What is missing from present discussions?
The National Bank of Ukraine stepped on the track to a cashless economy aiming at reforming the financial system, improvement of the transmission mechanism, and reduction of the underground economy and corruption. A substantial part of money in the Ukrainian economy is estimated to be foreign cash in circulation.
This paper is primarily the result of the author’s own experience attained while working in or visiting central banks of Central and Eastern Europe and Middle East. But, conclusions could be applied to a broader population of central banks, mutatis mutandis.
“Negative mirage” was first mentioned by Professor Robert Mundell (awarded a Nobel Prize in Economic Sciences in 1999) at his lecture in the Croatian National Bank Conference in 1996, Mundell, (1997). He went on to explain that a mirage is something we see but is not there, like Fata Morgana in the deserts. Economists like to use the term “negative” so we speak about negative growth rate, not a “fall” rate. Thus, a negative mirage is something that is there, but we do not see it. He was referring to GDP in transition economies. In the early to mid-nineties, official statistics would show a deep dive in GDP in transition economies, but reality was not as bad as statistical numbers pointed to. Official statistics do not always capture all economic activity, especially in so-called transition economies, whose structure was changing too rapidly. It is worth noting that statistical omissions in economics are not limited to post-socialist economies. Recently a lot of emerging countries have “increased” their economies by a so-called rebasing of GDP. The most notable example is Nigeria, who increased its
GDP by 90% in 2014.
Countries where dollarization was never a problem are typically those whose economic history is not burdened with inflationary periods, currency depreciations, and banking crises. If a small percentage of assets are held as FCC, this indeed should not be a top priority for policy makers.