Yorgos Rizopoulos

Extreme Monetary Regime Change: Evidence from Currency Board Introduction in Bulgaria

The introduction of the Currency Board in Bulgaria in July 1997 may be viewed as an extreme institutional change of the monetary regime and as its discrete interruption. Bulgaria switched from a regime of discretionary and subjective money supply management and floating exchange rate to an extremely passive and static form of monetary rule. Indeed, under the Currency Board regime the monetary base is covered 100 percent and above with foreign reserves, the exchange rate is fixed by law, and no monetary policy is carried out. There is an automatically balancing mechanism according to which the dynamics of the monetary base (and indirectly of the money supply) follow the dynamics of the countrys balance of payments. The Currency Board in Bulgaria was introduced after the dramatic financial crisis at the close of 1996 and the beginning of 1997, when the national currency completely lost its major functions, almost one third of the banks failed, the foreign exchange reserves were almost entirely depleted, and inflation reached 240 percent in February 1997.2 The financial crisis was accompanied by social protests and a political crisis, which led to the dissolution of Parliament and to early elections (two years prior to term). On February 17, 1997, the major political forces signed an agreement for the

Patterns of Multinational Enterprise—State Interactions in International Business

International business strategies of multinational enterprises (MNEs), and of merger and acquisitions (M&A) operations in particular, are not based solely on competitive, localization or ownership advantages. Political leverage determines the opportunities and, consequently, the goals that an MNE can set and implies an eventually discriminatory access to some resources, including target firms. In this sense, privileged political leverage—as a positive-sum cooperative game involving a limited number of connected and interdependent public and private actors—could improve a firm’s performance at the expense of competitors and other actors (Economakis, Rizopoulos, and Sergakis 2010).