The ECB targets interest rates rather than exchange rates and in general does not intervene on the foreign exchange rate markets. This is because of the implications of the Mundell–Fleming model, which implies a central bank cannot (without capital controls) maintain interest rate and exchange rate targets simultaneously, because increasing the money supply results in a depreciation of the currency. In the years following the Single European Act, the EU has liberalised its capital markets and, as the ECB has inflation targeting as its monetary policy, the exchange-rate regime of the euro is floating.
Flexible exchange rates
Euro
Euro | Flexible exchange rates
Yes - In the years following the Single European Act, the EU has liberalised its capital markets and, as the ECB has inflation targeting as its monetary policy, the exchange-rate regime of the euro is floating. Yes, the exchange-rate regime of the euro is floating. Yes. Yes
when did the euro come out in spain
user
2002
assistant
what is this ?
user
The euro (symbol: €; code: EUR) is the official currency of 19 of the member states of the European Union.
assistant
are there any inflation risk associated with it ?
user
In the short term, there was a widespread impression in the population of the eurozone that the introduction of the euro had led to an increase in prices, but this impression was not confirmed by general indices of inflation and other studies.
assistant
what are its linguistic issues ?
user
Bulgaria has negotiated an exception; "euro" in the Bulgarian Cyrillic alphabet is spelled as eвро and not eуро in all official documents. In the Greek script the term ευρώ (evró) is used
assistant
are its exchange rates flexible ?
user
The ECB targets interest rates rather than exchange rates and in general does not intervene on the foreign exchange rate markets. This is because of the implications of the Mundell–Fleming model, which implies a central bank cannot (without capital controls) maintain interest rate and exchange rate targets simultaneously, because increasing the money supply results in a depreciation of the currency. In the years following the Single European Act, the EU has liberalised its capital markets and, as the ECB has inflation targeting as its monetary policy, the exchange-rate regime of the euro is floating.
Euro | Flexible exchange rates
The Bulgarian language's use of a Cyrillic script and its not straightforward transliteration of the word "euro" have caused some issues regarding the official use of the language relating to the euro. The European Central Bank and the European Commission initially insisted that Bulgaria adopt the name ЕУРО (i.e., euro), rather than the original ЕВРО (i.e., evro) (from Bulgarian , meaning "Europe"), claiming the currency's name should be standardised across the EU as much as possible. Bulgaria maintained that its language's alphabet and phonetic orthography warranted the exception. At the 2007 EU Summit in Lisbon the issue was decided in Bulgaria's favour, making евро the official Cyrillic spelling from 13 December 2007.
Bulgaria and the euro | Linguistic issues
Romania has managed floating exchange rates and it is in line with using inflation targets as a nominal anchor for monetary policy and allowing for a flexible policy response to unpredictable shocks likely to affect the economy. Reasons for not entering the euro area are complex, covering national problems, in particular the insufficient economic convergence over a lacking perceived attractiveness of euro membership, to an unresolved institutional reform agenda (Backé and Dvorsky 2018).
Romania and the euro | Monetary and exchange rate policies
A flexible exchange-rate system is a monetary system that allows the exchange rate to be determined by supply and demand. Every currency area must decide what type of exchange rate arrangement to maintain. Between permanently fixed and completely flexible however, are heterogeneous approaches. They have different implications for the extent to which national authorities participate in foreign exchange markets. According to their degree of flexibility, post-Bretton Woods-exchange rate regimes are arranged into three categories: currency unions, dollarized regimes, currency boards and conventional currency pegs are described as “fixed-rate regimes”; horizontal bands, crawling pegs and crawling bands are grouped into “intermediate regimes”; and managed and independent floats are described as flexible regimes.
Exchange-rate flexibility | Introduction
Since 10 July 2020, the lev has been part of ERM II, pegged to the euro at a fixed rate of €1 = BGN 1.95583. . Previous to that, since the launch of the euro in 1999, it had been pegged to the euro at the same rate through a strictly managed currency board. In all of the three latest annual assessment reports, Bulgaria managed to comply with four out of the five economic convergence criteria for euro adoption, only failing to comply with the criteria requiring the currency of the state to have been a stable ERM II member for a minimum of two years.
Enlargement of the eurozone | Bulgaria
After the introduction of the euro and the redenomination of the lev in 1999, this has resulted in a fixed rate to Euro of BGN 1.95583 : EUR 1. Since 2020, the lev has been a part of the European Exchange Rate Mechanism (ERM II).
Bulgarian lev | Introduction
With this accession, Cyrillic became the third official alphabet of the EU, after the Latin and Greek alphabets. Cyrillic will also be featured on the euro banknotes and the national (obverse) side of the Bulgarian euro coins. The ECB and the EU Commission insisted that Bulgaria change the official name of the currency from ЕВРО (EVRO) (as accepted) to ЕУРО (EURO), claiming that the currency should have a standard spelling and pronunciation across the EU. For details, see Linguistic issues concerning the euro. The issue was decisively resolved in favour of Bulgaria at the 2007 EU Summit in Lisbon, allowing Bulgaria to use the Cyrillic spelling евро on all official EU documents.
2007 enlargement of the European Union | Cyrillic
All monetary regimes except for the permanently fixed regime experience the time inconsistency problem and exchange rate volatility, albeit to different degrees.
Exchange-rate flexibility | Introduction
The potential drawbacks are that member countries suffering asymmetric shocks lose a stabilization tool—the ability to adjust exchange rates. The cost depends on the extent of asymmetric costs and the availability and effectiveness of alternative adjustment tools.
Exchange-rate flexibility | Monetary union
The fourth lev was pegged to the German mark at par from the start. With the replacement of the Deutsche Mark by the euro, the lev's peg effectively switched to the euro at the rate of 1.95583 leva = 1 euro (precisely equivalent to the Deutsche Mark's fixed exchange rate to euro). This rate is unlikely to change before the lev's eventual retirement. (Bulgaria committed to adopting the euro as part of its joining the EU.) On 25 April 2005, when the country's EU accession treaty was signed, the BNB issued a commemorative coin with the face value of 1.95583 leva.
Bulgarian lev | Exchange rate
In a fixed exchange rate system, the monetary authority picks rates of exchange with each other currency and commits to adjusting the money supply, restricting exchange transactions and adjusting other variables to ensure that the exchange rates do not move. All variations on fixed rates reduce the time inconsistency problem and reduce exchange rate volatility, albeit to different degrees. Under "dollarization"/"Euroization", the US dollar or the Euro acts as legal tender in a different country. Dollarization is a summary description of the use of foreign currency in its capacity to produce all types of money services in the domestic economy.
Exchange-rate flexibility | Fixed rate programs
Because the lev is pegged to the euro at a fixed exchange rate, it can be argued that Bulgaria is already a de facto member of the euro area insofar that it cannot pursue an independent monetary policy and is therefore bound by the monetary policy and interest rate decisions of the European Central Bank (ECB) without having a say. Adopting the euro and thereby becoming a de jure member of the euro area would enhance Bulgaria's position by giving it a voice within the ECB. Moreover, the fact that the lev is pegged to the euro at a fixed exchange rate also means that Bulgaria cannot devalue its currency in order to make its exports more competitive.
Bulgaria and the euro | Advantages of euro adoption
The formal titles of the currency are "euro" for the major unit and "cent" for the minor (one-hundredth) unit and for official use in most eurozone languages; according to the ECB, all languages should use the same spelling for the nominative singular. This may contradict normal rules for word formation in some languages, e.g., those in which there is no "eu" diphthong. Bulgaria has negotiated an exception; "euro" in the Bulgarian Cyrillic alphabet is spelled as eвро ("evro") and not eуро ("euro") in all official documents. In the Greek script the term ευρώ (evró) is used; the Greek "cent" coins are denominated in λεπτό/ά (leptó/á).
Euro | Linguistic issues
The ERM is based on the concept of fixed currency exchange rate margins, but with exchange rates variable within those margins. This is also known as a semi-pegged system. Before the introduction of the euro, exchange rates were based on the European Currency Unit (ECU), the European unit of account, whose value was determined as a weighted average of the participating currencies. A grid (known as the Parity Grid) of bilateral rates was calculated on the basis of these central rates expressed in ECUs, and currency fluctuations had to be contained within a margin of 2.25% on either side of the bilateral rates (with the exception of the Italian lira, the Spanish peseta, the Portuguese escudo and the pound sterling, which were allowed to fluctuate by ±6%).
European Exchange Rate Mechanism | Intent and operation of the ERM II
Bulgarian uses Cyrillic. The current design of euro banknotes, except for the "new" €5, €10, €20, €50, and the €100 banknotes, has the word "euro" written in Latin and Greek alphabets. The 2013 design of the € 5 banknote introduced Cyrillic, adopting the spelling ЕВРО, as described below. When Bulgaria issues Euro coins, if the Greek model is followed, the alternative spelling will go on the national (obverse) side. In popular Bulgarian usage the currency is referred to as евро and, less often, (from Bulgarian Европа , meaning "Europe"); the plural varies in spoken language – евро, евра , еврота – but the most widespread form is евро – without inflection in plural.
Language and the euro | Bulgarian
Conversely, periodic exchange rate realignments in inflation-prone peg countries reflected a monetary policy more inconsistent with flexible exchange rate arrangements. In this light, the authors proposed a "de facto" classification of exchange rate regimes that attempted to reflect actual rather than reported policies, providing an alternative and a complement to the standard "de jure" groupings. Sturzenegger and Levy Yeyati's classification is based on three variables: changes in the nominal exchange rate, the volatility of these changes, and the volatility of international reserves, following a textbook definition of regimes according to which fixed exchange rates are associated with changes in international reserves (to reduce the volatility of the nominal exchange rate) whereas flexible exchange rates are characterized by volatility in nominal rates coupled with relatively stable reserves.
Eduardo Levy Yeyati | "De Facto" Exchange Rate Regimes
It is a type of fixed regime that has special legal and procedural rules designed to make the peg "harder—that is, more durable". Examples include the Hong Kong dollar against the U.S dollar and Bulgarian lev against the Euro.
Exchange rate regime | Fixed exchange rate regime
This ruling has affected the design of euro banknotes. The second series of notes (beginning with the €5 note issued from 2013) includes the term "ЕВРО" and the abbreviation "ЕЦБ" (short for , the Bulgarian name of the European Central Bank). The first series had only the standard Latin alphabet "EURO" and the Greek "ΕΥΡΩ". The euro coins only have the Latin "EURO" on their common side. Greek coins include the alternative Greek spelling on the national (obverse) side. Bulgarian coins, therefore, may follow suit, having "EURO" on one side and "ЕВРО" on the other.
Bulgaria and the euro | Linguistic issues
Most official EU languages are written in the Latin script. The two exceptions are Greek, which is written in the Greek script, and Bulgarian, which is written in Cyrillic script. With the accession of Bulgaria to the European Union on 1 January 2007, Cyrillic became the third official script of the European Union, following the Latin and Greek scripts. The current design of euro banknotes has the word "euro" written in both the Latin and Greek (Ευρώ) alphabets; the Cyrillic spelling (Eвро) was added to the new Europa series of banknotes started in 2013 (see Linguistic issues concerning the euro).
Languages of the European Union | Writing systems
In 1996, the Bulgarian economy collapsed due to the slow and mismanaged economic reforms of several governments in a row, shortages of wheat, and an unstable and decentralized banking system, which led to an inflation rate of 311% and the collapse of the lev, with the exchange rate to dollars reaching 3000. When pro-reform forces came into power in the spring 1997, an ambitious economic reform package, including introduction of a currency board regime and pegging the Bulgarian Lev to the German Deutsche Mark (and subsequently to the euro), was agreed to with the International Monetary Fund and the World Bank, and the economy began to stabilize.
Chronic inflation | Bulgaria
A currency board system can ultimately be credible only if central bank holds official foreign exchange reserves sufficient to at least cover the entire monetary base. Exchange rate movements cannot buffer external shocks.
Exchange-rate flexibility | Fixed rate programs
Using a mechanism known as the "snake in the tunnel", the European Exchange Rate Mechanism was an attempt to minimize fluctuations between member state currencies—initially by managing the variance of each against its respective ECU reference rate—with the aim to achieve fixed ratios over time, and so enable the European Single Currency (which became known as the euro) to replace national currencies.
European Currency Unit | Exchange rate
The supply of foreign exchange is similarly derived from the foreign demand for goods, services, and financial assets coming from the home country. Fixed exchange-rates are not permitted to fluctuate freely or respond to daily changes in demand and supply. The government fixes the exchange value of the currency. For example, the European Central Bank (ECB) may fix its exchange rate at €1 = $1 (assuming that the euro follows the fixed exchange-rate). This is the central value or par value of the euro. Upper and lower limits for the movement of the currency are imposed, beyond which variations in the exchange rate are not permitted.
Fixed exchange rate system | Open market mechanism example
This was not so much a peg, as they were merely limiting its highest value and not its lowest. The Bulgarian lev is pegged to the euro through a currency board. As part of ERM II, the currencies have a fluctuation band of ±15%. Denmark, however, has committed to a tighter fluctuation band of 2.25%.
International status and usage of the euro | Pegged currencies
In theory, most of the currencies are allowed to fluctuate as much as 15% from their assigned value. In practice, however, the currency of Denmark deviates very little.
European Exchange Rate Mechanism | Exchange rate bands
The first enlargement of the eurozone, to Greece, took place on 1 January 2001, one year before the euro had physically entered into circulation. The zone's next enlargements were with states that joined the EU in 2004, and then joined the eurozone on 1 January in the mentioned year: Slovenia (2007), Cyprus (2008), Malta (2008), Slovakia (2009), Estonia (2011), Latvia (2014), and Lithuania (2015). All new EU members having joined the bloc after the signing of the Maastricht Treaty in 1992 are obliged to adopt the euro under the terms of their accession treaties. However, the last of the five economic convergence criteria, which need to be complied with in order to qualify for euro adoption, is the exchange rate stability criterion.
European Exchange Rate Mechanism | Historical exchange-rate regimes for EU members
After the demise of the Bretton Woods system in 1971, most of the leaders of EC countries agreed in 1972 to maintain stable exchange rates by preventing exchange rate fluctuations of more than +/-2.25% (called European "currency snake"), Italy exceptionally benefited from a wider +/-6% margin, these permissible was so-called ‘fluctuation bandwidths’. In this time, the EMS was a formal objective of stabilizing the currency rates and also maintain the competitiveness of its Member Countries, their plan was to achieve real and nominal exchange rates. The EMS was consisted of two main elements: one was about an agreement on a Community exchange-rate regime, another was about the decision to create a European Monetary Cooperation Fund (EMCF).
European Monetary System | Overview
The word for euro, though, has a normal form with the postpositive definite article – еврото (the euro). The word for eurocent is евроцент and most probably that, or only цент , will be used in future when the European currency is accepted in Bulgaria. In contrast to euro, the word for "cent" has a full inflection both in the definite and the plural form: евроцент (basic form), евроцентът (full definite article – postpositive), евроцентове (plural), 2 евроцента (numerative form – after numerals). The word stotinki (стотинки), singular stotinka (стотинка), the name of the subunit of the current Bulgarian currency can be used in place of cent, as it has become a synonym of the word "coins" in colloquial Bulgarian; just like "cent" (from Latin centum), its etymology is from a word meaning hundred – "sto" (сто).
Language and the euro | Bulgarian
In 1962, another redenomination took place at the rate of 10 to 1, setting the exchange rate at 1.17 leva = 1 U. S. dollar, with the tourist rate falling to 2 leva on February 1, 1964. The ISO 4217 code was . After this, the lev remained fairly stable for almost three decades. However, like other Communist countries' currencies, it was not freely convertible for Western funds. Consequently, black market rates were five to ten times higher than the official rate. During the period, until 1989 the lev was backed by gold, and the banknotes have the text stating: "The bank note is backed by gold and all assets of the bank" ().
Bulgarian lev | Third lev (1962–1999)
Among variants of fixed exchange rates, it imposes the least restrictions, and may hence yield the smallest credibility benefits. The credibility effect depends on accompanying institutional measures and record of accomplishment. "Exchange rate bands" allow markets to set rates within a specified range; edges of the band are defended through intervention. It provides a limited role for exchange rate movements to counteract external shocks while partially anchoring expectations. This system does not eliminate exchange rate uncertainty and thus motivates development of exchange rate risk management tools. On the margin a band is subject to speculative attacks. It does not by itself place hard constraints on policy, and thus provides only a limited solution to the time inconsistency problem.
Exchange-rate flexibility | Flexible exchange rate
Conversely, periodic devaluations of pegs in inflation-prone countries were the result of the implementations of monetary policies that were inconsistent with fixed exchange rates and that made the effective regime resemble a flexible arrangement. Moreover, countries that appeared to behave according to the declared regime during tranquil times could be tempted to change their course of action once the regime was under stress. Thus, a very different picture of exchange rate regime choices might have appeared once the international context became more volatile. The authors proposed a new "de facto" classification of exchange rate regimes that reflected the actual rather than the announced policies, providing an alternative as well as a complement to the standard "de jure" approach.
Federico Sturzenegger | "De Facto" Exchange Rate Regimes: Deeds vs Words
If Bulgaria follows the standard path to euro adoption, it would use the euro two years after joining the European exchange rate mechanism (ERM II) (a formality given the lev's peg to the euro). In late 2010, given Bulgaria's improving economy, analysts thought that Bulgaria would join the ERM II the following year. However, the continued postponement of joining the mechanism has prevented Bulgaria meeting all five convergence criteria: its rebounding economy later met the four other criteria. On 10 July 2020, along with Croatia, Bulgaria joined the ERM II, which allows it to adopt the Euro no earlier than two years after joining assuming the other convergence criteria are met.
Bulgarian lev | Euro adoption
Bulgaria euro coins will replace the lev once the convergence criteria are fulfilled. As the current lev was fixed to the Deutsche Mark at par, the lev's peg effectively switched to the euro, at the rate of 1.95583 leva = 1 euro, which is the Deutsche Mark's fixed exchange rate to euro. On the occasion of the signing of the EU accession treaty on 25 April 2005, the Bulgarian National Bank issued a commemorative coin with a face value of 1.95583 leva, giving it a nominal value of exactly 1 euro. The Madara Rider was one of the favourites to become the symbol of Bulgaria to be used on the national side of the country's euro coins.
Bulgaria and the euro | Selecting the design
(If евро had been treated as a regular neuter noun instead of being indeclinable, it would have the forms *евра (regular plural or genitive singular) and *евр (genitive plural), but this treatment would have been unusual for a loanword.)
Language and the euro | Russian
In 1973, the currencies of the European Economic Community countries, Belgium, France, Germany, Italy, Luxemburg and the Netherlands, participated in an arrangement called "the Snake". This arrangement is categorized as exchange rate co-operation. During the next 6 years, this agreement allowed the currencies of the participating countries to fluctuate within a band of plus or minus 2¼% around pre-announced central rates. Later, in 1979, the European Monetary System (EMS) was founded, with the participating countries in "‘the Snake’" being founding members. The EMS evolves over the next decade and even results into a truly fixed exchange rate at the start of the 1990s.
Fixed exchange rate system | Example: The Snake
These systems do not particularly reduce time inconsistency problems nor do they offer specific techniques for maintaining low exchange rate volatility. A "crawling peg" attempts to combine flexibility and stability using a rule-based system for gradually altering the currency's par value, typically at a predetermined rate or as a function of inflation differentials. A crawling peg is similar to a fixed peg; however, it can be adjusted based on clearly defined rules. A crawling peg is often used by (initially) high-inflation countries or developing nations who peg to low inflation countries in attempt to avoid currency appreciation. At the margin a crawling peg provides a target for speculative attacks.
Exchange-rate flexibility | Flexible exchange rate
Stotinki is used widely in the Bulgarian diaspora in Europe to refer to subunits of currencies other than the Bulgarian lev.
Language and the euro | Bulgarian
In some of these countries, there is a fixed exchange rate between the national currency and the euro and in this case the currency is actually a submultiple of the euro. In other countries, the national currency's value fluctuates within a band (generally 15%) around a set rate. Currencies pegged to the euro include the currencies of Bulgaria, Bosnia and Herzegovina and Cape Verde. Denmark has a foreign exchange band tied to the euro.
Economy of Europe | Currency and central banks
The former members of ERM II are the Greek drachma, Slovenian tolar, Cypriot pound, Estonian kroon, Maltese lira, Slovak koruna, Lithuanian litas and Latvian lats.
European Exchange Rate Mechanism | Historical reference
Coudert, Virginie, Cécile Couharde and Valérie Mignon, "Exchange rate flexibility across financial crises",http://www.cepii.fr/PDF_PUB/wp/2010/wp2010-08.pdf
Exchange-rate flexibility | References
The Maastricht Treaty, which Bulgaria acceded to by way of its EU accession treaty in 2007, requires that all members of the European Union join the euro once certain economic criteria are met. In November 2007 the Finance Minister Plamen Oresharski stated that his goal was to comply with all five convergence criteria by 2009 and adopt the euro in 2012. Besides not complying with the requirement to be an ERM-II member for two years, Bulgaria also did not satisfy the price stability criterion in 2008. Bulgaria's inflation in the 12 months from April 2007 to March 2008 reached 9.4%, well above the reference value limit at 3.2%.
Bulgaria and the euro | Convergence criteria
The lev has been pegged to the euro since its launch in 1999, at a fixed rate of €1 = BGN 1.95583 through a strictly managed currency board. Prior to that the lev was pegged on par to the German Mark. While the currency board which pegs Bulgaria to the euro has been seen as beneficial to the country fulfilling criteria so quickly, the ECB has pressured Bulgaria to drop it as it did not know how to let a country using a currency board join the euro. The Prime Minister has stated the desire to keep the currency board until the euro was adopted.
Bulgaria and the euro | Joining ERM II
In August 1993, the margin was expanded to 15% to accommodate speculation against the French franc and other currencies.
European Exchange Rate Mechanism | Increase of margins
Bulgaria committed to switching its currency, the lev, to the euro upon its joining the European Union in 2007, as stated in its EU accession treaty. The transition will occur once the country meets all the euro convergence criteria; it currently meets four of the five criteria, the exception being its membership for at least two years of the EU's official exchange rate mechanism (ERM II). Bulgarian euro coins have not yet been designed, but their motif has been chosen to be the Madara Rider. Bulgaria officially joined the ERM II on 10 July 2020.
Bulgaria and the euro | Introduction
The Bulgarian lev is anyway bound to the euro. Bulgaria regards becoming a member of the Eurozone at present as too risky. The 2012 Transatlantic Trends poll found that 72 percent of Bulgarians did not approve of the economic policy pursued by the government of the (then) ruling center-right GERB party and Prime Minister Boyko Borisov.
Economy of Bulgaria | New government and fiscal discipline
After more than a year of high tension in markets for European Monetary System (EMS) currencies, member countries agreed in August 1993 to widen the fluctuation bands for most Exchange Rate Mechanism (ERM) rates from 2.25 percent around par to 15 percent. What is remarkable about subsequent ERM experience is the bark in the night that was not heard: by August 1995, the French franc, Belgian franc, and Danish krone, all of which came under intense speculative attack in 1992–93, were not far from the lower edges of the original ERM bands that had been widened two years previously. The greater exchange-rate flexibility conferred by the broad bands, while tactically convenient for policy on occasion, did not lead to substantial long-run currency depreciation.
Self-fulfilling crisis | Example: European Monetary System crisis
The "band" or "spread" in Fig.1 is €0.6 (from €1.2 to €1.8).
Fixed exchange rate system | Open market mechanism example
Monetary policy is delegated to the anchor country. Under dollarization exchange rate movements cannot buffer external shocks. The money supply in the dollarizing country is limited to what it can earn via exports, borrow and receive from emigrant remittances. A "currency board" enables governments to manage their external credibility problems and discipline their central banks by “tying their hands” with binding arrangements. A currency board combines three elements: an exchange rate that is fixed to another, “anchor currency”; automatic convertibility or the right to exchange domestic currency at this fixed rate whenever desired; and a long-term commitment to the system.
Exchange-rate flexibility | Fixed rate programs
SFEM began in September 26, 1986 with the value of the naira determined by weekly auction and the highest bids receive not more than 10% of the allocation. From its beginning, the system led to a devaluation of the naira with rates determined by the average of successful bids, marginal pricing and finally through dutch auction. In April 1987 the exchange rates became determined by a dutch auction system until the second exchange rate was merged with the official exchange rate in July 1987 to form the Foreign Exchange Market which operated under the auction system of SFEM.
Second-Tier Foreign Exchange Market | Flexible rate system
In the Greek language the indeclinable word () is used as the currency's name. It was decided to use omega (ω) rather than omicron (ο) as the last letter of the word, partly because a noun ending with omicron would encourage mutability, and partly to stress the origin of the euro in the Greek word ("Eurōpē", Europe) which is also spelt with omega and it is actually written on the euro notes in Greek as . Also, the spelling (resulting in a plural ) on the notes could have confused other Europeans, who might read it as a string of Latin letters: "eypo".
Language and the euro | Greek
The increase was sought by the Polish government to alleviate falling economic growth which stemmed from the Eurozone's financial instability. Poland's fifth (consecutive) FCL arrangement saw an access reduction, at the request of the Polish government, to SDR 15.5 billion (US$23 billion), 918% of the country's quota. The Executive Director for Poland believed that the reduced FCL was possible due to a strengthening policy framework improving economic buffers, thereby reducing financing needs. However, the risk of external economic shocks failed to diminish, encouraging continued membership of FCL. Poland's sixth (consecutive) FCL arrangement saw a further access reduction, at the request of the Polish government, to SDR 6.5 billion (US$9.2 billion), 159% of the country's quota.
Poland and the International Monetary Fund | Flexible Credit Line (2009—2017)
Inflation, which surged to 122% in 1994, fell to normal rates of 32.9% in 1995. During 1996, however, the economy collapsed during Jean Videnov's government. That was due to the Bulgarian Socialist Party's inability to introduce vital economic reforms and failure to set legislative standards for banking and financial institutions, thus forcing an unstable banking system. All this led to an inflation rate of 311%, and the collapse of the lev. In the spring 1997, the pro-reform United Democratic Forces coalition came to power with its ambitious economic reform package. The reforms included introduction of a currency board regime, which was agreed to with the International Monetary Fund and the World Bank, allowed the economy to stabilize.
Economy of Bulgaria | 1990–2000
Following the Smithsonian Agreement, member states of the European Economic Community adopted a narrower currency band of 1.125% for exchange rates among their own currencies, creating a smaller scale fixed exchange rate system known as the "snake in the tunnel". The snake proved unsustainable as it did not compel EEC countries to coordinate macroeconomic policies. In 1979, the European Monetary System (EMS) phased out the currency snake. The EMS featured two key components: the European Currency Unit (ECU), an artificial weighted average market basket of European Union members' currencies, and the Exchange Rate Mechanism (ERM), a procedure for managing exchange rate fluctuations in keeping with a calculated parity grid of currencies' par values.
Global financial system | European Monetary System: 1979
There is a market convention that determines which is the fixed currency and which is the variable currency. For example, in a conversion from EUR to AUD, EUR is the fixed currency, AUD is the variable currency and the exchange rate indicates how many Australian dollars would be paid or received for 1 Euro. Cyprus and Malta, which were quoted as the base to the USD and others, were recently removed from this list when they joined the Eurozone. In some areas of Europe and in the retail market in the United Kingdom, EUR and GBP are reversed so that GBP is quoted as the fixed currency to the euro.
Exchange rate | Quotations
Around this time, in 1990, the EU introduced the Economic and Monetary Union (EMU), as an umbrella term for the group of policies aimed at converging the economies of member states of the European Union over three phases
Fixed exchange rate system | Example: The Snake
The Pact has been criticised by some as being insufficiently flexible and needing to be applied over the economic cycle rather than in any one year. They fear that by limiting governments' abilities to spend during economic slumps it may hamper growth. In contrast, other critics think that the Pact is too flexible; economist Antonio Martino writes: "The fiscal constraints introduced with the new currency must be criticized not because they are undesirable—in my view they are a necessary component of a liberal order—but because they are ineffective. This is amply evidenced by the "creative accounting" gimmickry used by many countries to achieve the required deficit to GDP ratio of 3 percent, and by the immediate abandonment of fiscal prudence by some countries as soon as they were included in the euro club.
Stability and Growth Pact | Criticism
As of 1 January 2008 the income tax for all citizens is set to a flat rate of 10%. This flat tax is one of the lowest income rates in the world and the lowest income rate in the European Union. The reform was done in pursue for higher GDP growth and greater tax collection rates. Some called it a "revolution" in taxation, but the changes were met with mild discussions and some protests by affected working classes. The proposal was modified to allow for compensating the perceived losers from the changes in the tax formula. The corporate income tax is also 10% as of 1 January 2007 which is also among the lowest in Europe.
Economy of Bulgaria | Taxation, state budget and debt
The chart below provides a full historical summary of exchange-rate regimes for EU members since the European Monetary System with its Exchange Rate Mechanism and the related new common currency ECU was born on 13 March 1979. The euro replaced the ECU 1:1 at the exchange rate markets, on 1 January 1999. During 1979–1999, the German mark functioned as a de facto anchor for the ECU, meaning there was only a minor difference between pegging a currency against ECU and pegging it against the German mark.
Enlargement of the eurozone | Exchange-rate regime for EU members
This requires having been a member of the ERM for a minimum of two years without the presence of "severe tensions" for the currency exchange rate.
European Exchange Rate Mechanism | Historical exchange-rate regimes for EU members
The denar was introduced with a fixed exchange rate against the German Mark of 360 denars to the mark.
Macedonian denar | Exchange rates
A forced devaluation will change the exchange rate by more than will the day-by-day exchange rate fluctuations under a flexible exchange rate system.
Fixed exchange rate system | Currency crisis
As it is not an official currency and not circulating, the exchange rate is not realistic. Despite this, the Sahrawi peseta was pegged at par to the Spanish peseta and, when the latter was phased out for the euro, the rate became €1 for 166.386 Pts.
Sahrawi peseta | Introduction
These variations of exchange rates can be a source of instability. For the countries who recently joined euro zone, most of them are small and very open economies. Exports account for a significant share of the GDP and international trade, the trade with EU countries playing an essential role. As emerging countries, when the currency value becomes volatile they are prone to sudden shifts of investments and capital flows (perhaps by foreign investor "animal spirits" and this is similar to sudden flow stops in Latin American countries).
Fear of floating | In favor of monetary union
However, Bulgaria fulfilled the state budget criterion of only having a deficit at maximum 3% of the country's gross domestic product (GDP). The country had posted surpluses since 2003, which in 2007 was at 3.4% of GDP. At the time, the EC forecast that it would remain at 3.2% of GDP in both 2008 and 2009. Bulgaria also complied with the public debt criteria. During the prior decade the Bulgarian debt had declined from 50% of GDP to 18% in 2007. It was expected to reach 11% of GDP in 2009. Finally, the average for the long-term interest rate during the prior year was 4.7% in March 2008, and thus also well within the reference limit at 6.5%.
Bulgaria and the euro | Convergence criteria
Prior to SFEM, the government through the Central Bank fixed the exchange rate which was 99 cents to a naira in May 1986. This mechanism was backed by import restriction, a pegged currency and foreign exchange control. However, when new stiffer import restrictions and foreign exchange controls were implemented in 1982 it created a divergence between the government official rates and the rates obtained in the parallel market sometimes called the black market. In 1986 this rate was up to 4 naira to $1 naira. The introduction of SFEM was to dampen interest in the black market, deregulate the financial sector and allow market forces to determine the exchange rate.
Second-Tier Foreign Exchange Market | Flexible rate system
The Corporate tax rate is 10%. The personal tax rate is flat at 10%. There is no capital gains tax on equity instruments traded on the BSE.
Capital gains tax | Bulgaria
Before the introduction of the euro, some countries had successfully contained inflation, which was then seen as a major economic problem, by establishing largely independent central banks. One such bank was the Bundesbank in Germany; the European Central Bank was modelled on the Bundesbank. The euro has come under criticism due to its regulation, lack of flexibility and rigidity towards sharing member States on issues such as nominal interest rates. Many national and corporate bonds denominated in euro are significantly more liquid and have lower interest rates than was historically the case when denominated in national currencies. While increased liquidity may lower the nominal interest rate on the bond, denominating the bond in a currency with low levels of inflation arguably plays a much larger role.
Euro | Macroeconomic stability
Russia currently borders four eurozone members, Finland, Estonia, Latvia and Lithuania. They supply much of the euro inflow in Russia in trade exchange and tourism. In Russian, just like in Bulgarian, euro is spelt евро ("jevro", pronounced ) both in the singular and the plural, while "cent" is цент (sg.) and центы (pl.), though there are many colloquial semi-ironic forms such as евры 'jevry' or еврики 'jevriki' (there's no plural form for "euro" in Russian), копейки for cents and others. Just as in Italian, although евро could have been declined as a regular neuter noun, it was made indeclinable like many neutral loanwords ending in a vowel: бюро "bureau, office, writing-desk", пальто "overcoat", бордо "Bordeaux wine, claret" etc.; the same form is used in the singular and the plural.
Language and the euro | Russian
This is what happened to Greece, Ireland, Portugal, Cyprus, and Spain.
Economic and Monetary Union of the European Union | Monetary policy inflexibility
Disclaimer of the monetary policy instrument. Monetary policy and exchange rate are passing in the responsibility of the European Central Bank. Thus, Romania remains without the ability to control a main monetary policy instrument (the monetary policy interest rate) and gives up to the exchange rate, another instrument that contributes to adjusting the economy, especially during the recession. Convergence. In order to be able to suffer a smaller cost of the currency changeover, the structural, real and institutional convergence has to be as high as possible; the business cycles must be synchronized (periods of economic downturn and economic growth to be simultaneous in Romania, and in the euro area).
Romania and the euro | Preparing the changeover to the euro
The euro is the second-most widely held reserve currency after the U.S. dollar. After its introduction on 4 January 1999 its exchange rate against the other major currencies fell reaching its lowest exchange rates in 2000 (3 May vs Pound sterling, 25 October vs the U.S. dollar, 26 October vs Japanese yen). Afterwards it regained and its exchange rate reached its historical highest point in 2008 (15 July vs U.S. dollar, 23 July vs Japanese yen, 29 December vs Pound sterling). With the advent of the global financial crisis the euro initially fell, to regain later. Despite pressure due to the European sovereign-debt crisis the euro remained stable.
Euro | Against other major currencies
In 2009, he said he was in favor of accelerating the introduction of the euro, adding: "The euro must be a key issue for any future government. When the crown rate jumps up and down, you can't plan anything. I do not understand why politicians do not finally understand. When all the countries around us adopt the euro, speculative capital will only play with our koruna. And we can't stand that. Now the exchange rate is 27.50 per euro. When it was 22.90 and subsequently the koruna weakened, most of it secured the level of 24 to 25 CZK. Analysts have previously claimed that the euro will go below twenty crowns.
Andrej Babiš | Political views
Each country determines the exchange rate regime that will apply to its currency. For example, the currency may be free-floating, pegged (fixed), or a hybrid. If a currency is free-floating, its exchange rate is allowed to vary against that of other currencies and is determined by the market forces of supply and demand. Exchange rates for such currencies are likely to change almost constantly as quoted on financial markets, mainly by banks, around the world. A movable or adjustable peg system is a system of fixed exchange rates, but with a provision for the revaluation (usually devaluation) of a currency.
Exchange rate | Exchange rate regime
In normative Slovene language usage ‘evro’ spelling should only be used, except as noted.
Language and the euro | Slovene
The national currency is the lev (plural leva), pegged to the euro at a rate of 1.95583 leva for 1 euro. The lev is the strongest and most stable currency in Eastern Europe. The strongest sectors in the economy are energy, mining, metallurgy, machine building, agriculture and tourism. Primary industrial exports are clothing, iron and steel, machinery and refined fuels. Sofia is the capital and economic heart of Bulgaria and home to most major Bulgarian and international companies operating in the country, as well as the Bulgarian National Bank and the Bulgarian Stock Exchange.
Economy of Bulgaria | Introduction
However, factors such as a high inflation, an unrealistic exchange rate with the euro and the country's low productivity are negatively affected by the system. Simeon Dyankov, Bulgaria's then-finance minister, said in September 2009 that Bulgaria planned to enter ERM II in November 2009, but this was delayed. It was then delayed further due to an increased budget deficit, outside the Maastricht criteria. Since 2011, Bulgaria's non-membership of the ERM has been the primary factor that prevented their euro membership, as Bulgaria met the other criteria for euro adoption. In July 2011, Dyankov stated that the government would not adopt the euro as long as the European sovereign-debt crisis was ongoing.
Bulgaria and the euro | Joining ERM II
The current state of foreign exchange markets does not allow for the rigid system of fixed exchange rates. At the same time, freely floating exchange rates expose a country to volatility in exchange rates. Hybrid exchange rate systems have evolved in order to combine the characteristics features of fixed and flexible exchange rate systems. They allow fluctuation of the exchange rates without completely exposing the currency to the flexibility of a free float.
Fixed exchange rate system | Hybrid exchange rate systems
The Azerbaijani name for Europe is "Avropa", similar to that of its sister language, Turkish, and the Azerbaijani word for euro, derived from that for Europe, is "avro", identical to Turkish.
Language and the euro | Azerbaijani
Therefore, the new series of Euro banknotes will include "ЕВРО", which is the Bulgarian spelling for EURO as well as the abbreviation "ЕЦБ" (short for "Европейска централна банка" in Bulgarian). The European Central Bank will, in due time, announce when banknotes from the first series lose legal tender status.
5 euro note | Changes
If Greece remains in the euro while accepting higher bond yields, reflecting its high government deficit, then high interest rates would dampen demand, raise savings and slow the economy. An improved trade performance and less reliance on foreign capital would be the result. The implementation of Grexit would have to occur "within days or even hours of the decision being made" due to the high volatility that would result. It would have to be timed at one of the public holidays in Greece.
Greek withdrawal from the eurozone | Financial dynamics
On 31 December 1998, the European Currency Unit (ECU) exchange rates of the eurozone countries were frozen and the value of the euro, which then superseded the ECU at par, was thus established. In 1999, ERM II replaced the original ERM. The Greek and Danish currencies were part of the new mechanism, but when Greece joined the euro in 2001, the Danish krone was left at that time as the only participant member. A currency in ERM II is allowed to float within a range of ±15% with respect to a central rate against the euro. In the case of the krone, Danmarks Nationalbank keeps the exchange rate within the narrower range of ± 2.25% against the central rate of EUR 1 = DKK 7.46038.
European Exchange Rate Mechanism | History of the ERM II
One main criticism of a fixed exchange rate is that flexible exchange rates serve to adjust the balance of trade. When a trade deficit occurs under a floating exchange rate, there will be increased demand for the foreign (rather than domestic) currency which will push up the price of the foreign currency in terms of the domestic currency. That in turn makes the price of foreign goods less attractive to the domestic market and thus pushes down the trade deficit. Under fixed exchange rates, this automatic rebalancing does not occur.
Fixed exchange rate system | Lack of automatic rebalancing
Bulgaria's unit of currency is the lev (pl., leva). In October 2006, the U.S. dollar was worth 1.57 leva. In 1999 the value of the lev was pegged to that of the German Deutschmark, which was replaced by the euro in 2001. Following the Bulgaria's admission to the EU, the lev is scheduled to be replaced by the euro. In 2003 Bulgaria's inflation rate was estimated at between 2.3 and 3 percent. The rate was 6 percent in 2004 and 5 percent in 2005. In 2015 and 2016 it was recorded minimum level of deflation.
Economy of Bulgaria | Currency and inflation
In Romania, the main objective of the NBR is to ensure and maintain price stability, promoting at the same time the general economic policy of the Government. As states in Article 2 of Law 312/2004, the National Bank is responsible for defining and implementing the monetary policy strategy (Direct inflation targeting) and the exchange rate policy. Over the years, the NBR has supported the monetary policy, by progressively decreasing the policy rate. The first step achieved was between February 2009 and March 2012, when the NBR cut the policy rate by a cumulative 500 basis points, to 5.25%. Followed by rapid decreases in the annual inflation rate which made it possible for the NBR to resume the downward adjustment of the policy rate: between July 2013 and February 2014, the NBR cut the policy rate by a cumulative 175 basis points, to 3.5%.
Romania and the euro | Monetary and exchange rate policies
On 9 April 1953, in an effort to halt inflation, Greece joined the Bretton Woods system. On 1 May 1954, the drachma was revalued at a rate of 1000 to 1, and small change notes were abolished for the last time. The third drachma assumed a fixed exchange rate of 30 drachmae per dollar until 20 October 1973: over the next 25 years, the official exchange rate gradually declined, reaching 400 drachmae per dollar. On 1 January 2002, the Greek drachma was officially replaced as the circulating currency by the euro, and it has not been legal tender since 1 March 2002.
Greek drachma | Third modern drachma
In November 2011 the euro's exchange rate index – measured against currencies of the bloc's major trading partners – was trading almost two percent higher on the year, approximately at the same level as it was before the crisis kicked off in 2007.
Euro | Against other major currencies
dollars, Chinese yuan, euros, Japanese yen, and British pounds.
Fixed exchange rate system | Basket-of-currencies
However the Greek government-debt crisis led to former British Foreign Secretary Jack Straw claiming the eurozone could not last in its current form. Part of the problem seems to be the rules that were created when the euro was set up. John Lanchester, writing for "The New Yorker", explains it:
Euro | Optimal currency area
The PACE delegation noted that whilst the election was conducted in a generally orderly and peaceful way, there remained concerns about a lack of an equal access to the media, blurred distinctions between newspaper editorials and political advertisements, the lack of a dedicated voter roll and the candidate registration system which particularly affected independent candidates. PACE also recommended that voting for expatriate Bulgarians should be improved. The OCSE delegation also noted concerns about the blurred lines in media coverage, as well as vote-buying allegations, restrictions on using minority languages in campaigns, and inflammatory statements by some candidates.
2011 Bulgarian presidential election | International statements
Alternatively, the band may be allowed to widen gradually without any pre-announced central rate.
Fixed exchange rate system | Pegged within a band
Although the exchange rate stability sustained by the Bretton Woods system facilitated expanding international trade, this early success masked its underlying design flaw, wherein there existed no mechanism for increasing the supply of international reserves to support continued growth in trade. The system began experiencing insurmountable market pressures and deteriorating cohesion among its key participants in the late 1950s and early 1960s. Central banks needed more U.S. dollars to hold as reserves, but were unable to expand their money supplies if doing so meant exceeding their dollar reserves and threatening their exchange rate pegs. To accommodate these needs, the Bretton Woods system depended on the United States to run dollar deficits.
Global financial system | Flexible exchange rate regimes: 1973-present
The next enlargements were to states which joined the EU in 2004, and then joined the eurozone on 1 January in the year noted: Slovenia (2007), Cyprus (2008), Malta (2008), Slovakia (2009), Estonia (2011), Latvia (2014), and Lithuania (2015). All new EU members joining the bloc after the signing of the Maastricht Treaty in 1992 are obliged to adopt the euro under the terms of their accession treaties. However, the last of the five economic convergence criteria which need first to be complied with in order to qualify for euro adoption, is the exchange rate stability criterion, which requires having been an ERM-member for a minimum of two years without the presence of "severe tensions" for the currency exchange rate.
Eurozone | Historical eurozone enlargements and exchange-rate regimes for EU members
Sturzenegger and Levy Yeyati managed to define the exchange rate regimes according to the behavior of three classification variables: changes in the nominal exchange rate, the volatility of these changes, and the volatility of international reserves. Underlying the selection of these variables they made a textbook definition of exchange rate regimes, where fixed exchange rate regimes were associated with changes in international reserves aimed at reducing the volatility in the nominal exchange rate, and flexible exchange rates were characterized by substantial volatility in nominal rates with relatively stable reserves. Thus, the combined behavior of these three classifications was sufficient to determine the regime to which each country belonged at any point in time.
Federico Sturzenegger | "De Facto" Exchange Rate Regimes: Deeds vs Words
The compliance check above was conducted in June 2014, with the HICP and interest rate reference values specifically applying for the last assessment month with available data (April 2014). As reference values for HICP and interest rates are subject for monthly changes, any EU member state with a euro derogation has the right to ask for a renewed compliance check at any time during the year. For this potential extra assessment, the table below feature Eurostat's monthly publication of values being used in the calculation process to determine the reference value (upper limit) for HICP inflation and long-term interest rates, where a certain fixed buffer value is added to the moving unweighted arithmetic average of the three EU Member States with the lowest HICP inflation rates (ignoring states classified as "outliers").
Enlargement of the eurozone | Convergence criteria
There was potential for loss of financial reserves as these are used to influence the rate of exchange, which would not have been necessary once currency convertibility was in place.
European Monetary Agreement | History
As a consequence, the dollar's value began exceeding its gold backing. During the early 1960s, investors could sell gold for a greater dollar exchange rate in London than in the United States, signaling to market participants that the dollar was overvalued. Belgian-American economist Robert Triffin defined this problem now known as the Triffin dilemma, in which a country's national economic interests conflict with its international objectives as the custodian of the world's reserve currency. France voiced concerns over the artificially low price of gold in 1968 and called for returns to the former gold standard. Meanwhile, excess dollars flowed into international markets as the United States expanded its money supply to accommodate the costs of its military campaign in the Vietnam War.
Global financial system | Flexible exchange rate regimes: 1973-present
In Georgian, the euro is called ("evro", pronounced ), derived from the Georgian word for Europe, . Unlike in Greek and Armenian, the stress of the word "evro" falls on the first syllable, as is usual in Georgian. Cent is , as nativized Georgian words cannot end in a consonant, so an extra vowel 'i' is added. The respective plurals of euro and cent are and .
Language and the euro | Georgian
Most importantly, this poses a threat to the country's accession to the Eurozone. The Bulgarian government originally planned to adopt the Euro no sooner than 2015. Although Bulgaria will have to adopt the euro as a condition to membership, plans have since been postponed for better economic times. From a political point of view, there is a trade-off between Bulgaria's economic growth and the stability required for early accession to the monetary union. Bulgaria's per-capita PPP GDP is still only about a half of the EU27 average, while the country's nominal GDP per capita is about 20% of the EU27 average.
Economy of Bulgaria | Part of the European Union
In a system of flexible exchange rates, central banks allow the exchange rate to be determined by market forces alone.
Mundell–Fleming model | Flexible exchange rate regime
The enlargement of the eurozone is an ongoing process within the European Union (EU). All member states of the European Union, except Denmark which negotiated opt-outs from the provisions, are obliged to adopt the euro as their sole currency once they meet the criteria, which include: complying with the debt and deficit criteria outlined by the Stability and Growth Pact, keeping inflation and long-term governmental interest rates below certain reference values, stabilising their currency's exchange rate versus the euro by participating in the European Exchange Rate Mechanism (ERM II), and ensuring that their national laws comply with the ECB statute, ESCB statute and of the Treaty on the Functioning of the European Union.
Enlargement of the eurozone | Introduction