1. 10 years of success - now the real challenge begins
Lars Christensen
Senior Analyst, Head of New Europe Research
(direct)
(mobile)
Danske Research, Danske Bank
Sofia, September

2. A real success – the numbers speak for themselves (I)

3. A real success – the numbers speak for themselves (II)

4. The success is unquestionable but is it a permanent solution?
There are two schools of thought:
The Hanke-Schuler position:
The CBA is a permanent solution
The Friedman-position
The CBA is one many possible ways to monetary stability
The CBA is a “tool” to bring down inflation and “import” credibility in monetary policy (this has been a highly successful strategy in the case of Bulgaria)

5. Some reasons for concern
While Bulgaria’s currency board has brought inflation down and brought stability some developments give reason for concern:
Inflation has consistently been too high (average of 6.3% since 2000)
External imbalances have grown to unsustainable levels
Credit and money supply growth is too strong to be non-inflationary
Asset markets show signs of bubbles

6. Inflationary currency boards?
Bulgaria
Latvia
Hungary
Estonia
Lithuania
Romania
Czech Republic
Slovakia
Current account deficit (% of GDP)
Poland

7. Next step – continue the right policy
What is the next step for monetary policy in Bulgaria?
The CBA has in general been a success so there is no reason to change track now
But the CBA needs to be balanced by tight fiscal policies and continued structural reforms
Efforts to slow credit growth and reduce imbalances in the economy most be stepped up
CBA is a temporary solution and hence effort to join the euro should be kept on track

8. Thank you for you time and
CONGRATULATIONS

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