Tomas J.T. Balino, Adam Bennett, and Eduardo Borensztein, 1999, Monetary Policy in Dollarized Economies, International Monetary Fund, Occasional Paper No. 171.
Tarhan Feyzioglu and R. Gaston Gelos, 2000, Why is Private Sector Credit So Low in Bulgaria? In Bulgaria: Selected Issues and Statistical Appendix, IMF Staff Country Report No. 00/54.
This chapter was prepared by Tao Wang.
The loosening of monetary policy was influenced in part by an assessment that the higher-than-programmed increase in reserve money should be accommodated, as it reflected increased demand for currency, and in part by political pressure to lower the domestic financing costs of the budget deficit. The authorities started to tighten monetary policy in September 2000.
In Romania, the analysis typically focuses on the leu component of reserve money, for reasons explained in Section E.
The rate of change is calculated at an unchanged required reserve ratio, using the beginning of the period required reserves ratio as a reference point, and assuming full compliance with reserve requirements.
When the two banks offered excessively high interest rates to attract deposits and avoid bank runs in 1997, they added to the upward pressure on interest rates arising from tight liquidity conditions owing to the NBR’s sterilization of foreign exchange inflows.
In late, 1997, the government bailed out the two banks with US$1 billion in government bonds. The NBR immediately purchased a significant amount of those securities from the two banks and injected cash liquidity into the banking system. In 1999, as BX collapsed, the NBR stepped in again to extend about 10 trillion lei—or about 50 percent of reserve money—in special credit to the bank.
Even though the share of FCDs in M2X is significant, hovering around 30 percent in recent years, there is no strong evidence of foreign currency as a means of payment or unit of account in a significant way. FCDs are mostly a form of assets that the population uses in a high inflation and volatile exchange rate environment to substitute for domestic deposits.
This did not happen in some other high inflation economies such as Poland, because its population was able to hold dollar deposits freely.
In mid-1999, before BX was merged with BCR, its bad assets were transferred to the newly founded asset recovery agency (AVAB), removing the bad loans from the banking sector. While the transfer of these assets did not affect underlying credit to the economy, it did change the statistics on banking system credit. As a result of the transfer, credit in the amount of 4½ percent of GDP was removed from the banking system—of which about 3 percent of GDP represented nonperforming foreign currency loans.