ABSTRACT

This chapter describes briefly the starting conditions for reform of the Bulgarian National Bank (BNB). It discusses the rationale and the concept of central bank independence in the context of transition. The chapter examines the legal and real independence of the BNB in 1991-1996, applying the methodology of Cukierman, Webb, and Neyapti. It explores the amendment of the Law on the BNB passed in April 1996. The independence of the BNB was the only institutional ‘anchor’ supporting stabilization efforts. The BNB had neither foreign exchange reserves, nor a structural unit with experienced staff to manage foreign exchange operations. The monetary policy instruments available to the BNB in the beginning of 1991 were: the discount interest rate applied to BNB loans to commercial banks and the government, credit ceilings on commercial banks’ lending to the real sector, and reserve requirements. The BNB can engage in government securities transactions only on the secondary market for the purpose of conducting its monetary policy.