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GOVERNMENT BANKRUPTCY OF BALKAN NATIONS AND THEIR CONSEQUENCES FOR MONEY AND INFLATION BEFORE 1914: A COMPARATIVE ANALYSIS

Peter Bernholz
Univeristy of Basel

ABSTRACT

A difference is made between open and hidden or veiled government bankruptcies. The latter are happening if budget deficits are covered by substantial money creation leading to inflation. In this case non-indexed government debt loses its value and is inflated away. This path is not open, if the debt is not denominated in the national but in a stable foreign currency or in units of gold or silver. This is usually the case for debt owed to foreigners. But sometimes both kinds of government bankruptcies are occurring together. In the present paper several general qualitative hypotheses are tested for the Balkan countries and the Ottoman Empire

JEL classification: F340; G330; N230.

Keywords: Government bankruptcies; Foreign debt; Fixed exchange rates.

Acknowledgements: I am grateful to Alina Blejan, Kalina Dimitrova, Dragana Gnjatovic, Martin Ivanov, Sophia Lazaretou and Sevket Pamuk for their help, especially in getting data on government budgets, prices and exchange rates.

Correspondence:

Prof. em Dr. Dr. h. c. Peter Bernholz
Postfach
CH-4003 Basel
Switzerland
e-mail: Peter.Bernholz@unibas.ch


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