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Financial stability, monetary autonomy and fiscal interference: Bulgaria in search of its way, 1879-1913

Author

Listed:
  • Kalina Dimitrova

    (Bulgarian National Bank)

  • Luca Fantacci

    (Bocconi University, Milan)

Abstract

The Bulgarian monetary system was established, immediately after it gained independence, at a time in which the very meaning of money was being redefined at an international level, with the diffusion of the gold standard. Within this framework, the possibility of attaining monetary stability in peripheral countries was increasingly associated with the decision to peg their currency to an external reference. Having experienced it already under Ottoman rule, newly independent Bulgaria adopted the bimetallic standard. Without being a member of the Latin Monetary Union, it tried broadly to follow the principles of the convention, yet with some exceptions, the most important of which concerned the limit on silver coinage (Nedelchev, 1940). The absence of such a clause in Bulgaria turned out to be crucial since the financial needs of the recently established state triggered excessive silver coinage which resulted in a persistent agio (BNB, 1929). The interference of fiscal authorities obstructed the Bulgarian National Bank’s ability to manage money in circulation and to secure the monetary stability required by economic development (Avramov, 2007; Bernholz, 2008). The attempts of the Bulgarian monetary authorities to eliminate the agio were unsuccessful until they acquired the right to issue silver-backed banknotes. Soon after that, in 1906, Bulgaria introduced a short-lived typical Gold standard. The objective of this paper is to study the interaction between fiscal and monetary policy in Bulgaria, in the period between independence and the outbreak of the Balkan wars, and the ensuing financial instability resulting in a deviation from the established monetary standard. While the attempts of the Bulgarian National Bank (BNB) to eliminate the agio seem compliant with the concept of financial stability prevailing at that time, fiscal interference in monetary issues was primarily intended to provide extra revenues for government spending in an effort to finance the building and management of the new autonomous state. This study is a continuation of a broader research on the peculiar transition of Balkan countries from the bimetallic system to the Gold standard (Dimitrova and Fantacci, 2009).

Suggested Citation

  • Kalina Dimitrova & Luca Fantacci, 2009. "Financial stability, monetary autonomy and fiscal interference: Bulgaria in search of its way, 1879-1913," SEEMHN papers 3, National Bank of Serbia.
  • Handle: RePEc:nsb:seemhn:3
    Note: The paper was presented at the Fourth Annual SEEMHN Conference hosted by the National Bank of Serbia, 27 March 2009 in Belgrade.
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    References listed on IDEAS

    as
    1. Mohamed El hedi Arouri & Christophe Rault, 2009. "On the Influence of Oil Prices on Stock Markets: Evidence from Panel Analysis in GCC Countries," CESifo Working Paper Series 2690, CESifo.
    2. Kalina Dimitrova, 2011. "Monetary and Fiscal Policies in Bulgaria:Lessons from the Historical Record," Yearbook of the Faculty of Economics and Business Administration, Sofia University, Faculty of Economics and Business Administration, Sofia University St Kliment Ohridski - Bulgaria, vol. 9(1), pages 89-107, March.
    3. Mohamed Arouri & Christophe Rault, 2010. "Oil Prices and Stock Markets: What Drives What in the Gulf Corporation Council Countries," International Economics, CEPII research center, issue 122, pages 41-56.
    4. Sofia Lazaretou, 2004. "Monetary System and Macroeconomic Policy in Greece, 1833-2003," Economic Bulletin, Bank of Greece, issue 22, pages 33-65, January.
    5. Peter Bernholz, 2008. "Government Bankruptcy of Balkan Nations and their Consequences for Money and Inflation before 1914: A Comparative Analysis," Working Papers 74, Bank of Greece.
    6. Kindleberger, Charles P., 1993. "A Financial History of Western Europe," OUP Catalogue, Oxford University Press, edition 2, number 9780195077384, Decembrie.
    7. Sophia Lazaretou, 2005. "Greek Monetary Economics in Retrospect: The Adventures of the Drachma," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 34(3), pages 331-370, November.
    8. Kalina Dimitrova, 2010. "Monetary and Fiscal Policies in Bulgaria: Lessons from the Historical Record," ICER Working Papers 13-2010, ICER - International Centre for Economic Research.
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    More about this item

    Keywords

    Financial Stability; Monetary Autonomy; Fiscal Intereference;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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