Appendix I. Interest Rate Convergence in Countries with a Currency Board Arrangement
One main benefit of a CBA is to facilitate the convergence of domestic interest rates to international levels. This appendix describes interest rate convergence processes in Argentina, the Baltic countries, and Hong Kong following the introduction of the CBA.
In Argentina immediately after the CBA was introduced, deposit rates, the interfirm market rate, and the money market rate fell sharply (Figures 10 and II).76 Long-term lending rates, however, were influenced by conditions of the banking system and domestic risk factors, as well as lending policy and strategies of financial institutions; therfore, they did not converge as rapidly to levels in the United States. Currency and country risks declined steadily, reflecting the CBA’s credibility. Currency risk, which may be inferred from the spread between interest rates on peso and U.S. dollar deposits, fell from around 5 percent in April 1993 to 1 percent in February 1994.77 Except for a small run at the end of 1992, the Argentine peso deposit rate converged to the U.S. deposit rate at a faster pace than did the Mexican peso deposit rate (Figure 10). Furthermore, the Argentine peso deposit rate increased less than similar rates in Mexico and returned much faster to its original level during the 1995 currency crisis. The spread between the U.S. dollar deposit rate in Argentina and a comparable deposit rate in the United States—which can be a proxy for country risk—also declined steadily after April 1993, but rebounded sharply in 1995 when banking sector problems added to the pressure on the currency (Figure 10). Similarly, the monetary market rate declined sharply after the CBA was introduced (Figure 11). Despite a temparory surge at the beginning of 1995, it almost converged to the U.S. federal funds rate later in the year.
Argentina, Mexico, and United States: Deposit Rates
(In percent a year)
Sources: IMF, International Financial Statistics; and IMF staff estimates.Argentina: Money Market Rates
(In percent a year)
Source: IMF, International Financial Statistics.In the Baltic countries, as Saavalainen (1995) has argued, the rapid decline in interest rates during the early reform period in Estonia, as compared with Latvia, appears to be mostly a result of the higher credibility of its CBA.78 In 1994 and 1995, the Estonian interbank rate deviated from the German inter-bank rate by less than 0.5 percent on average, and the spread between deposit rates in the two countries declined continuously (Figures 12 and 13). By contrast, the interbank rate in Latvia, despite its declining trend, was still at around 20 percent at the end of 1995.79 In Lithuania, the interbank rate also declined sharply after the CBA was adopted; however, it remained higher than in Estonia owing to problems in the Lithuanian banking system and persistent rumors of devaluation (Figure 12).80
Estonia, Germany, Latvia, Lithuania, and United States: Interbank Rates
(In percent a year)
Source: IMF, International Financial Statistics.Estonia, Germany, Latvia, Lithuania, and United States: Deposit Rates
(In percent a year)
Source: IMF, International Financial Statistics.The Hong Kong interbank offered rate (HIBOR) converged to the London interbank offered rate (LIBOR) quickly after the CBA was introduced. Since then, spreads between the two rates have been small except during 1985–87 when revaluation expectations prevailed (Figure 14). While the volatility of the HIBOR and the deposit rate was substantial, it was reduced after the Liquidity Adjustment Facility (LAF), a rediscount facility, was introduced in June 1992 and the HKMA adopted an interest rate targeting strategy in March 1994.81 Spreads between the rates for Hong Kong dollar and U.S. dollar transactions—both deposits and lending—also declined steadily over time.
Hong Kong and United States: Interest Rates
(In percent a year)
Sources: Hong Kong Monetary Authority; and IMF, International Financial Statistics.1Hong Kong interbank offered rate.2Liquidity Adjustment Facility.3London interbank offered rate.Appendix II. Lender of Last Resort and Banking Crisis Management
Although currency boards during the colonial period were constrained from providing LOLR support, major commercial banks, which were foreign owned, could rely on their headquarters for liquidity support. By contrast, many banks operating in existing CBA countries are domestically owned.82
While the relaxation of high reserve requirements or liquidity requirements has helped release liquidity rapidly under emergency conditions, experience suggests that LOLR support is also needed to mitigate the effects of banking crises and restrict contagion. Indeed, banking crises have occurred in all CBA countries, except in the ECCB members, and all CBAs have explicit last-resort facilities (see Appendix IV, Table 2) except for Brunei Darussalam and Djibouti, whose banking systems are mostly or totally foreign owned.83 To comply with the backing rule, the scope for last resort support is limited to the foreign exchange reserves held in excess of the amount required for backing.84
In Argentina, the banking system experienced a large deposit run triggered by the Mexican crisis at the beginning of 1995. The crisis began with the closure of a small bank that was heavily exposed in Mexican assets and, hence, could not honor its obligations after the Mexican peso was devalued.85
As there was no explicit lender of last resort and the public feared that other banks could be similarly exposed, the closure of the bank triggered a chain reaction. Between the end of November 1994 and the end of May 1995, despite the rationing of bank deposit withdrawals at some banks, aggregate bank deposits declined by about 17 percent.86 Wholesale banks, small private and cooperative banks, and provincial and municipal banks were most heavily hit, with some banks losing more than 50 percent of their deposits.87
Most flight capital originated from time deposits, which were subject to relatively low reserve requirements, hence the automatic reduction in required reserves following the decline in deposits was minimal. To alleviate banks’ shortage of free reserves, the authorities responded by lowering unremunerated reserve requirements.88 Subsequently, banks were allowed to redenominate their settlement accounts and required reserves at the central bank in U.S. dollars. This added to credibility and reduced the CBA’s need for foreign exchange backing, as the latter extended only to peso-denominated liabilities. In March 1995, to facilitate the ongoing bank-restructuring program, banks were also allowed to fulfill up to half of their reserve requirements with cash-in-vault and assets purchased from problem banks.
To help resolve the banking crisis, the central bank’s charter was modified to allow the rollover of central bank rediscounts, collateralized advances, and swaps for a longer period and a larger amount.89
As a result, the stock of rediscounts increased from Arg$400 million (equivalent to 3 percent of reserve money) in February 1995 to a peak of around Arg$ 1,800 million (equivalent to 12 percent of reserve money) in July 1995. In addition, a special facility for distressed banks was established. The facility was administered by the Banco de la Nacion Argentina, a state-owned bank, and financed by 2 percent of banks’ required reserves.
Several banks in financial difficulty were suspended, and the Bank Capitalization Trust Fund and the Trust Fund for Provincial Bank Privatization were established to facilitate the capitalization of failed banks.90 By August 1995, 11 provincial banks had received Arg$225 million from the Trust Fund for Provincial Bank Privatization in support of their privatization plans.91 By mid-September 1995, Arg$255 million had been disbursed by the Bank Capitalization Trust Fund in support of the private bank-restructuring programs.
With a view to reducing the burden imposed on banks by unremunerated reserve requirements, while safeguarding their liquidity and limiting the need for central bank support, liquidity requirements replaced reserve requirements in September 1995. The new requirements apply to all noninterbank liabilities and can be satisfied by holdings of interest-earning Bank Liquidity Certificates issued by the treasury, a special account at an international bank abroad, central bank’s reverse repurchase agreements, certain government bonds of member countries of the Organization for Economic Cooperation and Development (OECD), and certain Argentine government securities.92 Since banks can fulfill liquidity requirements with foreign assets, they can earn interest on their reserves.93 At the same time, the need for backing banks’ reserves held with the monetary authorities is reduced.
Argentina’s deposit insurance scheme was reformed in 1995 and converted to a trust fund with mandatory contributions from financial institutions, based on portfolio risk.94 Unlike the old scheme where the central bank provided part of the capital, the central bank’s charter prohibits its involvement in the new scheme.
These facilities, combined with fiscal tightening in an adjustment program supported by the IMF, proved to be effective in restoring confidence and gradually ending the banking crisis. Between May and September 1995, the banking system recovered around 40 percent of the deposit outflow. However, several banks have recovered only a modest share of the deposit loss and remain heavily dependent on the central bank’s rediscounts and the special facility administered by the Banco de la Nacion Argentina.
In September 1996, the central bank set up a US$6.1 billion pool of emergency stand-by credit from international banks. In the event of illiquidity, local banks that choose to participate in the scheme can access the funds.95
The Baltic Countries
In both Estonia and Lithuania, excess foreign reserves can be used for monetary operations and LOLR support, although only during systemic crisis. In Estonia, three major banks encountered financial difficulties causing systemwide payments delays at the end of 1992.96 The Bank of Estonia initially extended EEK 75 million of emergency credit (around 4 percent of reserve money) to the Northern Estonian Bank, one of the three problem banks that were previously the central bank’s commercial banking arm. Despite the relatively large size of the three banks, the Bank of Estonia closed them in November 1992 when the emergency credit failed to improve their positions. Although the closures had serious consequences for the economy and the financial system, they did not precipitate further bank runs. Instead, there was a shift to quality, as deposits were transferred to other banks that were perceived as being solvent, and enterprises switched to using cash in effecting transactions.
The Bank of Estonia resumed its support to the Northern Estonian Bank after it became wholly owned by the government at the beginning of 1993.97
Liquidity support and recapitalization needs were
provided through the takeover of the bank’s frozen deposit accounts in Moscow and a transfer of government bonds to the bank by the Bank of Estonia. Following an increase in the minimum capital requirement on January 1, 1996, the number of Estonian banks fell to 16 as compared with 24 in 1991.
In Lithuania, the central bank intended to maintain excess foreign exchange reserves at around 15 percent of total deposits as last-resort support capability. The reserves were used to provide liquidity support during the December 1995 financial crisis when the operations of two of the country’s largest private banks were suspended.98 With a view to easing the systemwide liquidity shortage, the central bank also temporarily suspended the penalty for reserve requirement shortfalls; nevertheless, the central bank refrained from providing support to recapitalize failing banks.
Deposit insurance was also introduced in Lithuania in 1995, in the form of the Deposit Protection Law.99 As there were no insurance funds when the banking crisis broke out at the end of 1995, that law effectively placed the government as the ultimate insurer of small individual depositors (up to Llt2,000 or US$500) of the 13 banks that were liquidated.
Hong Kong
Although four-fifths of the 179 banks registered in Hong Kong as of September 1994 were incorporated outside the colony, the authorities established LOLR facilities primarily to assist small local banks, which were heavily involved in past banking crises. Despite the fact that the banking system has in general been strong and highly profitable, banking crises occurred during 1982–86, and most recently in 1991. The first crisis was the result of aggressive lending by local banks and poor prudential supervision, particularly on risks attached to excessive property lending. The second crisis was triggered by the collapse of BCCI Hong Kong, which led to runs on some local banks.
Traditionally, the Hongkong and Shanghai Banking Corporation (HSBC), as management bank of the Clearing House, was the primary source of last-resort support to illiquid banks. However, owing to the large liquidity shortages attending the first banking crisis, the government took the lead in providing last-resort support and taking over failed banks.100
As the role of the HSBC as lender of last resort became restricted after the new accounting arrangement between the Exchange Fund and the HSBC was introduced in 1988, the Exchange Fund provided last-resort support during the second crisis.101
Appendix III. Monetary Policy Implementation
As noted in the main body of the paper, experience suggests that monetary operations can play a useful role in smoothing day-to-day monetary conditions or accelerating adjustment to changes in foreign interest rates in countries that have imperfect capital mobility or where interest rate arbitrage is costly. As in the case of LOLR support, the scope for monetary operations is limited by the amount of excess CBA foreign exchange reserves.102 Appendix IV, Table 3 provides a summary of monetary operations that are conducted in all CBA countries except Djibouti.
Reserve Requirements
Cash balance requirements were introduced in Brunei Darussalam at the end of 1995. Reserve requirements were replaced with liquidity requirements in Argentina in August 1995 and do not exist in Djibouti and Hong Kong. Reserve requirements were recently lowered in Estonia and Lithuania with a view to relieving a liquidity shortage in the banking system.103
Rediscount Facilities
With the exception of Brunei Darussalam and Djibouti, all CBAs have introduced rediscount facilities for commercial banks. The monetary authorities in Argentina, Hong Kong, and the ECCB use redis-count facilities to facilitate banks’ liquidity management. In Argentina, the central bank had, for a short period, rolled over rediscounts to help banks in financial difficulties after the crisis in early 1995; the current policy is to reduce the stock of outstanding rediscounts. In Hong Kong, the Liquidity Adjustment Facility (LAF), introduced in May 1992, assists banks in adjusting their liquidity positions by acquiring overnight funds from the Hong Kong Monetary Authority (HKMA). At the same time, a group of commercial banks established a private interbank stand-by credit facility.
Open Market Operations
Argentina actively uses repos and reverse repos for liquidity management. The transactions can be done in pesos or in U.S. dollars.104 In March 1991, the central bank also introduced a swap facility, which was heavily used in July 1994 to provide short-term credits to banks (Arg$771 million—equivalent to 5 percent of reserve money) and after the Mexican crisis in March 1995 (Arg$805 million—equivalent to 6 percent of reserve money). After capital inflows accelerated during September 1995-February 1996, swaps were also used to with-draw liquidity from the system.105
Neither Lithuania nor the ECCB has used government securities as a monetary control instrument.106
In May 1993, the Bank of Estonia initiated fortnightly auctions of 28-day certificates of deposit (CDs) to banks with the primary objective of providing the banking system with collateral that can be used in the interbank market. To guarantee the liquidity of the CDs, the Bank of Estonia stands ready to buy them back and to enter into repurchase agreements with banks.
In Hong Kong, the Exchange Fund (ET) started issuing bills (with maturities of 91, 182, and 364 days) and notes (with maturities of two, three, five, seven, and ten years), since 1990 and 1993, respectively. The notes and bills are traded actively between the HKMA and the public in well-developed secondary markets, especially when the HKMA wishes to counteract liquidity tightening caused by large public offerings of stocks or seasonally high demand for funds around month-end and quarterend. At the end of 1994, total outstanding EF bills and notes issued by the Exchange Fund amounted to HK$52.3 billion, equivalent to almost 20 times the average level of interbank liquidity. account arrangement that was introduced in July 1988.107 The old arrangements had undermined the ability of the monetary authorities to influence short-term monetary conditions. Because they did not require the HSBC to maintain its own correspondent account at the clearing house, there was no safeguard against the expansionary impact of HSBC’s credits.108 Under the new accounting system, the HSBC is required to hold a minimum balance at the Exchange Fund, the “Balance,” and to manage the net clearing balance of other banks at the clearing house taking into account this balance, which can be influenced at the discretion of the
Hong Kong and United States: Daily Interest Rates and Exchange Rate
Sources: Hong Kong Monetary Authority; and IMF, International Financial Statistics.1Hong Kong interbank offered rate.2Liquidity Adjustment Facility.Other Monetary Instruments
In addition to the above-mentioned liquidity management instruments, the Bank of Lithuania has gradually reduced its outstanding stock of credit to banks, which was granted before the introduction of the CBA, with a view to tightening monetary conditions.
In Hong Kong, owing to the special characteristics of the payment system, the HKMA has managed liquidity conditions through a correspondent monetary authorities.109 Through this new accounting arrangement, the HKMA can influence the interbank rate. At times, the HKMA has also managed liquidity conditions of the banking system by transferring government deposits between accounts at commercial banks and the Exchange Fund.
Policy Issues
In Hong Kong, the primary objective of monetary operations is to prevent changes in liquidity from disturbing the stability of the market exchange rate, thereby strengthening the credibility of the CBA.110
To strengthen further the stability and credibility of the official exchange rate, the HKMA switched from using bank liquidity, in March 1994, to the HIBOR as an indicator to guide open market operations. The HKMA aims to stabilize the HIBOR within the band of the LAF bid and offer rates, which it keeps around the U.S. federal funds rate.111 At the same time, with a view to making interest rate targeting more effective and the LAF more accessible to banks, the range of securities eligible for discounting at the LAF was widened to include high-quality Hong Kong dollar debt papers issued by statutory bodies and the private sector. After these measures were introduced, the deviations between the HIBOR and LIBOR narrowed, and the market exchange rate stayed relatively stable (Figure 15, see previous page).112 Moreover, the daily volatility of the HIBOR declined substantially.113
Had the HKMA’s capacity to undertake monetary operations been developed earlier, such operations might have been useful in handling currency crises in Hong Kong as illustrated by the pressure experienced by the Hong Kong dollar at the beginning of 1988. Amid widespread expectations of a revaluation of the official exchange rate, following a sharp depreciation of the U.S. dollar against other currencies, the public converted their foreign currency deposits into Hong Kong dollar deposits. The sharp decline of Hong Kong dollar deposit rates was not sufficient to stem the surge in Hong Kong dollar liquidity. As no effective monetary control instruments were available at that time, the Hong Kong Government had to introduce a charge on large clearing balances of licensed banks and on interest earned from nonbanks’ large Hong Kong dollar deposits.114
Argentina and Mexico: Total Foreign Reserves and Reserve Money
(in millions of pesos)
Source: IMF, International Financial Statistics.The importance of monetary operations during a financial crisis is also illustrated by Argentina’s 1995 experience. As liquidity fell and interest rates steadily increased, the central bank intervened, through a lowering of reserve requirements and an expansion of the rediscount facility, to preserve the stability of the banking system.115 The resulting support induced a sharp temporary drop in the actual backing of reserve money (Figure 16). Unlike Mexico, where capital outflows were continuously sterilized, the scope for accommodating operations in Argentina was limited by the CBA’s backing rule.116 The margin for central bank support was exhausted by mid-March 1995 after the central bank had lost about $5 billion of gross international reserves and the ratio of gross international reserves to monetary liabilities was only slightly above its 80 percent limit. At this point, the government sought financial assistance from multilateral organizations, including the IMF, and the international financial community.
Appendix IV. Background Tables
Basic Description of Eight Currency Board Arrangements
The Eastern Caribbean Currency Authority (ECCA) replaced the British Caribbean Currency Board in 1965. The ECCA was subsequently transformed into a central bank (the ECCB) in 1983.
In 1976, after a period of depreciation of the U.K. pound, the ECCA switched from pegging the EC dollar to the U.K. pound to the U.S. dollar.
Initially, the exchange rate was set at 10,000 australs per US$1; in January 1993, the peso was introduced as a new currency.
At the outset, the BOL did not have sufficient foreign assets to cover the liabilities; as a result, it drew some of its backing from resources borrowed from the IMF.
Basic Description of Eight Currency Board Arrangements
| Argentina | Brunei Darussalam | Djibouti | Eastern Caribbean Central Bank | |
|---|---|---|---|---|
| Date established | March 1991 | 1967 | March 1949 | 19651 |
| Administrative agency | Central Bank of the Argentine Republic (CBAR) | Brunei Currency Board (BCB). | National Bank of Djibouti (NBD). | Eastern Caribbean Central Bank (ECCB). |
| Previous exchange rate regulation | Floating exchange rate. | n.a. | n.a. | n.a. |
| Exchange rate rule | ||||
| Reserve currency | U.S. dollar. | Singapore dollar. | U.S. dollar. | U.S. dollar.2 |
| Exchange rate | US$1 = Arg$13 | S$1 = B$1 | US$1 = DF177.72 | US$1 = EC$2.7 |
| Access to convertibility at the Monetary authorities | In principle, general public; in practice, only financial institutions and exchange houses. | General public; banks are instructed to accept Singapore dollars as local currency. | n.a. | Through commercial banks. |
| Exchange control | None. | None. | None. | Each member applies its own restrictions on capital transactions to members of ECCA and other countries. Each country is required to surrender foreign exchange to the reserve pool. |
| Backing rule | ||||
| Coverage of backing | One hundred percent of monetary base. | At least 70 percent of its demand liabilities must be backed by its external assets, of which at least 30 percent must be liquid assets; actual backing by external assets equaled 87 percent of covered monetary liabilities in September 1995. | One hundred percent of currency. | At least 60 percent of currency and bank reserves (excluding banks' foreign exchange deposits at ECCB); actual backing equaled 98 percent of covered monetary |
| Assets eligible for backing | Foreign assets, gold, and U.S. dollar-denominated Argentine government debt. (The government debt is limited to up to one-third of the total backing and a 10 percent increase a year.) Currently, the Board of Directors limits the coverage by government debt to 20 percent except in an emergency. | Liquid foreign assets, foreign securities, and accrued interest. | Foreign assets; in practice, foreign deposits held in the U.S. financial system. | Foreign assets and gold. |
| Power to change the exchange rate rule and backing rule | Only by an act of Congress. | Only by an act of Parliament, | n.a. | n.a. |
| Profit transfer rule | Central bank profits may be used to build up a reserve fund until the latter reaches SO percent of the Bank's capital: further profits must be transferred to the budget. | BCB retains interest earned from foreign exchange. | n.a. | ECCB's profits are distributed among member governments in proportion to their shares of currency in circulation. |
| Estonia |
Hong Kong |
Lithuania |
||
| Date established | June 1992 | October 1983 | April 1994 | |
| Administrative agency | Bank of Estonia (BOE). | Exchange Fund (EF) under the supervision of the Hong Kong Monetary Authority (HKMA). | Bank of Lithuania (BOL). | |
| Previous exchange rate regime | Ruble standard. | Floating exchange rate. | Ruble standard and interim coupon. | |
| Exchange rate rule | ||||
| Reserve currency | Deutsche mark. | U.S. dollar. | U.S. dollar. | |
| Exchange rate | DM 1 = EEK 8 | US$1 = HK$7.8 | US$1 =4 Lit | |
| Access to convertibility at the monetary authorities | In principle, general public; in practice, only banks | Note-issuing banks. | Commercial banks. | |
| Exchange control | Surrender requirement and restrictions on capital transactions existed until December 1, 1993. | None. | Very few restrictions remained at the end of 1995. | |
| Backing rule | ||||
| Coverage of backing | One hundred percent of monetary base. | One hundred percent of Certificate of Indebtedness issued to the note-issuing banks as backup for currency. | One hundred percent of currency and BOL's liquid liabilities. | |
| Assets eligible for backing | Foreign assets, mainly gold and deutsche mark interest-bearing assets. | Foreign assets. | Foreign assets and gold.4 | |
| Power to change the exchange rate rule and backing rute | The BOE has the right to revalue the exchange rate. Devaluation needs to be done by an act of Parliament. | n.a. | Since June 1994, exchange rate can be changed by the BOL (only under extraordinary circumstances) in consultation with the government | |
| Profit transfer rule | Seigniorage in the form of interest earned is passed, as it accrues, to the BOE's Banking Department | EF retains interest from foreign exchange holdings and fluctuations in the value of gold. | BOL retains interests earned on foreign exchange. | |
The Eastern Caribbean Currency Authority (ECCA) replaced the British Caribbean Currency Board in 1965. The ECCA was subsequently transformed into a central bank (the ECCB) in 1983.
In 1976, after a period of depreciation of the U.K. pound, the ECCA switched from pegging the EC dollar to the U.K. pound to the U.S. dollar.
Initially, the exchange rate was set at 10,000 australs per US$1; in January 1993, the peso was introduced as a new currency.
At the outset, the BOL did not have sufficient foreign assets to cover the liabilities; as a result, it drew some of its backing from resources borrowed from the IMF.
Basic Description of Eight Currency Board Arrangements
| Argentina | Brunei Darussalam | Djibouti | Eastern Caribbean Central Bank | |
|---|---|---|---|---|
| Date established | March 1991 | 1967 | March 1949 | 19651 |
| Administrative agency | Central Bank of the Argentine Republic (CBAR) | Brunei Currency Board (BCB). | National Bank of Djibouti (NBD). | Eastern Caribbean Central Bank (ECCB). |
| Previous exchange rate regulation | Floating exchange rate. | n.a. | n.a. | n.a. |
| Exchange rate rule | ||||
| Reserve currency | U.S. dollar. | Singapore dollar. | U.S. dollar. | U.S. dollar.2 |
| Exchange rate | US$1 = Arg$13 | S$1 = B$1 | US$1 = DF177.72 | US$1 = EC$2.7 |
| Access to convertibility at the Monetary authorities | In principle, general public; in practice, only financial institutions and exchange houses. | General public; banks are instructed to accept Singapore dollars as local currency. | n.a. | Through commercial banks. |
| Exchange control | None. | None. | None. | Each member applies its own restrictions on capital transactions to members of ECCA and other countries. Each country is required to surrender foreign exchange to the reserve pool. |
| Backing rule | ||||
| Coverage of backing | One hundred percent of monetary base. | At least 70 percent of its demand liabilities must be backed by its external assets, of which at least 30 percent must be liquid assets; actual backing by external assets equaled 87 percent of covered monetary liabilities in September 1995. | One hundred percent of currency. | At least 60 percent of currency and bank reserves (excluding banks' foreign exchange deposits at ECCB); actual backing equaled 98 percent of covered monetary |
| Assets eligible for backing | Foreign assets, gold, and U.S. dollar-denominated Argentine government debt. (The government debt is limited to up to one-third of the total backing and a 10 percent increase a year.) Currently, the Board of Directors limits the coverage by government debt to 20 percent except in an emergency. | Liquid foreign assets, foreign securities, and accrued interest. | Foreign assets; in practice, foreign deposits held in the U.S. financial system. | Foreign assets and gold. |
| Power to change the exchange rate rule and backing rule | Only by an act of Congress. | Only by an act of Parliament, | n.a. | n.a. |
| Profit transfer rule | Central bank profits may be used to build up a reserve fund until the latter reaches SO percent of the Bank's capital: further profits must be transferred to the budget. | BCB retains interest earned from foreign exchange. | n.a. | ECCB's profits are distributed among member governments in proportion to their shares of currency in circulation. |
| Estonia |
Hong Kong |
Lithuania |
||
| Date established | June 1992 | October 1983 | April 1994 | |
| Administrative agency | Bank of Estonia (BOE). | Exchange Fund (EF) under the supervision of the Hong Kong Monetary Authority (HKMA). | Bank of Lithuania (BOL). | |
| Previous exchange rate regime | Ruble standard. | Floating exchange rate. | Ruble standard and interim coupon. | |
| Exchange rate rule | ||||
| Reserve currency | Deutsche mark. | U.S. dollar. | U.S. dollar. | |
| Exchange rate | DM 1 = EEK 8 | US$1 = HK$7.8 | US$1 =4 Lit | |
| Access to convertibility at the monetary authorities | In principle, general public; in practice, only banks | Note-issuing banks. | Commercial banks. | |
| Exchange control | Surrender requirement and restrictions on capital transactions existed until December 1, 1993. | None. | Very few restrictions remained at the end of 1995. | |
| Backing rule | ||||
| Coverage of backing | One hundred percent of monetary base. | One hundred percent of Certificate of Indebtedness issued to the note-issuing banks as backup for currency. | One hundred percent of currency and BOL's liquid liabilities. | |
| Assets eligible for backing | Foreign assets, mainly gold and deutsche mark interest-bearing assets. | Foreign assets. | Foreign assets and gold.4 | |
| Power to change the exchange rate rule and backing rute | The BOE has the right to revalue the exchange rate. Devaluation needs to be done by an act of Parliament. | n.a. | Since June 1994, exchange rate can be changed by the BOL (only under extraordinary circumstances) in consultation with the government | |
| Profit transfer rule | Seigniorage in the form of interest earned is passed, as it accrues, to the BOE's Banking Department | EF retains interest from foreign exchange holdings and fluctuations in the value of gold. | BOL retains interests earned on foreign exchange. | |
The Eastern Caribbean Currency Authority (ECCA) replaced the British Caribbean Currency Board in 1965. The ECCA was subsequently transformed into a central bank (the ECCB) in 1983.
In 1976, after a period of depreciation of the U.K. pound, the ECCA switched from pegging the EC dollar to the U.K. pound to the U.S. dollar.
Initially, the exchange rate was set at 10,000 australs per US$1; in January 1993, the peso was introduced as a new currency.
At the outset, the BOL did not have sufficient foreign assets to cover the liabilities; as a result, it drew some of its backing from resources borrowed from the IMF.
Prudential Arrangements and Availability of Lender-of-Last-Resort Facilities
Prudential Arrangements and Availability of Lender-of-Last-Resort Facilities
| Argentina | Brunei Darussalam | Djibouti | Eastern Caribbean Central Bank | |
|---|---|---|---|---|
| Supervising agency | Central Bank of the Argentine Republic. | Financial Institutions Division of the Ministry of Finance since 1993. | National Bank of Djibouti. | ECCB; the new Uniform Banking Act extends the supervisory power of the ECCB to include licensing for the ECCB area. |
| Last-resort facilities | By rolling over of central bank's liquidity rediscounts (after the modification of the central bank's charter in early 1995). | No. | No. | No explicit provision: in theory, up to 40 percent of (currency and other demand liabilities—lending to governments). |
| Deposit insurance | Deposit Guarantee Scheme (April 1995); central bank's involvement prohibited by its charter | No. | No. | No. |
| Prudential measures | High reserve requirements, replaced by liquidity requirement in August 1995; risk-based capital adequacy ratio. | n.a. | Maximum total assets-to-capital ratio of 20 to 1; claims to capital plus term deposits below 200 percent: matching foreign currency deposits with net foreign currency assets: risk-based capital adequacy ratio. | n.a. |
| Experience with recent banking crises | March 1995. | 1985–86 and 1988. | 1991–92. | n.a. |
| Other measures taken to mitigate the crisis | Suspension of banks with serious financial difficulty; lowering and changing composition of reserve requirements; setting up of Bank Capitalization Trust Fund (March 1995); setting up Trust Fund for Provincial Bank Privatization (March 1995); special facility generated through lowering of reserve requirements and administered by the Banco de la Nación Argentina. | The government was heavily involved in the liquidation, asset recovery, and deposit repayments (in one case included a budgetary transfer) after a bank failed. | Two banks were liquidated. | n.a. |
| Estonia |
Hong Kong |
Lithuania |
||
| Supervising agency | Bank of Estonia (BOE). | Hong Kong Monetary Authority (HKMA) (relevant sections of the Exchange Fund (EF) and Banking Commissioner's Office were merged in 1993). | Bank of Lithuania (BOL); BOL Law and Commercial Banking Law were passed in December 1994. | |
| Last-resort Facilities | By the BOE; restricted to systemic and emergency situations; limited to the amount of foreign exchange in excess of backing requirement, that is. reserves of the Banking Department | By the HKMA for the account of the EF through the new accounting arrangements; limited to the EF's excess reserve; in practice, the Hongkong and Shanghai Banking Corporation (HSBC) has served as lender of last resort through the HKBA's clearing system. | Limited to the amount of reserves in excess of the backing requirement (BOL intends to maintain this capability at around 15 percent of total deposits in the banking system: only for emergency cases). | |
| Deposit insurance | n.a. | No; a scheme for small depositors in the event of a bank liquidation is being considered. | Deposit Protection Law; plan to change the civil code to eliminate the full deposit protection at state-controlled banks. | |
| Prudential measures | Risk-based capital adequacy ratio, liquidity requirement, foreign exchange exposure limit. | Risk-based capital adequacy ratio, liquidity requirement, foreign exchange exposure limit | Risk-based capital adequacy ratio, liquidity requirement foreign exchange exposure limit. | |
| Experience with recent banking crises | 1992; September 1994 (Social Bank). | 1982–86; closure of BCCI Hong Kong, summer 1991. | Last quarter 1995 and first quarter 1996. | |
| Other measures taken to mitigate the crisis | In 1992. banks were allowed to fail. In 1994. problem banks were merged and granted loans by the BOE; some were eventually privatized; a loan recovery agencywas established. | n.a. | In December 1995, insolvent banks were placed under moratorium or closed; temporary suspension of the penalty for reserve requirement shortfall during the systemwide liquidity shortage: recapitalization by the government before privatization; no financial support from the BOL for failed banks. | |
Prudential Arrangements and Availability of Lender-of-Last-Resort Facilities
| Argentina | Brunei Darussalam | Djibouti | Eastern Caribbean Central Bank | |
|---|---|---|---|---|
| Supervising agency | Central Bank of the Argentine Republic. | Financial Institutions Division of the Ministry of Finance since 1993. | National Bank of Djibouti. | ECCB; the new Uniform Banking Act extends the supervisory power of the ECCB to include licensing for the ECCB area. |
| Last-resort facilities | By rolling over of central bank's liquidity rediscounts (after the modification of the central bank's charter in early 1995). | No. | No. | No explicit provision: in theory, up to 40 percent of (currency and other demand liabilities—lending to governments). |
| Deposit insurance | Deposit Guarantee Scheme (April 1995); central bank's involvement prohibited by its charter | No. | No. | No. |
| Prudential measures | High reserve requirements, replaced by liquidity requirement in August 1995; risk-based capital adequacy ratio. | n.a. | Maximum total assets-to-capital ratio of 20 to 1; claims to capital plus term deposits below 200 percent: matching foreign currency deposits with net foreign currency assets: risk-based capital adequacy ratio. | n.a. |
| Experience with recent banking crises | March 1995. | 1985–86 and 1988. | 1991–92. | n.a. |
| Other measures taken to mitigate the crisis | Suspension of banks with serious financial difficulty; lowering and changing composition of reserve requirements; setting up of Bank Capitalization Trust Fund (March 1995); setting up Trust Fund for Provincial Bank Privatization (March 1995); special facility generated through lowering of reserve requirements and administered by the Banco de la Nación Argentina. | The government was heavily involved in the liquidation, asset recovery, and deposit repayments (in one case included a budgetary transfer) after a bank failed. | Two banks were liquidated. | n.a. |
| Estonia |
Hong Kong |
Lithuania |
||
| Supervising agency | Bank of Estonia (BOE). | Hong Kong Monetary Authority (HKMA) (relevant sections of the Exchange Fund (EF) and Banking Commissioner's Office were merged in 1993). | Bank of Lithuania (BOL); BOL Law and Commercial Banking Law were passed in December 1994. | |
| Last-resort Facilities | By the BOE; restricted to systemic and emergency situations; limited to the amount of foreign exchange in excess of backing requirement, that is. reserves of the Banking Department | By the HKMA for the account of the EF through the new accounting arrangements; limited to the EF's excess reserve; in practice, the Hongkong and Shanghai Banking Corporation (HSBC) has served as lender of last resort through the HKBA's clearing system. | Limited to the amount of reserves in excess of the backing requirement (BOL intends to maintain this capability at around 15 percent of total deposits in the banking system: only for emergency cases). | |
| Deposit insurance | n.a. | No; a scheme for small depositors in the event of a bank liquidation is being considered. | Deposit Protection Law; plan to change the civil code to eliminate the full deposit protection at state-controlled banks. | |
| Prudential measures | Risk-based capital adequacy ratio, liquidity requirement, foreign exchange exposure limit. | Risk-based capital adequacy ratio, liquidity requirement, foreign exchange exposure limit | Risk-based capital adequacy ratio, liquidity requirement foreign exchange exposure limit. | |
| Experience with recent banking crises | 1992; September 1994 (Social Bank). | 1982–86; closure of BCCI Hong Kong, summer 1991. | Last quarter 1995 and first quarter 1996. | |
| Other measures taken to mitigate the crisis | In 1992. banks were allowed to fail. In 1994. problem banks were merged and granted loans by the BOE; some were eventually privatized; a loan recovery agencywas established. | n.a. | In December 1995, insolvent banks were placed under moratorium or closed; temporary suspension of the penalty for reserve requirement shortfall during the systemwide liquidity shortage: recapitalization by the government before privatization; no financial support from the BOL for failed banks. | |
Central Banking Operations of Eight Currency Board Arrangements
Central Banking Operations of Eight Currency Board Arrangements
| Argentina | Brunei Darussalam | Djibouti | Eastern Caribbean Central Bank | |
|---|---|---|---|---|
| Monetary instruments | ||||
| Reserve requirements | Yes; until replaced by liquidity requirements in August 1995. | Yes: since December 1995; 6 percent minimum cash balance requirement on banks and finance companies. | No. | Yes; 6 percent of deposits; nonremunerated; averaged over weekly maintenance period. |
| Liquidity requirements | Yes, since September 1995: satisfied through holdings of interest-earning Bank Liquidity Certificate (issued by the treasury), a special account abroad, central bank's reverse repurchase agreements, OECD government bonds, or certain Argentine government securities. | No. | No. | ECCB is allowed to require financial institutions to hold government securities up to 10 percent of any institution's deposits and liabilities. |
| Rediscounts and advances | Yes; the central bank can provide discounts against collateralized. | No. | No. | Yes; with treasury bills; for reserve management; It has not been used since March 1994. |
| Treasury bills | n.a. | No. | n.a. | Issued by five member governments within each country's limit on its recurrent revenue. |
| Central bank bills | No. | No. | No. | No. |
| Swaps | Yes. | No. | No. | No. |
| Repos and reverse repos | Yes; in pesos or in dollars; collateralized by dollar-denominated public securities or foreign exchange; rate set by the central bank | n.a. | No. | n.a. |
| Others | n.a. | n.a. | n.a. | n.a. |
| Payments system | Run by the central bank. | The Brunei Currency Board maintains accounts in three domestic banks for settlements of currency transactions. | Run by the central bank. | Run by the ECCB. |
| Treasury operations | ||||
| Government deposits | Central government deposits are held at the Banco de la Nación Argentina, a state-owned bank; provincial and municipal government deposits can be held at any bank. | Held at commercial banks. | Held at the central bank. | ECCB holds deposit accounts for the governments of Dominica, Antigua, St. Lucia, and St. Vincent |
| Credit to government by the monetary authorities | Yes: with limits on both stock outstanding and annual increase. | No. | Yes. but only with special approval from the Council of Ministers; however, such lending has never occurred. | Yes; with country sublimits determined on the basts of the following parameters: ECCB temporary lending is limited to 5 percent of government recurrent revenue and ECCB treasury bill holdings to 10 percent. ECCB long-term bond holdings are limited to 5 percent of country's share in currency circulation and ECCB demand liabilities. |
| Experiences with speculative outflows | November 1992; January 1995, spillover from the Mexican crisis. | No. | n.a. | n.a. |
| Estonia |
Hong Kong |
Lithuania |
||
| Monetary instruments | ||||
| Supervising agency | Bank of Estonia (BOE) | Hong Kong Monetary Authority | Bank of Lithuania (BOL); BOL | |
| Reserve requirements | Yes; effectively reduced by including vault cash holding in July 1994. | No. | Yes; in December 1994, the Bank of Lithuania (BOL) temporarily waived reserve requirements for the Agriculture Bank so that it could extend a loan to the energy sector; in April 1995, lowered from 12 percent to 10 percent; December I99S. banks were temporarily allowed to count treasury bills towards reserve requirements. | |
| Liquidity requirements | No. | No. | No. | |
| Rediscounts and advances | n.a. | Yes; direct borrowing and lending by the Hong Kong Monetary Authority to the interbank market; stand-by credit facilities arranged by commercial banks. | n.a. | |
| Treasury bills | No. | No. | Yes, since July 1994; weekly auction: one- and three-month maturities. | |
| Central bank bills | Yes; BOE CDs were initially issued in May 1993 with a view to increasing collateral that banks can use in interbank market | Yes; Exchange Fund bills (since 1990) and notes (since 1993) to be used for open market operations by HKMA | No. | |
| Swaps | No. | Yes. | No. | |
| Repos and reverse repos | n.a. | Yes; overnight repo and reverse repo of eligible assets with the HKMA's Liquidity Adjustment Facility to smooth short-term interest rate around the target rate, that is, with fixed bid and offer rates (June 1997); broadening of the scope of assets eligible for repos (1994 and 1996). | Repo operations in treasury bills and short-term credit facility for commercial banks to be developed in 1997. | |
| Others | n.a. | Transfer of government deposits between EF and commercial banks; accounting arrangement between EF and Hongkong and Shanghai Banking Corporation (HSBC) to control clearing balance of commercial banks at HSBC (1988); introduction of a charge on interests earned from Hong Kong dollar deposits to reduce Hong Kong dollar liquidity (1988). | BOL reduced the stock of credits outstanding granted to banks before the CBA period, over time to tighten monetary conditions. | |
| Payments system | Run by the central bank. | Managed by HSBC; licensed banks maintain clearing accounts with each of the ten settlement banks, which in turn maintain clearing accounts with the HSBC, HSBC acts as agent for the HKMA in its money market operations. | Run by the central bank. | |
| Treasury operations | ||||
| Government deposits | At commercial banks. | At EF and commercial banks, mainly the HSBC: fiscal reserves are transferred to EF's account at the HKMA. | At commercial banks. | |
| Credit to government by the monetary authorities | Prohibited. | n.a. | Prohibited. | |
| Experiences with speculative outflows | First quarter 1994 and the end of 1995. | January 1988 (expected revaluation led to inflows); January 1995, spillover from the Mexican crisis. | November 1994. | |
Central Banking Operations of Eight Currency Board Arrangements
| Argentina | Brunei Darussalam | Djibouti | Eastern Caribbean Central Bank | |
|---|---|---|---|---|
| Monetary instruments | ||||
| Reserve requirements | Yes; until replaced by liquidity requirements in August 1995. | Yes: since December 1995; 6 percent minimum cash balance requirement on banks and finance companies. | No. | Yes; 6 percent of deposits; nonremunerated; averaged over weekly maintenance period. |
| Liquidity requirements | Yes, since September 1995: satisfied through holdings of interest-earning Bank Liquidity Certificate (issued by the treasury), a special account abroad, central bank's reverse repurchase agreements, OECD government bonds, or certain Argentine government securities. | No. | No. | ECCB is allowed to require financial institutions to hold government securities up to 10 percent of any institution's deposits and liabilities. |
| Rediscounts and advances | Yes; the central bank can provide discounts against collateralized. | No. | No. | Yes; with treasury bills; for reserve management; It has not been used since March 1994. |
| Treasury bills | n.a. | No. | n.a. | Issued by five member governments within each country's limit on its recurrent revenue. |
| Central bank bills | No. | No. | No. | No. |
| Swaps | Yes. | No. | No. | No. |
| Repos and reverse repos | Yes; in pesos or in dollars; collateralized by dollar-denominated public securities or foreign exchange; rate set by the central bank | n.a. | No. | n.a. |
| Others | n.a. | n.a. | n.a. | n.a. |
| Payments system | Run by the central bank. | The Brunei Currency Board maintains accounts in three domestic banks for settlements of currency transactions. | Run by the central bank. | Run by the ECCB. |
| Treasury operations | ||||
| Government deposits | Central government deposits are held at the Banco de la Nación Argentina, a state-owned bank; provincial and municipal government deposits can be held at any bank. | Held at commercial banks. | Held at the central bank. | ECCB holds deposit accounts for the governments of Dominica, Antigua, St. Lucia, and St. Vincent |
| Credit to government by the monetary authorities | Yes: with limits on both stock outstanding and annual increase. | No. | Yes. but only with special approval from the Council of Ministers; however, such lending has never occurred. | Yes; with country sublimits determined on the basts of the following parameters: ECCB temporary lending is limited to 5 percent of government recurrent revenue and ECCB treasury bill holdings to 10 percent. ECCB long-term bond holdings are limited to 5 percent of country's share in currency circulation and ECCB demand liabilities. |
| Experiences with speculative outflows | November 1992; January 1995, spillover from the Mexican crisis. | No. | n.a. | n.a. |
| Estonia |
Hong Kong |
Lithuania |
||
| Monetary instruments | ||||
| Supervising agency | Bank of Estonia (BOE) | Hong Kong Monetary Authority | Bank of Lithuania (BOL); BOL | |
| Reserve requirements | Yes; effectively reduced by including vault cash holding in July 1994. | No. | Yes; in December 1994, the Bank of Lithuania (BOL) temporarily waived reserve requirements for the Agriculture Bank so that it could extend a loan to the energy sector; in April 1995, lowered from 12 percent to 10 percent; December I99S. banks were temporarily allowed to count treasury bills towards reserve requirements. | |
| Liquidity requirements | No. | No. | No. | |
| Rediscounts and advances | n.a. | Yes; direct borrowing and lending by the Hong Kong Monetary Authority to the interbank market; stand-by credit facilities arranged by commercial banks. | n.a. | |
| Treasury bills | No. | No. | Yes, since July 1994; weekly auction: one- and three-month maturities. | |
| Central bank bills | Yes; BOE CDs were initially issued in May 1993 with a view to increasing collateral that banks can use in interbank market | Yes; Exchange Fund bills (since 1990) and notes (since 1993) to be used for open market operations by HKMA | No. | |
| Swaps | No. | Yes. | No. | |
| Repos and reverse repos | n.a. | Yes; overnight repo and reverse repo of eligible assets with the HKMA's Liquidity Adjustment Facility to smooth short-term interest rate around the target rate, that is, with fixed bid and offer rates (June 1997); broadening of the scope of assets eligible for repos (1994 and 1996). | Repo operations in treasury bills and short-term credit facility for commercial banks to be developed in 1997. | |
| Others | n.a. | Transfer of government deposits between EF and commercial banks; accounting arrangement between EF and Hongkong and Shanghai Banking Corporation (HSBC) to control clearing balance of commercial banks at HSBC (1988); introduction of a charge on interests earned from Hong Kong dollar deposits to reduce Hong Kong dollar liquidity (1988). | BOL reduced the stock of credits outstanding granted to banks before the CBA period, over time to tighten monetary conditions. | |
| Payments system | Run by the central bank. | Managed by HSBC; licensed banks maintain clearing accounts with each of the ten settlement banks, which in turn maintain clearing accounts with the HSBC, HSBC acts as agent for the HKMA in its money market operations. | Run by the central bank. | |
| Treasury operations | ||||
| Government deposits | At commercial banks. | At EF and commercial banks, mainly the HSBC: fiscal reserves are transferred to EF's account at the HKMA. | At commercial banks. | |
| Credit to government by the monetary authorities | Prohibited. | n.a. | Prohibited. | |
| Experiences with speculative outflows | First quarter 1994 and the end of 1995. | January 1988 (expected revaluation led to inflows); January 1995, spillover from the Mexican crisis. | November 1994. | |
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The general literature on CBAs has expanded rapidly in recent years. See in particular Hanke and Schuler (1991 and 1994), Bennett (1993 and 1994), Humpage and McIntire (1995), Walters (1992), Osband and Villanueva (1993), Schwartz (1993), Guitian (1995), Williamson (1995), and Zarazaga (1995).
Other existing CBAs not covered include those of Bermuda, Cayman Islands, Falkland Islands, and Gibraltar. Hong Kong, China is referred to in this publication as Hong Kong.
In addition to the British colonics, currency boards operated in the Philippines, when it was a U.S. colony, and for a brief period, the Italian colony of Somalia. In most French colonies. Instituts d' Emission operated: they backed their currencies with both French franc and domestic assets. For more information on currency boards during the colonial period, see Hanke and Schuler (1994), Schwartz (1993). and Williamson (1995).
For discussion of this subject, see Guitian (1992) and (1994).
Currency boards were introduced in the British colonies in the nineteenth century to economize on specie transport costs and to let local governments benefit from seigniorage. The first currency board was introduced in Mauritius in 1849. based on the ideas of the Currency School. In the words of Earl Grey, the British Secretary of State for the Colonies, who is cited in Gunasekera (1962, p.31), currency boards were designed to “unite die ‘advantages of cheapness and convenience which belongs to a paper currency' with the ‘steadiness and uniformity of value, of a metallic currency, … [thus, they] ought to be so regulated that the amount in circulation should vary according to the laws which govern the latter'.” Currency boards became public note-issuing institutions, following the failure of several private note-issuing banks.
In this regard it may be easier to introduce a CBA in a country where the banking system is relatively small, since this makes it easier to back the currency.
The central bank’s obligation is to sell U.S. dollars at that rate.
Obstfeld and Rogoff (1995) argue that the main reason central banks break commitments to fixed exchange rates is not that they exhaust their reserves and draw down all available credit lines but that their respective governments are unwilling to accept the consequences of continuing to defend the exchange rate. In particular, they cite the unwillingness of the Swedish and U.K. authorities to accept a prolonged period of high interest rates to maintain the peg to the European currency unit (ECU) in 1992.
However, by changing reserve requirements central banks have a limited scope to change the supply of money without changing the monetary base.
“Among the CBA countries covered in this paper, capital controls remain in place only in the ECCB countries. Estonia maintained capital controls up to the end of 1993.
It should be noted, though, that capital controls in Estonia during 1992–93 were relatively unbinding and probably had considerable effect only on speculative capital inflows from Russia.
This, however, excludes interest earnings on fiscal reserves deposited at the Exchange Fund, which are transferred to the government.
In part because of the need to borrow reserves for initial backing and, hence, to repay the loans over time, the Bank of Lithuania was allowed to retain part of total profits as reserves. The Bank of Estonia has the authority to retain at least 50 percent of total profits as statutory and reserve capital; the remainder must be transferred to the budget or used to establish special funds. In Argentina, central bank profits may be maintained in a reserve fund until they reach 50 percent of the bank’s capital; further profits must be transferred to the budget. The ECCB may retain profits or distribute them among member governments in proportion to their shares of currency in circulation. Similarly, the National Bank of Djibouti must distribute profits among its shareholders, which include the central government, local governments, and other government entities.
See Collyns (1983).
As discussed in Saavalainen (1995), however, there is no clear evidence that disinflation was achieved faster in Estonia and Lithuania than under a monetary role and later a conventional fixed peg in Latvia. In Argentina, the introduction of the CBA in early 1991 helped consolidate the downward path of inflation and avoid a recurrence of the hyperinflation conditions experienced in the first quarter of 1990, caused by a flight from financial assets denominated in domestic currency. It should be noted, however, that in all three cases the introduction of a CBA was preceded by significant exchange rate depreciation, the pass-through of which is likely to have delayed the deceleration of inflation.
Marston (1995) suggests that the ECCB countries grew faster, on average, than the other Caribbean countries during 1987–91, in part, owing to their relatively stable inflation. During the period, the average annual growth rate of the ECCB countries ranged from 4.0 percent to 9.5 percent, while that of the other Caribbean countries ranged from 0.4 percent to 3.1 percent.
Recent discussions of self-fulfilling currency attacks can be found in Obstfeld (1994 and 1995), Eichengreen, Rose, and Wyplosz (1994), Drazen and Masson (1994), and Davies and Vines (1995).
However, bank rates (particularly lending rates) could remain above comparable rates in the reserve currency country, due to credit risk or inefficient or unsound banks. See Appendix I for detailed information on interest rate convergence in Argentina, the Baltic countries, and Hong Kong.
Similar credibility benefits are reported for countries that adhered to strict gold standard rules during the period 1870–1914. Those that had poor adherence records were charged considerably higher rates on long-term government bonds, even when denominated in gold, than those with good records (see Bordo and Rockoff, 1995).
Economic growth was close to 10 percent in 1984 and averaged 8.8 percent during the remainder of the 1980s.
Klein and Marion (1994) study a sample of 61 pegged exchange rates in Latin America since the 1950s and find that they had a mean duration of 32 months and a median of 10 months.
The Lithuanian CBA came under attack at the end of 1994 and beginning of 1995, following rumors of an impending devaluation and incipient banking system difficulties. The attack appeared to have been encouraged by a weak institutional commitment to defend the parity.
In Lithuania, interest rates remained high after the introduction of the CBA, due to the persistent expectations of devaluation. See Camard (1996).
After Ireland joined the European Monetary System (EMS) in 1979, average interest rates on assets denominated in Irish pounds substantially exceeded those in deutsche mark, owing to the possibility of realignments within the EMS. In contrast, during 1928—71, when a CBA was in operation based on the pound sterling, interest rates in Ireland closely approximated those in the United Kingdom. It should be noted that the Irish economy was much more closely linked to that of the United Kingdom than to those of other EMS members. See Honohan (1994).
However, in the aftermath of the Mexican crisis deposits at commercial banks declined by around 17 percent, between the end of November 1994 and the end of May 1995, and real growth of credit to the private sector declined steadily. In August 1995, the latter turned negative for the first time since the CBA was introduced. Only a modest fraction of this decline was directly associated with a decline in base money—that is, with the functioning of the CBA's monetary adjustment mechanism. Most of the decline was associated with large monetary interventions by the central bank—that is, with conventional sterilization policies (see Appendix III for more information).
See Appendix II for further discussion.
See Rodriguez (1982), Kiguel and Liviatan (1992), and Rebelo and Vegh (1995).
Argentina's inflation remained above that of its main trading partners until 1994. Hence, the real exchange rate appreciated very sharply during 1989–93, both before the CBA was established and afterward. The impact of this overall appreciation on competitiveness may have been mitigated by productivity gains and changes in tax structure, particularly the elimination of most export taxes. Thus, although the trade balance deteriorated from a surplus of $3.7 billion in 1991 to a deficit of $5.8 billion in 1994, both the volume and value of exports increased by around 31 percent during the period.
Productivity biases result from differential productivity growth. With nominal exchange rate rigidity, productivity growth in the tradable sector results (when higher than abroad) in wage increases that are transmitted to the nontradable sector. If productivity in the nontradable sector grows less rapidly, wage increases cause nontradable prices to increase. This is known as the “Balassa-Samuelson effect.” Similar dynamics may occur as a result of increased competitiveness in the most dynamic sectors of the economy.
Saavalainen (1995) and Richards and Tersman (1995) suggest that productivity biases, together with initial undervaluation, account for most of the price increases in Estonia and Lithuania. Halpern and Wyplosz (1994) find substantial support for the hypotheses of initial undervaluation and subsequent equilibrium appreciation in a sample of Eastern European economies in transition. Productivity developments may also have played an important role in Hong Kong, as suggested in a recent document prepared by the Hong Kong Monetary Authority (1995). Arguably, however, in the Baltics the shortness of the time period involved suggests that the high levels of inflation may have been due more to the price convergence process than to the differential productivity effect.
Since 1980, the Monetary Authority of Singapore (MAS) has used the exchange rate as the intermediate target of monetary policy. The MAS has monitored the Singapore dollar against an undisclosed basket of currencies within a target band, which, in turn, is set according to actual and projected inflation. During the 1980s, the exchange rate was allowed to appreciate. For more information on Singapore's exchange rate policy, see Bercuson (1995).
The familiar optimum currency area conditions apply. See Mundell (1961) and McKinnon (1963).
Before the United States tightened its monetary policy stance at the beginning of 1994, real lending rates for Hong Kong dollar funds were negative.
The vulnerability of financial systems to a credit crunch associated with a loss of gold reserves in the presence of a specie standard is emphasized by Stoker (1995) in a recent study of English financial crises during the 1800s. Bordo and Kydland (1990) report that the adoption of Bagehot's rule—in the face of both an external and an internal drain, “to lend freely but at a penalty rate”—was a key determinant in ending financial crises in British financial history.
CBAs that operate in a financial system dominated by subsidiaries of foreign banks, as was the case of colonial CBAs, are less prone to banking crises caused by liquidity shortages, as those subsidiaries generally have broader access to foreign funds from their parent institution in an emergency. In such cases, the absence of a LOLR places domestic banks at a disadvantage. In Djibouti, for example, lack of LOLR support contributed to the early failure of domestic banks.
Experience shows that liquidity crises are often rooted in solvency problems. See Lindgren, Garcia, and Saal (1996).
See Calvo and Mendoza (1995) and Sachs, Tornell, and Velasco (1995).
Most monetary operations undertaken by developed country central banks are “defensive” in nature. In particular, offsetting the impact of government operations on domestic liquidity accounts for a sizable portion of these operations. While, in most CBAs, government deposits are transferred from the central bank to the commercial banking system, treasury operations may continue to cause monetary perturbations, particularly if interbank markets are not well developed (Appendix IV).
In particular, interest rate volatility increases intermediation margins of highly leveraged financial intermediaries with rapid turnovers, such as bond dealers. This reduces the liquidity of government securities and other money market instruments. Empirical evidence linking interest rate volatility to intermediation spreads can be found in Ho and Saunders (1981).
In Hong Kong, the monetary authorities issue bills that are used for open market operations, mostly to limit the deviations of the domestic interest rate from the U.S. federal funds rate. In Argentina, the central bank has some limited influence on short-term domestic interest rates through repos and reverse repo operations, undertaken mostly with dollar-denominated public securities.
Although Liberia cannot be said to operate a CBA, there are lessons to be drawn from its experience because of its use of the U.S. dollar as legal tender. Liberia provides an interesting illustration of the sort of chaotic financial and fiscal conditions that may develop as a result of financing large fiscal deficits with IOUs and pledging future tax revenues to secure commercial bank advances.
See Pilling (1996).
For evidence that a high ratio of foreign reserves to broad money can help in avoiding self-fulfilling bank panics and attacks on the exchange rate, see Calvo and Mendoza (1995), Kaminsky and Reinhart (1996), and Sachs, Tornell, and Velasco (1996).
The planned introduction of a CBA can act as a catalyst to help forge the political consensus needed for reform.
When the exchange rate is initially undervalued and is expected to appreciate, there would be merit in setting the rate for the CBA above the current market rate, to avoid inflation becoming the mechanism to achieve the required real appreciation.
The degree of backing has been a longstanding matter of debate. As cited by Gunasekera (1962, p. 294), opponents of CBAs already argued in 1948 that “a 100 percent reserve system increases unnecessarily the cost of the currency in that a foreign reserve has to be maintained even against that hard core of the circulation which will never be offered to the Currency Board for redemption.” Bordo and Kydland (1990) report that on at least three occasions, during the financial crises of 1847, 1857, and 1866, the Bank of England resorted to special unbacked note issues without suspending convertibility of its notes into gold. The policy was successful in alleviating the pressure on reserves and the Bank retired the excess issues shortly thereafter.
Reserve requirements are used in many existing CBAs, including Estonia, Lithuania, the ECCB, and Brunei Darussalam. In Argentina, they were recently replaced by liquidity requirements to be fulfilled with instruments that can be easily liquidated even in case of a systemic need for liquidity.
In recent years, a number of observers have advocated the use of reserve requirements in developing economies to limit the expansionary impact of capital inflows and contain the risk of banking crises. See Calvo, Leiderman, and Reinhart (1992), Rodriguez (1993), McKinnon and Pill (1995), Gavin and Hausman (1995), and Kaminsky and Reinhart (1996). However, caution is needed in setting a reserve requirement; particularly when unremunerated, a high reserve requirement can be detrimental to banks’ soundness.
When a CBA is established in a country where a treasury bill market does not already exist, the development of such a market may be justified on several grounds: (1) to provide collateral, thereby facilitating the development of the interbank market; (2) to accommodate the treasury’s cash flow requirements, thereby facilitating cash management; (3) to increase the flexibility of bank interest rates, thereby enhancing the financial system’s resilience to liquidity shocks; and (4) to economize on the need for foreign reserves, as banks and other financial institutions can hold domestic securities, instead of foreign securities, to satisfy their need for liquidity.
The Bank of Estonia has now essentially abandoned this practice, and the stock of CDs has dwindled to very small amounts.
Solutions that were adopted historically before the development of the central bank LOLR function, such as honoring only requests to transfer funds between institutions but not requests for conversion into cash, may be envisaged. In such cases, there was a premium in the rate for cash over bank deposits. Convertibility was frequently restricted in the case of bank panics during the gold standard era, as documented in Bordo and Kydland (1990). However, large-scale restrictions on convertibility could be considerably more damaging in a modern payments system. Also, as in the case of the ruble area in the aftermath of the dissolution of the Soviet Union, a shadow exchange rate could emerge between cash and local bank deposits, and between local deposits and deposits abroad, thereby exacerbating expectations of an exchange rate adjustment.
See Machinea (1996).
The required capital-assets ratio was raised to 11.5 percent in Argentina. In Hong Kong, although the standard ratio is 8 percent, the Hong Kong Monetary Authority can increase the risk-based capital adequacy standards up to 12 percent for any general licensed bank and up to 16 percent for other deposit-taking institutions.
See Rojas-Suarez and Weisbrod (1996).
The absence of exchange rate risk between the local currency and the reserve currency would in principle obviate the need for limiting open positions between the two currencies. However, some exchange rate risk and interest rate differential may remain, since adopting a CBA is not completely irrevocable. To avoid destabilizing capital inflows and excessive risk taking by financial intermediaries, limits may be useful, especially when CBAs are introduced in a context of large initial interest rate spreads between the domestic and reserve currencies.
When the central bank—under strict CBA rules—is not allowed to acquire domestic assets, the foreign exchange backing of reserve requirements can only be used to increase liquidity if the demand for base money declines. Thus, in the event of a de-posit withdrawal, only that fraction of the deposit that is held as reserve requirements can be made available to banks.
Liquidity requirements were introduced in Argentina to substitute for reserve requirements in the wake of the Mexican crisis. Liquidity ratios have also been introduced in Hong Kong and Estonia, even though in Estonia the authorities attach more importance to reserve requirements as a tool to deal with liquidity crisis.
The liabilities that are volatile, have short maturities, or are close substitutes for foreign assets may be subject to higher liquidity requirements. Liquidity and volatility are not always jointly correlated. In Argentina, for example, most of the deposit withdrawals that took place in the aftermath of the Mexican crisis originated from time deposits rather than demand deposits. Liquidity requirements may also need to apply to banks’ short-term foreign liabilities, which may be called in a crisis.
Argentina’s recent financial crisis started with a liquidity squeeze in Bank Extrader, a small bank that was heavily exposed in Mexican bonds and securities. Argentina’s central bank law prohibited the central bank from extending explicit last-resort support. Unable to honor its deposits, Extrader was closed on January 18, 1995. The fear that other banks were similarly exposed translated into a generalized banking panic. See Zarazaga (1995) and Machinea (1996).
The alternative of establishing narrow banks was discussed recently in Argentina, see Fernandez and Schumacher (1996). This may be difficult to implement in practice, however, as it requires highly developed financial markets and involves complex and lengthy transitional arrangements.
Banks may also be required to negotiate, on their own, lines of credit with foreign commercial banks, as in Panama. Such arrangements are likely to penalize the smaller banks that do not have access to foreign funds. Moreover, unless the credit lines are backed by foreign assets, the availability of such funds may become questionable in times of crisis.
The provision of LOLR could also be, in principle, directly assumed by the government, as in Brunei Darussalam. To limit political pressures, it may be advisable to assign this function to an independent agency.
See Garcia (1996).
When a large proportion of government securities is held by banks, establishing a pool of international reserves to back the government securities market can economize on the banking system’s need for foreign exchange reserves, as it allows banks to hold part of their liquidity in domestic securities, rather than foreign securities. Even in the case of an incipient systemic crisis, banks are unlikely to be similarly and simultaneously affected by runs on deposits. Thus, when expectations of a forthcoming liquidity crisis inhibit the normal functioning of the interbank market, the central bank can support, through the security market, the banks that are first affected by deposit withdrawals, thereby staving off spreading risks.
This scenario may be applicable, in particular, to economies in transition.
However, even with high dollarization, there might be investor concerns that bank deposits could be frozen and honored only in part. In that sense, deposits in the local financial system are not necessarily perfect substitutes for the currency of the reserve country or for deposits held in the reserve country.
Although there is evidence that price and wage flexibility tend naturally to increase in countries that have adopted rigid exchange rate arrangements, as shown by Bayoumi and Eichengreen (1995) in the case of the gold standard, legal reforms, particularly in labor legislation, may be needed to accelerate this process. Hong Kong, for example, has maintained labor market flexibility through the absence of both a social security system and institutionalized bargaining. The importance of similarly increasing the flexibility of the labor market in Argentina has been stressed.
To mitigate such problems, the authorities could choose instead to seek legislative approval to let the currency crawl upward. Provided that the rate of crawl is gradual enough so that the downward adjustment in domestic interest rates can compensate for the slow expected appreciation of the local currency, this policy should not of itself induce capital inflows.
It is implicitly assumed here that making changes to the law would be sufficiently time-consuming to eliminate the element of surprise.
Moreover, switching the reserve currency may create transitional problems in the banking system, as the structure of interest rates in the new reserve currency may differ from that of the old reserve currency.
See Obstfeld (1991).
In Lithuania, the central bank is allowed to change the exchange rate in either direction under extraordinary circumstances when not doing so would damage the stability of the economy.
This exposition assumes that the central bank relies on indirect instruments of monetary control. Alternatively, the authorities could directly control net domestic assets of the banking system. Apart from the latter’s clear inconsistency with the emphasis of currency boards on the free interplay of market forces, it would not affect the subsequent analysis.
This captures the essence of the target. Precise definitions of the associated performance criteria differ from country to country.
As can be seen from manipulating the simple central bank balance sheet identity: NIR + NDA = RM, the CBA program floor is identical to a ceiling on NDA. What is “missing,” then, is the analogue to the conventional NIR target.
The deposit rate reflects the average rate paid on most savings and time deposits as reported in a central bank survey. The interfirm market rate is a lending rate for seven-day operations secured by Argentine government bonds denominated in U.S. dollars.
The spread, however, increased to a peak of 9.5 percent in March 1995 following the aftermath of the Mexican crisis.
For instance, at the end of 1993, the interbank rate in Estonia was 6.3 percent as compared with 50.8 percent in Latvia and 98.3 percent in Lithuania.
However, it should be noted that the increase in that rate at the end of 1995 is likely to have been related to the banking crisis being experienced at that time.
See Camard (1996).
See Appendix III for more information.
At the end of 1994, only 1 of the 24 banks in Lithuania was a foreign bank and only representative offices of 3 foreign banks existed in Estonia. In Argentina, the banking system was also dominated by local and provincial banks.
In Brunei Darussalam, only two of the eight commercial banks are locally incorporated. Moreover, the three largest banks that at the end of 1994 accounted for almost 90 percent of total deposits were foreign owned. Nevertheless, the Government of Brunei Darussalam was heavily involved in providing support to failed domestic banks during banking crises in the 1980s. In one case, budgetary transfers were made to repay depositors. In Djibouti, all four active commercial banks are foreign owned. The lack of LOLR support may have been partly responsible for the failure of all domestic banks during the 1980s.
The ECCB can use up to 40 percent of its international reserves to provide liquidity support to banks, provided these resources have not been already used to extend credit to member governments.
For more information, see Zarazaga (1995), p. 17.
The decline in bank deposits during the period was financed by an increase in other items net (liabilities) of around Arg$2 billion, an increase in credit from the central bank of Arg$1.8 billion, a reduction in banks’ reserves at the central bank of Arg$1.2 billion, a reduction in banks’ net foreign assets of Arg$l billion, and a reduction in credit to the private sector of around Arg$0.3 billion. As a large part of the deposits withdrawn left the country, the central bank lost foreign exchange reserves amounting to approximately Arg$5 billion during the period.
The deposit run put additional strain on many provincial banks that had weak financial positions caused by nonperforming loans to provincial governments.
Throughout 1994, reserve requirements for domestic and foreign currency demand and saving deposits were 43 percent as opposed to 3 percent for time deposits. Subsequently, reserve requirements on demand and savings deposits were lowered in stages from 43 percent to 30 percent, and those on time deposits by 2 percentage points to 1 percent.
Previously, the rediscounts were limited to 30 days for amounts not exceeding the borrowing bank’s capital. Moreover, banks were not allowed to request another advance within 45 days of their previous repayments to the central bank.
The Bank Capitalization Trust Fund was set up to provide financial assistance for the acquisition of banks. It offers subordinated convertible loans and other loans to refinance banks’ outstanding obligations to the central bank and the Banco de la Nacion Argentina. The subordinated loans, with maturity up to eight years, can only be used to meet capital shortfalls.
These banks accounted for around 5 percent of the assets of the financial system. Disbursements were used mainly to cancel outstanding rediscounts with the central bank and liabilities to the central bank associated with transactions of the latter’s safety net for banks.
The proceeds from the Bank Liquidity Certificates must be placed in the international reserves of the central bank. The special account abroad must be held at the Deutsche Bank in New York. The requirements can be fulfilled up to 100 percent by the central bank’s reverse repos or the Bank Liquidity Certificates, up to 50 percent by deposits with the Deutsche Bank, and up to 10 percent by certain Argentine government securities. It should also be noted that since October 1996 no new Bank Liquidity Certificates have been issued.
The central bank is prohibited by its charter from paying interest on deposits.
In the old scheme, which suffered from severe underfunding, only small peso-denominated deposit accounts were covered, and participation was voluntary. Many banks chose not to participate. The new scheme is mandatory and covers small peso and foreign currency deposits. It is managed by a special joint-stock company comprising interested financial institutions with only limited government participation.
Participating banks will pay a premium to the central bank, which guarantees access to the funds. The central bank, in turn, uses the premium to pay a commission to international banks.
The three banks accounted for almost 40 percent of broad money at that time. To a large extent, financial difficulties were caused by the poor quality of the loans inherited from the prere-form era and weak economic activity during the initial stages of transition to a market economy.
The Northern Estonian Bank was merged with another problem bank before becoming government owned.
Between the end of December 1995 and early February 1996, banks lost about 15 percent of their litai deposits and 19 percent of deposits in convertible currency. At the end of March 1996, 14 of the 29 banks licensed at the end of 1994 had their licenses withdrawn and entered into bankruptcy procedures. In June 1996, only 11 banks were in operation.
With the introduction of this law, the government planned to change the civil code to eliminate full deposit protection at state-controlled banks and thereby level the playing field.
Many failed banks were also taken over by large foreign banks.
See Appendix III for more information on the new accounting arrangement.
Although the monetary authorities can affect the money multiplier and the monetary base within a CBA, the authorities would not be able to target broad money or interest rates.
The central banks of Estonia and Lithuania effectively lowered reserve requirements by allowing banks to fulfill the requirements with assets other than deposits with the central bank.
The rate has been set by the central bank, and the minimum maturities are fixed at 30 days for peso-denominated reverse repos and 7 days for both peso- and dollar-denominated repos.
The central bank’s swap liabilities jumped from Arg$858 million in October 1995 to Arg$2,320 million in November, and Arg$3,566 million (equivalent to 20 percent of reserve money) in February 1996.
In the ECCB, under the current conditions, the central bank cannot tighten monetary policy by open market operations as it lacks bills to sell and the secondary market is virtually nonexistent.
The accounting arrangement was introduced as part of the package to strengthen the effectiveness of the authorities’ monetary operations after a small financial crisis occurred.
For example, interbank liquidity would increase when a check written by an HSBC’s customer was deposited for clearing at another bank as the money would be drawn directly from the customer’s account at the HSBC. If the HSBC were required to maintain a minimum clearing balance, the interbank liquidity would not be affected as the check would be drawn from the HSBC’s clearing balance, which would offset the increase in the balance of the receiving bank.
The HSBC has to pay penalty interest to the HKMA if the net clearing balance of other banks at the HSBC is greater than the “Balance,” that is, if the HSBC has overlent to the banking system. If the net clearing balance of other banks is negative, the HSBC also has to pay penalty interest on the debit amount. Since the HKMA does not pay interest to the HSBC on the balance, the advantage to the HSBC of using other banks’ interest free clearing balances ended. The HKMA can influence the balance through open market operations, foreign exchange intervention, and direct lending and borrowing from the banking system.
For instance, the market exchange rate depreciated on February 4, 1994, after the target U.S. federal funds rate was raised for the first time since January 1993.
Previously, the HKMA had targeted the net amount of liquidity held in the clearing accounts of all licensed banks. The HKMA influenced the liquidity of the banking system by affecting—through open market operations, foreign exchange operations, or transfers of government deposits—the account that the HSBC has to maintain with the Exchange Fund.
Unlike the experience in February 1994, following the adoption of interest rate targeting, the market exchange rate did not depreciate with subsequent increases in the U.S. federal funds rate. See Hong Kong Monetary Authority (1994), p. 18.
The average daily deviation of the three-month HIBOR from its five-day moving average declined from 2.03 percent between October 12, 1983 and the end of May 1992 to 0.11 percent between June 1992 and the end of February 1994, and to 0.09 percent between March 1994 and the end of December 1995.
At that time, the HKMA was not established and the Exchange Fund could intervene in the domestic money market only through foreign exchange intervention and transfer of government deposits between accounts at banks and the Exchange Fund.
In March 1995, the interbank rate peaked at 70 percent, and prime rates for loans in pesos and U.S. dollars reached 49 percent and 33 percent, respectively. Deposit rates in pesos increased from around 10 percent at the end of 1994 to a peak of 19 percent in March and April 1995. The deposit rate in U.S. dollars also increased by around 4 percentage points during the period.
Moreover, the central bank’s last-resort operations had already absorbed much of the scope available for domestic credit creation.
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149. The Composition of Fiscal Adjustment and Growth: Lessons from Fiscal Reforms in Eight Economies, by G.A. Mackenzie, David W.H. Orsmond, and Philip R. Gerson. 1997.
148. Nigeria: Experience with Structural Adjustment, by Gary Moser, Scott Rogers, and Reinold van Til, with Robin Kibuka and Inutu Lukonga. 1997.
147. Aging Populations and Public Pension Schemes, by Sheetal K. Chand and Albert Jaeger, 1996 146. Thailand: The Road to Sustained Growth, by Kalpana Kochhar, Louis Dicks-Mireaux, Balazs Horvath, Mauro Mecagni, Erik Offerdal, and Jianping Zhou. 1996.
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144. National Bank of Poland: The Road to Indirect Instruments, by Piero Ugolini. 1996.
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140. Government Reform in New Zealand, by Graham C. Scott. 1996.
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138. Aftermath of the CFA Franc Devaluation, by Jean A.P. Clement, with Johannes Mueller, Stephane Cosse, and Jean Le Dem. 1996.
137. The Lao People's Democratic Republic: Systemic Transformation and Adjustment, edited by Ichiro Otani and Chi Do Pham. 1996.
136. Jordan: Strategy for Adjustment and Growth, edited by Edouard Maciejewski and Ahsan Mansur. 1996.
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134. India: Economic Reform and Growth, by Ajai Chopra, Charles Collyns, Richard Hemming, and Karen Parker with Woosik Chu and Oliver Fratzscher. 1995.
133. Policy Experiences and Issues in the Baltics, Russia, and Other Countries of the Former Soviet Union, edited by Daniel A. Citrin and Ashok K. Lahiri. 1995.
132. Financial Fragilities in Latin America: The 1980s and 1990s, by Liliana Rojas-Suarez and Steven R. Weisbrod. 1995.
131. Capital Account Convertibility: Review of Experience and Implications for IMF Policies, by staff teams headed by Peter J. Quirk and Owen Evans. 1995.
130. Challenges to the Swedish Welfare State, by Desmond Lachman, Adam Bennett, John H. Green, Robert Hagemann, and Ramana Ramaswamy. 1995.
129. IMF Conditionality: Experience Under Stand-By and Extended Arrangements. Part II: Background Papers. Susan Schadler, Editor, with Adam Bennett, Maria Carkovic, Louis Dicks-Mireaux, Mauro Mecagni, James H.J. Morsink, and Miguel A. Savastano. 1995.
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127. Road Maps of the Transition: The Baltics, the Czech Republic, Hungary, and Russia, by Biswajit Banerjee, Vincent Koen, Thomas Krueger, Mark S. Lutz, Michael Marrese, and Tapio O. Saavalainen. 1995.
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120. Economic Dislocation and Recovery in Lebanon, by Sena Eken, Paul Cashin, S. Nuri Erbas, Jose Martelino, and Adnan Mazarei. 1995.
119. Singapore: A Case Study in Rapid Development, edited by Kenneth Bercuson with a staff team comprising Robert G. Carling, Aasim M. Husain, Thomas Rumbaugh, and Rachel van Elkan. 1995.
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115. Exchange Rates and Economic Fundamentals: A Framework for Analysis, by Peter B. Clark, Leonardo Bartolini, Tamim Bayoumi, and Steven Symansky. 1994.
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112. The Behavior of Non-Oil Commodity Prices, by Eduardo Borensztein, Mohsin S. Khan, Carmen M. Reinhart, and Peter Wickham. 1994.
111. The Russian Federation in Transition: External Developments, by Benedicte Vibe Christensen. 1994.
110. Limiting Central Bank Credit to the Government: Theory and Practice, by Carlo Cottarelli. 1993.
109. The Path to Convertibility and Growth: The Tunisian Experience, by Saleh M. Nsouli, Sena Eken, Paul Duran, Gerwin Bell, and Zuhtu Yucelik. 1993.
108. Recent Experiences with Surges in Capital Inflows, by Susan Schadler, Maria Carkovic, Adam Bennett, and Robert Kahn. 1993.
107. China at the Threshold of a Market Economy, by Michael W. Bell, Hoe Ee Khor, and Kalpana Kochhar with Jun Ma, Simon N'guiamba, and Rajiv Lall. 1993.
106. Economic Adjustment in Low-Income Countries: Experience Under the Enhanced Structural Adjustment Facility, by Susan Schadler, Franek Rozwadowski, Siddharth Tiwari, and David O. Robinson. 1993.
Note: For information on the title and availability of Occasional Papers not listed, please consult the IMF Publications Catalog or contact IMF Publication Services.
