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discussion_200226_en - BULGARIAN NATIONAL BANK Regarding...

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November 2002 BULGARIAN NATIONAL BANK dp/26/2002 dp/26/2002 dp/26/2002 dp/26/2002 DISCUSSION PAPERS Regarding the Unilateral Euroization of Bulgaria Ivan Kostov Jana Kostova
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2 dp/26/2002 © Bulgarian National Bank, November 2002 ISBN 954-9791-60-2 Accepted September 2002. Printed in BNB Printing Center. Views expressed in materials are those of the authors and do not necessarily reflect BNB policy. Send your comments and opinions to: Publications Division Bulgarian National Bank 1, Alexander Battenberg Square 1000 Sofia, Bulgaria Tel.: 9145/1271, 1351, 1906 Fax: (359 2) 980 2425 e-mail: [email protected] Website: www.bnb.bg DISCUSSION PAPERS Editorial Board: Chairman: Garabed Minassian Members: Georgi Petrov Nikolay Nenovsky Victor Yotzov Secretary: Lyudmila Dimova
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3 Discussion Papers Contents The Euroization .................................................................................... 5 Definition ............................................................................................... 5 What Is the Reason for Recommended Euroization? ....................... 6 Why Does the European Union Object the Unilateral Introduction of the Euro? .................................................................... 7 The Agreement Problem ...................................................................... 8 The Currency Board Has Taken Over Some of the Bulgarian National Bankís Key Functions ........................................ 9 Cons at Home ...................................................................................... 10 Loss of Seigniorage ............................................................................. 11 Unilateral Political Decision .............................................................. 13
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4 dp/26/2002 Associate Professor Ivan Kostov, Doctor of Economics, a deputy to the Grand Na- tional Assembly and the 36th≠39th National Assembly, minist e r of finance (1990≠1992); prime minister (1997≠2001). Jana Kostova, Doctor of Economics, who has written her thesis on currency board and transition economies at the Economics Department of L. Bocconi University, Milano. * This report was prepared by Ivan Kostov and Jana Kostova in August 2002. The au- thors are grateful to Svetoslav Gavriiski, Roumen Avramov, and Kalin Hristov who made comments on the earlier versions of the paper. Errors and omissions in the report rest en- tirely with the authors.
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5 Discussion Papers 1 It is a brave assumption that authorities on the matter have strong doubts about. The Euroization The euroization was recommended to Bulgaria at the Bulgaria and Europe Conference in July. The ex presidential adviser Prof. Jeffrey Sachs called to start preparations to dismantle the Currency Board and introduce the euro. îBulgaria must be ready to introduce the euro if the Currency Board fails. This should not be done unilat- erally. Your country should reach an agreement with the IMF and the ECB on future actions in unforeseen circumstances ... If Argen- tina had dollarized its economy, the crisis would not have hit it.∑ 1 Alfred Schipke, a lecturer at Harvard University, reiterated this idea in a stronger manner. îBulgaria can become one of the countries that have introduced the euro before joining the European Union.∑ Ilian Mihov from the European Institute of Business Administration went to extremes claiming that îThe ECB does not have at least one economic argument against the unilateral euroization of our coun- try.∑ Definition The official euroization and dollarization is the withdrawal of the national monetary unit and the introduction of the euro or the US dollar as the only legal tender. The Central Bank ceases to issue
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