Financial Stability, Monetary Autonomy and Fiscal Interference: Bulgaria in Search of its Way, 1879-1913

18 Pages Posted: 26 Mar 2010

See all articles by Kalina Dimitrova

Kalina Dimitrova

Bulgarian National Bank

Luca Fantacci

Bocconi University - Department of Policy Analysis and Public Management

Date Written: February 19, 2010

Abstract

The Bulgarian monetary system was established, immediately after independence. 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. 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 - a positive and variable difference between the legal and the commercial value of silver coins. 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. 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 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.

Keywords: financial stability, monetary autonomy, fiscal interference, Bulgaria

JEL Classification: E42, E51, E63

Suggested Citation

Dimitrova, Kalina and Fantacci, Luca, Financial Stability, Monetary Autonomy and Fiscal Interference: Bulgaria in Search of its Way, 1879-1913 (February 19, 2010). William Davidson Institute Working Paper No. 979. Available at SSRN: https://ssrn.com/abstract=1574947 or http://dx.doi.org/10.2139/ssrn.1574947

Kalina Dimitrova (Contact Author)

Bulgarian National Bank ( email )

str "St. Sofia" 5
Sofia, 1040
Bulgaria

Luca Fantacci

Bocconi University - Department of Policy Analysis and Public Management ( email )

Via Roentgen 1
Milan, 20136
Italy

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