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Bulgaria – The Gathering Storm?

Kovács, O. (2009): Bulgaria – The Gathering Storm? News of the Month, ICEG European Center, October 2009 pp. 13-16.

According to the classical empirical results, huge current account deficits are an explicit sign of an imminent currency crisis. The Bulgarian substantial current account deficit is well documented, therefore it is a puzzling question why the currency crisis did not take a place until nowadays. The aim of this article is to contribute to a better understanding why the Currency Board regime could be successful in Bulgaria. Our hypothesis is that even though the Currency Board is eventually a monetary „strait jacket”, as it requires that the all time governments painstakingly maintain strict fiscal discipline, the Currency Board is able to stop currency crisis.

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