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Outsourcing Central Banking: Lessons from Estonia

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  • Sarkis Joseph Khoury
  • Clas Wihlborg

Abstract

An orthodox currency board (CB) renders central banking redundant for interest and exchange rate determination. Thereby, monetary policy is de facto outsourced. Foreign direct investment (FDI) in banking can lead to outsourcing of the second important central bank function, responsibility for banking supervision. Economic and political conditions for outsourcing of central banking are discussed. Estonia's experience with a CB and expanding foreign involvement in banking is reviewed. The Argentine CB experience is discussed briefly to provide a contrast. The conclusion outlines the conditions for successful currency outsourcing to another country or regional authority.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/13841280600772051
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Journal of Economic Policy Reform.

Volume (Year): 9 (2006)
Issue (Month): 2 ()
Pages: 125-144

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Handle: RePEc:taf:jpolrf:v:9:y:2006:i:2:p:125-144

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Related research

Keywords: Currency board; foreign banks; supervision; regional integration; outsourcing;

References

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  1. Clarke, George R. G. & Cull, Robert & D'Amato, Laura & Molinari, Andrea, 1999. "The effect of foreign entry on Argentina's domestic banking sector," Policy Research Working Paper Series 2158, The World Bank.
  2. Korhonen, Iikka, 1999. "Currency Boards in the Baltic Countries: What Have We Learned?," BOFIT Discussion Papers 6/1999, Bank of Finland, Institute for Economies in Transition.
  3. Barry J. Eichengreen & Inci Ötker & A. Javier Hamann & Esteban Jadresic & R. B. Johnston & Hugh Bredenkamp & Paul R. Masson, 1998. "Exit Strategies," IMF Occasional Papers 168, International Monetary Fund.
  4. Anne Marie Gulde & Juha Kähkönen & Peter Keller, 2000. "Pros and Cons of Currency Board Arrangements in the Lead-Up to EU Accession and Participation in the Euro Zone," IMF Policy Discussion Papers 00/1, International Monetary Fund.
  5. Atish R. Ghosh, 1998. "Currency Boards," IMF Working Papers 98/8, International Monetary Fund.
  6. Charles Enoch & Tomás J. T. Baliño, 1997. "Currency Board Arrangements," IMF Occasional Papers 151, International Monetary Fund.
  7. Yum K. Kwan & Francis T. Lui, 1996. "Hong Kong's Currency Board and Changing Monetary Regimes," NBER Working Papers 5723, National Bureau of Economic Research, Inc.
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