For 20 years now Bulgaria has had a currency board arrangement. This is a currency system which introduces a fixed exchange rate of the local currency to a selected foreign currency and under which money in circulation has 100% coverage in the selected currency. Bulgaria is unique across Europe operating under such an arrangement that was introduced back in 1997 with a view to stabilizing the country's currency system shaken by inflation running as high as close to 500%. The currency board has provided stability but coupled with limitations for the currency policies of the central bank.

Until recently Bulgaria's political class was almost fully unanimous that the currency board should be kept in place until the country's accession to the Eurozone. In fact, Bulgaria has in many aspects introduced the euro, given that the currency to which the Bulgarian lev (BGN) is pegged is the euro at a rate of roughly BGN 2 for 1 euro. Payments with euro cannot be made in the country's retail outlets, but a great many deals are made and concluded using the euro- more notably in real estate where properties are bought and sold in euro.

However Bulgaria has recently seen two new trends. Prominent economists and politicians have become more vocal as they demand exiting the currency board, a transition to a free floating exchange rate and determination of interest rates by the central bank, rather than automatically. This would give a free hand to the central bank which will be able to carry out flexible policies in support of the economy and act as last instance creditor for the banks.

The caretaker government of PM Ognian Gerdjikov has proven very sensitive regarding criticism of the currency board, and despite its originally short term has officially stated that it plans to speed up work for accession to ERM-2, the so-called Eurozone waiting room, and possibly submit Bulgaria's application. The caretaker administration even formed a dedicated working group to facilitate the process. This is in fact a Solomon's wise ruling, because both critics and supporters of the currency board will be satisfied: the former, with the prospect of exiting the board and the latter with that it will not be abolished untimely - before the full introduction of the euro.

Hence, the fate of the currency board depends on the accession to the Eurozone and now efforts aimed at that have doubled. Many in Bulgaria though tend to be rather skeptical as to the chance of the country to accede to the Eurozone in the foreseeable future. In technical terms Bulgaria meets three of the four criteria but the decision is above all political. Unfortunately, whenever political arguments are involved Bulgaria tends to be the loser. This has been the case with Schengen: the country has lived up to all technical criteria but a few political reasons have barred its way into the free movement area. It is very likely that even if admitted to the Eurozone's waiting room, Bulgaria shall have to remain there for an indefinite time. It is worth having in mind that the will for European Union enlargement in whatever formats has been growing weaker by the day. Add to this the concept of a two-gear Europe, and Bulgaria's chances to bid goodbye to the currency board in the foreseeable future have collapsed to almost zero.

Does this imply that the currency board even without the euro should be suspended as many of its critics have already demanded? The very fact that this country is the only one in EU with such a currency system suggests that this arrangement is an anomaly, a marginal solution. Bulgaria has gained a lot of experience, skills and competence in the management of economic and financial processes, and has no need of this crutch any longer. The board has started to hamper flexible solutions and is a stumbling block for more adaptive policies. If the country is willing to follow the imperative for a faster economic growth, which is the way to achieving the levels of performance and living standards in united Europe, Bulgaria must start thinking about a new monetary policy right away.

English Daniela Konstantinova