Five Benefits for Bulgaria since the adoption of the euro in a multipolar world

« Diary » reproduces the publication of OMFIF-State Street Global Advisors from a statement by Mr. Dimitar Radev, BNB Governor, London, May 15, 2025.

The determining characteristic of our current environment is instability. It dominates economic briefings, investment strategies and global forecasts.

This instability is not just a market noise. It is a signal for deeper, systemic changes. We are no longer facing temporary turmoil. We work in a fundamentally more uncertain world. The policy itself is becoming a source of instability.

The ongoing transformation has deep consequences for the way we think, plan and invest. In order to deal with such an environment, we must rely on a reliable conceptual framework, one that is based on economic reality and institutional adaptability.

Five main assumptions

My vision for a conceptual frame is based on five key assumptions. First, instability is structural, not episodic. Geopolitical tensions are intensifying. Commercial flows are politicized. Financial sanctions are more frequent and increasingly focused. These are not temporary turmoil, but those that convert the world financial system.

Second, in such an environment, strategic resistance must have an advantage over tactical forecasting. Diversification remains important, but is no longer sufficient. We need to embed the ability to choose into our management framework, which will ensure that our policies and processes allow quick adaptation to changing conditions.

Third, policy coordination is more important than ever – both within and outside institutions. Reserve management cannot be isolated from monetary policy or financial stability. Our investment decisions should help, not complicate the broader goals of politics, especially during periods of stress. In external terms, coordination with fiscal bodies and international institutions is crucial. In a fragmented world, shared insight becomes a powerful source of stability.

Fourth, we must review our understanding of strategic autonomy – not only at European but also at national level. In the climate of geopolitical uncertainty, it is important not only what assets we have, but also whether we can gain access to them when necessary. This requires a renewed focus on the exposures and the risk of the counterparty, as well as a serious assessment of alternative reserve assets – including gold and stock -traded funds – and strategic efforts to expand and strengthen the regional currency unions such as the euro area.

Fifth, despite short -term noise, we must maintain our focus on the long -term perspectives. Demographic aging, climate transition and technological turmoil are not distant threats – they are current investment realities. We need to adapt to them in the management of public resources so as to maintain the value and support sustainable economic growth.

Consequences for Bulgaria and the region of Central and Eastern Europe

The consequences for Bulgaria can also reflect broader trends in Central and Eastern Europe. Although the direct impact of current tensions in world trade on Bulgaria is limited, the indirect consequences can be significant.

We are deeply integrated into the European supply chains and we are strongly relying on external demand from major euro area economies. The delay in these economies, caused by the weakening world trade, creates real risks for our exports and investment flows.

At the same time, the restructuring of global supply chains creates uncertainty about future shopping routes and manufacturing centers. It is difficult to quantify the overall impact. But at this stage, the risks to potential medium growth are more increasing.

One of the channels that is already in operation is in terms of goods prices. Expectations for less worldwide demand caused by trade tensions have pushed the prices of oil down. For energy -intensive economies like Bulgaria, this caused a short -term disinflation effect.

However, the broader inflation and investment effects of fragmented trade remain uncertain and can develop rapidly.

Management of foreign exchange reserves

The optimal composition of the currency reserves requires a new consideration. We are now working in an environment marked by increased geopolitical tension, less global growth, variable capital flows and greater market instability.

Historically, confidence in the US economy and financial system has supported the leading role of the dollar. By the end of 2024, there was no significant change in the distribution of world reserve currencies – the dollar remained dominant, supported by its liquidity, depth and a sense of security. But there are indications that this can start to change.

At the same time, gold again acquires the meaning of a strategic reserve asset. In recent years, several central banks have significantly increased their investments in gold – not only as a hedge against financial risk, but also as a protection against geopolitical turmoil.

These trends sharpen the focus of the role of the euro as a reserve currency – an issue that is becoming more relevant.

The euro and the strategic path of Bulgaria

For Bulgaria, today’s developments make our long -standing ambition to join the euro area more relevant – and more urgent – than ever before. This conclusion is clearly supported by the conceptual framework presented here.

Acceptance of the euro will have five groups of consequences. It will attach Bulgaria’s monetary policy to the ECB Framework and provide reliability, stability and predictability. In addition, the admission of the euro will reduce the currency risk and protect the economy from speculative pressure; will increase investor confidence and deepen financial integration; As it will offer access to euro area mechanisms, such as the European Stability Mechanism.

In a world where policy instability is structural, euro area membership will strengthen Bulgaria’s strategic sustainability through institutional consolidation and reliable crisis response tools.

Bulgaria’s reserves management strategy

Now the composition of the currency reserves of Bulgaria is determined by our legally defined mandate and the operational logic of the currency board. Generally speaking, about 90% of our reserves are kept in euro and about 10% in gold.

Credit and currency risks are very limited. Eligible assets must have a minimum AA minus rating. This highly conservative short -term approach served us well in periods of temporary market tensions.

In perspective, joining the euro area will mark a new stage in reserve management. The new law on the Bulgarian National Bank introduces more flexibility.

Once the euro becomes our national currency, we will begin to diversify our currency reserves in other currencies.

We are already laid the foundations – we are developing a new operative infrastructure, expanding our network of counterparties and creating a more in -depth market expertise.

In this way, we will adapt our risk framework by easeing the credit threshold for the assets we hold, from AA minus A minus and expanding the investment horizon from short to strategic, long -term. These reforms will expand our investment opportunities and will possibly include new tools, such as stock -traded funds. Of course, all such tools will be subjected to a very careful assessment to ensure that our main goals are complied with: retention of capital and providing liquidity.

Central banks should adapt

As the global fragmentation becomes a decisive characteristic of the international environment, central banks must adapt. We must continue to uphold the basic principles of reserves management – liquidity, security and return – while paying more attention to geopolitical and systemic risks.

Strategic positioning will be as important as fundamental financial factors. For the Bulgarian National Bank, this means maintaining the sustainability achieved at the currency board, with a willingness to hold in the near future in the euro area to a more dynamic, long-term and taking into account the risk strategy for reserve management.

The upcoming reforms will require careful conduct. But they also offer a timely opportunity to strengthen our abilities, increase our adaptability, and position ourselves in a more remembered, multipolar world.