Банкеръ Weekly



As of 2009 the Central Bank Will be Playing According to New RulesBulgaria's forex reserve should be committed for management to a foreign financial institution - that was the news which the BANKER weekly learnt from insiders of the Bulgarian National Bank (BNB). However, it turned out that was just one of the options, presently discussed at the central bank. And it has been included in the strategy for BNB's development until the year 2009, when the country is expected to join the European common currency union (widely referred to as the Eurozone). Then the BNB will become a part of the system of European central banks. The strategy was approved by BNB's Board of Governors in July 2004. It has already been presented to the members of the bank's Consultative Council, which should submit its remarks till the beginning of September. The document will be considered by the Consultative Council for a second time afterwards, and in early-October it will voice its final say. The members of the Consultative Council will decide if the management of Bulgaria's forex reserve will be indeed entrusted to foreign experts. The idea is that they should be chosen in a tender, admitting to it only banks and financial institutions with a high credit rating. The aim is to find the best candidate after consultations with international financial institutions. However, the BANKER learned that most members of BNB's Board of Governors insist on preserving the current way of managing the forex reserve, i.e. by the central bank itself. One of the motives for such a firm stance is the apprehension that any tender faces the risk of accusations of biased attitudes or even corruption of officials, conducting it. Therefore, the predominant stance is that the best option is that by 2009 all central bank servants employed in BNB's dealing office, analytical divisions and Issue department should undergo a full training course in West European central banks and in the European Central Bank, so that they could be in a position to analyse international financial markets and effect trade deals on them. Raising the qualification of BNB's employees, managing the forex reserve, is an absolute must, as after our country's accession to the Eurozone the available money in that fund should be transformed into US dollars, Swiss francs and other reserve currencies, different from the euro. The reason is that the euro will become Bulgaria's official currency, which should be guaranteed by other reserve currencies. Moreover, the BNB will transfer to the European Central Bank part of the reserve, fixed according to a special scheme. The European Central Bank on its part will give a certain amount of that reserve for implementing its monetary policy in Bulgaria. Legal barriers, which currently oblige the BNB to invest its reserve in securities with a credit rating higher than AA- alone, will be abolished. The present restriction of central bank's opportunities for investment considerably reduce the choice of paper and deposits in which the BNB is allowed to keep the State's forex reserve. After the introduction of the currency board arrangement, BNB's dealers were not expected to be after maximum profits. That is why they are not so experienced in the trade in more profit-yielding and at the same time riskier financial instruments. But after Bulgaria joins the Eurozone the BNB will be forced to become an active participant in the international financial markets, undertaking as well all the risks connected with that. Till then the central bank plans to set up a reserve info system for trade in the forex reserve, that will double the main one and could operate in case the info network fails due to natural disasters or big industrial accidents. Someone may wonder why we are discussing BNB's development strategy until 2009. The answer is - because this strategy describes the way Bulgaria will pass from payments in Bulgarian levs to payments in euros. Moreover, the strategy explains whether or not Bulgaria will be able to print euro banknotes. It also gives an answer to a lot more curious questions that both bankers and ordinary people should be aware of in order to avoid panicking from speculations. For example, rumours are going on that in order to join the European Union the country has to drop the currency board arrangement. People who watch the financial news know that similar speculations appeared several times in the media in the past two or three years. In order to avoid further misunderstandings, let's make it clear that the strategy is explicit: the currency board will be effective until the country joins the Eurozone. People familiar with the European requirements will probably oppose that there is an established mechanism - the so called ERM II, by which a country may join the European Monetary Union, i. e. introduce the euro as its means of payment. It is true that ERM II stipulates that the national currency rates do not go up or down by more than 5% compared to the euro for a two-year period. However, there is one more circumstance that should be known. In 1999 and 2000, the European Central Bank answered to BNB's inquiries that countries with a currency board arrangement, such as Bulgaria and Estonia, should not drop it in order to become members of the Eurozone. The only requirement is that they keep their national currencies pegged to the euro for two years after joining the EU.

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