary regulation instrument and loan growth. The research showed that the Central Bank of Bosnia and Herzegovina can influence some operative variables/indicators of monetary policy. All findings show that the Central Bank of Bosnia and Herzegovina is not an "ordinary exchange office", and that it can, indeed, conduct autonomous and discretionary monetary policy.

The article discusses the history of fiat money, namely money having no exchange parity and not based on any commodity. Contrary to popular belief, it is very long, dating back to a thousand years ago. China has the longest, both good and bad, historical experience with this form of money. In Europe, it was in operation in relatively short periods; in China, nonetheless, it was used for almost 500 years, accompanying the country’s heyday. The author attempts to explain why fiat money in China continued for so long, while no European state was able to maintain this form of money for more extended periods. He also presents the reasons behind the common abandonment of metal-based money in the 20th century, even though it fulfilled its functions well for thousands of years. The final part offers arguments indicating not only the inevitability of maintaining fiat money but also a highly systemic nature of money in general. The author believes that money cannot be issued on the basis of considerations outside a particular economic system. Currency board or sliding peg solutions may help overcome hyperinflation and restore confidence in domestic currency. In the long run, however, they are very unlikely to maintain stable economic development.

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One of the most important economic policy issues, especially in the post-transition countries, is exchange rate regime (ERR), i.e. the question of optimal exchange rate regime that would stimulate economic growth and propagate macroeconomic stability. For small and EU-oriented countries like Bosnia and Herzegovina (B&H), the EU accession processes and character of countries' economic cycle phase are usually highlighted among many factors. The choice of the appropriate exchange rate system is determinated by the specific characteristics of individual countries, time moment and the characteristics of the external shock occurrence. It is generally accepted that monetary instabilities are treated by fixation and real economic shocks by exchange rate fluctuations. An important criterion for assessing the adequacy of the current exchange rate regime is its response to external shocks, such as the Great Recession in 2008. While flexible exchange rate regime is used as an automatic stabilizer, fixed exchange rates place certain restrictions. The process of macroeconomic adjustment in the Baltic States is an example of how large macroeconomic imbalances can be reduced without adjusting the nominal exchange rate and how the currency board can be successfully used as a stage in the euro introduction process. The aim of this paper is to give a comparative overview of the currency board introduction in Bosnia and Herzegovina and the Baltic countries, results achieved and reactions to external shocks (Great Recession in 2008) within this exchange rate arrangement, so conclusions that could be valuable in post-COVID 19 recovery can be drawn. [ABSTRACT FROM AUTHOR]

Copyright of Journal of International Relations / Medzinarodne Vztahy is the property of University of Economics in Bratislava, Faculty of International Relations and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Copyright of Acta Economica is the property of University of Banja Luka, Faculty of Economics and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The article brings focus to the subject of ensuring the financial capacity of Ukraine as an essential prerequisite for further transformations of the national economy. The modern problems of making state economic policy in the conditions of the corporatocracy are covered. The disadvantages of implementing the state economic policy under the influence of corporatocracy, as a new type of government, which expresses the interests of transnational corporations, are considered. Indicators are determined to assess the spread of corporatocracy in Ukraine when assessing the system of indicators of economic relations between residents and non-residents in the study of the interdependence of the monetary base and international reserves. The implications of currency board for the financial capacity of the state are analyzed. Proposals for improvement of the domestic financial and credit system have been elaborated. The study used the following methodological tools: historical, logical, analysis, tabular, graphical, and comparative methods; abstraction and concretization; generalization.

The article brings focus to the subject of ensuring the financial capacity of Ukraine as an essential prerequisite for further transformations of the national economy. The modern problems of making state economic policy in the conditions of the corporatocracy are covered. The disadvantages of implementing the state economic policy under the influence of corporatocracy, as a new type of government, which expresses the interests of transnational corporations, are considered. Indicators are determined to assess the spread of corporatocracy in Ukraine when assessing the system of indicators of economic relations between residents and non-residents in the study of the interdependence of the monetary base and international reserves. The implications of currency board for the financial capacity of the state are analyzed. Proposals for improvement of the domestic financial and credit system have been elaborated. The study used the following methodological tools: historical, logical, analysis, tabular, graphical, and comparative methods; abstraction and concretization; generalization. [ABSTRACT FROM AUTHOR]

The paper develops the concept of regional monetary integration, the framework of which includes three alternative exchange rate arrangements: currency board, full or parallel dollarization and currency union. Each of them has its own peculiarities of formation and development, its own advantages and disadvantages, but the common feature is unconditional exchange rate unification. The concept of currency proto-integration was introduced, which foresees the exchange of information on monetary initiatives between monetary authorities, consideration of counterparties’ interests to minimize risks or maximize common benefits in the field of monetary relations. In order to assess the effectiveness of monetary integration for the development of intra-regional trade flows, we use gravity modeling based on a sample of more than 105 thousand observations of bilateral trade flows within monetary integrational and proto-integrational alliances. Gravity model includes the parameters of the volumes of bilateral trade, gross domestic product, weighted distances between states and the system of dummy-variables for the determination of monetary associations, common language and borders between trading states. The applied gravity model demonstrates a fairly high level of certainty for South America, Europe, South and East Asia (R2 for them was 0.71, 0.63 and 0.54, respectively). It was established that among the monetary alliances, the integrational and proto-integrational structures of South America, Asia and Europe were most effective in the aspect of intensifying intraregional trade. Between the African monetary blocks, the regular growth of mutual trade was observed only in the West African Economic and Monetary Union, while the rest was characterized by reverse dependence.

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The purpose of the paper is to determine threats and benefits of exchange rate regimes in terms of the integration of Ukraine into the European community. Emphasizing features of the manifestation of currency exchange rate in Ukrainian practice is a precondition for choosing the optimal exchange rate regime for Ukraine, which, in its turn, will provide an opportunity to reduce inflation and implement effective tools of monetary and fiscal policies to promote further economic growth and competitiveness of the country. The uses of free-floating exchange rate and «currency board» regimes have either positive effects for Ukraine or certain threats. Methodology. This research is based on a synthesis of data on the uses of exchange rate regimes in Ukraine as an independent. It is considered angular regimes, which are by far the most suitable for Ukraine in terms of the European vector of its development. Peculiarities of using these regimes are revealed and their major threats to the domestic economy are pointed out. This article analyzes the dynamics of the trade balance of payments of Ukraine, the dynamics of the commodity structure of Ukraine`s exports and imports and the external debt of Ukraine. Results. Taking into account the experience of countries, which were in crisis situations, they show the necessity of the uses of freefloating exchange rate regime and possibilities of «currency board» regime, despite threats that they may have. World experience testifies the implementation of structural reforms, effective monetary policy, fiscal policy and discipline of the government. Thorough preparation of Ukraine’s transition to the «currency board» regime can justify itself in conditions of crisis and provide impetus to Ukrainian economy benefits. The paper defines conditions under which the success of a new model of exchange rate policy will be achieved. Practical implications. The study accents attention on the specifics of the uses of the free-floating exchange rate and «currency board» regimes in the current recessionary economic and political conditions, and the declared Strategy on Sustainable Development «Ukraine–2020» in terms of European integration. Moreover, advantages and threats of the most favorable exchange rate regimes were identified to overcome the economic crisis, and accordingly create conditions for further economic growth and increase competitiveness of the country. This article provides an opportunity to identify the conditions for success of a new model of exchange rate policy to achieve economic stabilization and the beginning of economic growth. Value/originality. Despite the existing studies in the field of exchange regulation at present, there are no comprehensive concepts and a common approach to the uses of an exchange rate regime in Ukraine to stabilize the economy, create conditions for long-term economic growth and increase the competitiveness of the economy. It identifies the need to conduct this study, focuses the attention on the conceptual basis of freefloating exchange rate and «currency board» regimes, and deepen scientific and methodological research base of the studying exchange rate regimes particularly those that would help Ukraine to overcome the crisis. This paper reveals the authors’ views on the uses of the new model of exchange rate policy, the success of which depends primarily on the government.

In the wake of the prospects of Bulgaria joining the Euro area and the recent Eurozone crisis, it is pertinent to find out how parallel are the circumstances faced by the recent Bulgaria with the conditions of the then Argentina whose currency board had to be abandoned. In a nutshell, this paper compares Bulgaria in 2000-20101 to Argentina in 1991-2001, the period of the Argentine convertibility system. The dimensions explored are (1) adherence to currency board principles, (2) performance indicators associated with exchange rate fixity, and (3) conformity to the criteria inspired by the optimum currency areas (OCA) theory. Raw data are sourced from credible international organizations while computed data are analyzed using charts. On the whole, Bulgaria does bear a resemblance to Argentina and this poses a hindrance to the sustainability of its currency board system and to its hope for Eurozone accession. [ABSTRACT FROM AUTHOR]

For two decades the Bulgarian economy has been functioning under a monetary regime of currency board that pegs our national currency to the euro. Thanks to the currency board, the introduction of the euro in our country can take place without any particular shocks to the economy. In recent months, Bulgaria's prospect of adopting the euro is becoming more and more real. But if the country joins ERM II, it will face many other challenges, which may take several years, even a decade, to overcome. Among the main obstacles are: achievement of real convergence; restoring the confidence of our European partners in the Bulgarian national bank and in the Bulgarian institutions, which has seriously deteriorated in recent years; convincing the public to the benefits of deeper European integration. On the other hand, uncertainty remains about the future design of the euro area and the EU in the light of ongoing reforms. After all, if Bulgaria chooses the euro, its place in the European Union will have a greater weight. [ABSTRACT FROM AUTHOR]

Under a currency board, the central bank relinquishes control over its monetary policy and domestic interest rates converge towards the foreign rates. Nevertheless, a spread between both usually remains. This spread can be persistently positive due to elevated risk in the economy. This paper models that feature by building a DSGE model with a currency board, where the domestic interest rate is endogenously derived as a function of the foreign rate, the external debt position and an exogenous risk premium component. Time variation in the volatility of the risk premium component is then modelled via a Markov-switching component. Estimating the model with Bayesian methods and Estonian data shows that the economy does not react much to shocks to domestic interest rates in quiet times but is much more sensitive during crises, and matches the financial and banking crises, which cannot be captured by the standard DSGE model. [ABSTRACT FROM AUTHOR]

Bosnia and Herzegovina is a small and open economy in transition with great distrust in local authorities and institutions. The country applies a currency board as the only acceptable and optimal exchange rate system in order to protect its monetary policy from political influences. The strict rules of the currency board provide monetary stability and confidence in the domestic currency, but disable the pursuit of discretionary monetary policy and limit autonomous fiscal policy for the purpose of stimulating an investment cycle and economic development without coordinated accompanying support of monetary policy. The subject of this paper is an analysis of the short-term and long-term effects of the currency board application in Bosnia and Herzegovina in conditions of increasing liberalization through the process of European integration. Given the negative consequences and limitations of the currency board system, this paper analyses in particular the possibility of introducing a central bank with discretionary monetary policy instruments, as well as other measures that can influence the overvaluation of the domestic currency exchange rate. The scientific methods used in the paper are: inductive-deductive method, descriptive method and statistical method. The conclusion and recommendations are obtained by using inductive-deductive method and descriptions of current economic trends based on numerous secondary statistical data presented in the tables and charts.

The monetary policy of Bosnia and Herzegovina (hereinafter referred to as BIH) operates under the currency board system, responsible for strengthening the market economy and price stability. On the other hand, the economy of BIH is facing long term unemployment, unfavorable business environment and feeble competitive position. Tis discourages economic development. Further retaining the currency board system in BIH attracts great interest. The paper analyzes the relation among inflation, unemployment and foreign direct investment (FDI). Statistical analysis (coefficient of correlation and simple linear regression (period 2004/2014)) indicates that there is no inversion similar to the Phillips curve between inflation and unemployment. Tus, it is implied that BIH renounces employment, aggregate demand and economic growth for the sake of stable prices. Moreover, the ratio of inflation and participation of FDI in GDP is inverse with a negligible correlation. Analyses demonstrate that there is no optimal combination of inflation and unemployment in BIH that would improve business environment and stimulate FDI and aggregate demand. Correlation and regression analyses fail to provide the arguments to statistically challenge the currency board as the monetary system model of BIH.

This paper argues that the deep bust and strong recovery of the Baltics were to large extent the result of the sharp adjustment the private sector was forced to go through between 2007 and 2009. When private capital flows suddenly stopped, firms were forced to quickly reduce their net lending gap. They slashed investment and cut costs, including by shedding labor. This led to a deep recession, but also to a sharp improvement in profitability and competitiveness, which set the stage for a subsequent export boom. [ABSTRACT FROM AUTHOR]

Copyright of Acta Economica is the property of University of Banja Luka, Faculty of Economics and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This study examines whether information from derivative markets is useful for signaling 'hot money' and other large capital flows in an economy where the monetary authority pursues a policy of exchange rate stability. It examines the information content of Hong Kong-traded derivative securities for signaling changes in the aggregate balance of the Hong Kong banking system during a period of intense initial public offering activity and speculation on the revaluation of the renminbi. The impact of the Hong Kong Monetary Authority's ( HKMA) Convertibility Undertakings on the dynamic relationships among capital flows, stock market volatility, and stock market turnover is examined. [ABSTRACT FROM AUTHOR]

Copyright of Acta Economica is the property of University of Banja Luka, Faculty of Economics and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The paper analyzes the posibilties for modifying existing currency board in Bosnia and Herzegovina. Generally, the currency board, as a monetary policy and exchange rate regime, has significant advantages in that it enables macroeconomic stabilization, primarily stabilization of inflationary expectations by establishing macroeconomic discipline; convertibility of domestic currency through its pegging to reserve currency, that normally covers monetary liabilities of the central bank; and increase in credibility and confidence in the domestic currency. As main disadvantages of the currency board, especially an orthodox currency board, stand out its procyclicality, due to inability of conducting autonomous monetary policy and nonexistence of the lender of last resort function, when the risks of financial crises increase. In the paper, based on available theoretical developments and solutions in practice, possible alternatives and measures for strengthening the existing monetary policy framework in Bosnia and Herzegovina – the orthodox currency board – have been analyzed, with the aim of increasing flexibility and resilience of the country’s monetary system and protection of its financial sector in conditions of a large economic crisis. Primarily, the possibility of introducing a lender of last resort function in the Central Bank of Bosnia and Herzegovina for providing liquidity backup for the banking sector has been considered, in which way the model of orthodox currency board would become closer to the model of quasi currency board, implemented in practice in many other countries.

Financial and economic crisis that hit the world economy in early 2008 caused the growth of public debt and large budget deficits in many countries, a high rise in unemployment, a reduction in foreign capital inflows to developing countries, a state intervention to rescue large financial institutions and to try to revive the capital markets, as well as a need for a larger assistance from IMF and other international financial institutions to the countries severely affected by the crisis. The BiH macroeconomic environment has significantly changed since then up to now, as a result of the above mentioned processes. The first signs of crisis in BiH began in the financial sector, specifically in September 2008 with the withdrawal of savings deposits, and soon the crisis spread to the real sector. The actual issue of interest for many experts, mostly local ones, was whether in these circumstances the Fixed Exchange Rate (Currency Board) that had been established in 1997 was an advantage or disadvantage for the BiH economy. The introduction of the Currency Board in BiH, as a superior institution in relation to the classical Central Bank in transition conditions, was aimed at avoiding interference and abuse by the state, certain interest and political groups and manipulation of the central bank, and the creation of conditions for the provision of price and currency stability, raising the budget balance, the establishment of convertibility and credibility of economic policy, supporting foreign trade, savings and investments, attracting foreign banks, financial integration with the developed countries, etc.. This paper gives an overview of the results of the analyzed phenomena related to the Fixed Exchange Rate in terms of BiH economy with specific recommendations: what to do to remove the disadvantages of the Fixed Exchange Rate in future.

Currency Board system in BHgained solid confidence of BH public thanks to therelatively low inflation rate in the period since it hasbeen introduced as well as thanks to its resistance tothe shock created by current world economy crisis.Still, some economists are very suspicious about itslong terms subsistence relating it to the constantlyhigh trade deficit and low unemployment rate in thecountry. A discussion about satisfaction of Marshal-Lerner-Robinson’s requirement for successfuldevaluation has arisen because the foreign currencyexchange rate was one of the measures suggested bythis group of economists. Tests conducted in thispaper show that this requirement is not satisfied.Consequently, BH should turn to the real economyreforms instead of the measures of abandonment ofpresent monetary system.

Celem niniejszego rozdziału jest przedstawienie, na przykładzie doświadczeń krajów bałtyckich, ryzyka, jakie wiąże się z wyrzeczeniem się możliwości prowadzenia polityki pieniężnej na skutek zastosowania systemu izby walutowej. Doświadczenia związane ze stosowaniem systemu izby walutowej mają znaczenie uniwersalne. Mówią one o tym, jakie konsekwencje powstają w sytuacji, gdy bank centralny kraju, który nie jest członkiem unii walutowej zostaje pozbawiony możliwości wykorzystywania polityki pieniężnej do kontrolowania inflacji i przeciwdziałania narastaniu nierównowagi zewnętrznej.

ABSTRACT This study aims to compare the performance of free-floating and currency board regimes for Hong Kong by examining historical data of the two on the output growth and inflation rate. Structural vector autoregression has been applied in the empirical analysis. Without making a strong assumption of unit variance in the residual matrix, this study applies a more natural approach proposed by Cecchetti and Rich to recover the structural parameters. The study has further investigated the recovery of the economy under a demand shock under different exchange rate regimes, in order to provide some evidence to answer why Hong Kong's recovery process after the Asian financial crisis is relatively longer than that in other economies with a managed floating exchange rate regime. New evidence in this study indicates that output recovers much faster in a flexible exchange rate regime than in a fixed exchange rate regime after an aggregate demand shock. Furthermore, this study has applied a more robust method in the counterfactual analysis when comparing the two regimes. New evidence in this study suggests that a free-floating regime may generate much smaller output variance in Hong Kong and deliver higher output and price levels to Hong Kong. [ABSTRACT FROM AUTHOR]

The paper examines the monetary policy actions through which central banks in sub-Saharan Africa have tried to eliminate the negative impacts of the shocks facing their economies. We compare two different monetary policy regimes: a currency board regime (in the CFA zone) and an inflation targeting policy regime (Ghana and South Africa) when central banks respond to demand, supply, and fiscal shocks. We extend the usual forecasting and policy analysis system models to replicate the economic features of these economies during the period 2002-12 and to evaluate the impact of several policies in response to these shocks. We find that both policies are inappropriate in helping the economies escape from the effects of negative demand shocks, both are essential when negative shocks to primary balance occur, while inflation targeting dominates the currency board regime as a strategy to cope with positive shocks to inflation. [ABSTRACT FROM AUTHOR]

In the years 2004-2014 the Lithuania's exchange rate policy was based on a rigid currency board system. After a period of uncontested success in the fight against inflation in the first decade of the transition and economic growth, entering the ERM II in 2004 and efforts to adopt the euro were treated as an optimal exit strategy from the currency board system. However, the consequences of this exchange rate system in the following years (until 2014) prevented Lithuania from meeting the economic convergence criteria. The starting point for the research is based on the theoretical analysis of literature studying benefits and risks associated with the use of the currency board system by the monetary authorities. The empirical analysis refers to the case of Lithuania and covers the years 2004-2014. The purpose of this analysis is to look at the effects of the use of the currency board system from the perspective of the convergence criteria of monetary nature and the extent of their implementation in the absence of opportunities for autonomous monetary policy. [ABSTRACT FROM AUTHOR]

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