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

Listed author(s):
  • Kalina Dimitrova

    (Bulgarian National Bank)

  • Luca Fantacci

    (Bocconi University, Milan)

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).

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Paper provided by National Bank of Serbia in its series SEEMHN papers with number 3.

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Length: 18 pages
Date of creation: Mar 2009
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
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  1. 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.
  2. 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.
  3. Kalina Dimitrova, 2011. "Monetary and Fiscal Policies in Bulgaria:Lessons from the Historical Record," Yearbook of St Kliment Ohridski University of Sofia, Faculty of Economics and Business Administration, St Kliment Ohridski University of Sofia, Faculty of Economics and Business Administration, vol. 9(1), pages 89-107, March.
  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. 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.
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