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Outsourcing Central Banking: Lessons from Estonia

Author

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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.

Suggested Citation

  • Sarkis Joseph Khoury & Clas Wihlborg, 2006. "Outsourcing Central Banking: Lessons from Estonia," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 9(2), pages 125-144.
  • Handle: RePEc:taf:jpolrf:v:9:y:2006:i:2:p:125-144 DOI: 10.1080/13841280600772051
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    References listed on IDEAS

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    1. Charles Enoch & Tomás J. T. Baliño, 1997. "Currency Board Arrangements; Issues and Experiences," IMF Occasional Papers 151, International Monetary Fund.
    2. Anne Marie Gulde & Juha Kähkönen & Peter M 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.
    3. Iikka Korhonen, 2000. "Currency Boards in the Baltic Countries: What Have We Learned?," Post-Communist Economies, Taylor & Francis Journals, pages 25-46.
    4. Yum K. Kwan & Francis Lui, 1999. "Hong Kong's Currency Board and Changing Monetary Regimes," NBER Chapters,in: Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues (NBER-EASE volume 7), pages 403-436 National Bureau of Economic Research, Inc.
    5. Barry J. Eichengreen & Inci Ötker & A. Javier Hamann & Esteban Jadresic & R. B. Johnston & Hugh Bredenkamp & Paul R Masson, 1998. "Exit Strategies; Policy Options for Countries Seeking Exchange Rate Flexibility," IMF Occasional Papers 168, International Monetary Fund.
    6. Atish R. Ghosh, 1998. "Currency Boards; The Ultimate Fix?," IMF Working Papers 98/8, International Monetary Fund.
    7. Korhonen, Iikka, 1999. "Currency boards in the Baltic countries : What have we learned?," BOFIT Discussion Papers 9/1999, Bank of Finland, Institute for Economies in Transition.
    8. 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.
    9. 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.
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    Citations

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    Cited by:

    1. Egert Juuse & Rainer Kattel, 2014. "Financial Regulation in Estonia," Working papers wpaper57, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    2. Egert Juuse & Rainer Kattel, 2015. "Implications of the Transformation of the State-Owned Banking System into System of Foreign-Owned Banks in New Member States for Macroeconomic and Financial Stability," Working papers wpaper103, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    3. Egert Juuse & Rainer Kattel, 2014. "Financialisation and the Financial and Economic Crises: The Case of Estonia," FESSUD studies fstudy20, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.

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