Outsourcing central banking

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Outsourcing central banking

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Title: Outsourcing central banking
Lessons from Estonia
Author: Khoury, Sarkis Joseph; Wihlborg, Clas
Abstract: The literature on Currency Boards (CB) stops at the water edge in terms of dealing with the totality of the functions of a central bank. Monetary policy, and banking supervision can be "outsourced" in an open economy with substantial foreign direct investment (FDI) in the banking sector if political nationalism does not trump economic rationality. An orthodox CB renders the central banking function redundant in terms of interest rate and exchange rate determination. FDI in banking could perform the same role for the supervisory function of central banks. We use the case of Estonia to illustrate the feasibility of, and constraints on, outsourcing of central bank functions. A brief discussion of the Argentinian experience is used for contrast. Key words: Currency Board, Foreign Banks, Supervision, Regional Integration,outsourcing.
URI: http://hdl.handle.net/10398/7168
Date: 2005-12-09
Notes: In memory of Vello Vensel, 1941-2004

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