Cure for Bulgaria's Malady

By Milena Hristova                    May 16, 2014


Remember how Steve Hanke's Currency Board delivered Bulgaria from the crisis of 1996-97?


Seventeen years later, it does not take an expert to see that there is just one thing, which has stood the test of time and proved to be Bulgaria’s panacea - the Currency Board Arrangement.


If Bulgaria was not operating in a currency board regime with a stable exchange rate, Bulgarians' budgets and Bulgarian banks would have found themselves in hot waters, to put it mildly.


Truth is, it would have been a complete disaster if Bulgaria did not have the Currency Board.


The Currency Board regime enjoys great public support in Bulgaria and is one of the few and most trusted institutions. Meanwhile there is talk that Bulgarian rulers very much want to get rid of the Currency Board, but prefer to keep Bulgarians in the dark.


Small wonder.


Bulgaria's Currency Board has forced the government to control spending, as the central bank is not free to print money to support government borrowing.


Every lev in circulation has been backed 100% by foreign exchange reserves at the national bank—first the mark, and since 1999 the euro. The arrangement is much stronger than a mere currency peg as the central bank could meet any speculative attack on the lev by accepting levs in exchange for the euros the bank holds in reserve.


So far so good, but corruption and crime continue to plague the country and politicians, trust in whom has hit rock bottom, have no will to change this. Turning Bulgaria into a failed state.


Why not install a similar board arrangement for a certain period of time as far as politics and justice is concerned?


A Political Board Arrangement, managed directly by Brussels, may deliver Bulgaria from the crisis of 2013-20??