No weekend 0,5% fee for BGN Bulgarian Lev due to fixed rate with EUR!

Sorry for bringing this up, but the recently added BGN support to Revolut and the fact that the exchange rate to and from EUR was not better than local banks. So i’ve decided to do a research on my own. Apparently this is relatively old topic, so i’ll try to backup every statement with a reference to facts.

First i’ll start with some basic facts:

  1. According to wikipedia - pegged exchange rate and fixed exchange rate are the same thing.

A fixed exchange rate , sometimes called a pegged exchange rate , is a type of exchange rate regime in which a currency’s value is fixed against either the value of another single currency, a basket of other currencies, or another measure of value, such as gold.

  1. According to the same article, there are different exchange rate mechanisms, however i’ll put focus on 2 of them:

2.1 The first one is in relation to @danrevolut and @anon33247966 statements - what they talk about is the so called Pegged with a band exchange rate. In this case there is a fixed rate with allowed deviation.

A currency is said to be pegged within a band when the central bank specifies a central exchange rate with reference to a single currency, a cooperative arrangement, or a currency composite. It also specifies a percentage allowable deviation on both sides of this central rate.

2.2 The second one is the Currency Board. In this case one currency is fixed to another with a fixed exchange rate.

A currency board (also known as 'linked exchange rate system") effectively replaces the central bank through a legislation to fix the currency to that of another country. The domestic currency remains perpetually exchangeable for the reserve currency at the fixed exchange rate.

  1. Why i’m mentioning these 2 - because BGN is under currency board, fixed to EUR.
    It is NOT pegged with band to EUR, so @danrevolut and @anon33247966 statements are not correct.
    Here are some proofs:

An exchange rate regime based on an explicit legislative commitment to exchange domestic currency for a specified foreign currency (e.g. the euro) at a fixed exchange rate, combined with restrictions imposed upon the issuing authority to ensure the fulfilment of its legal obligation. This implies that domestic currency remains fully backed by foreign assets (e.g. denominated in euros), thus eliminating traditional central bank functions such as monetary control and lending of last resort. While leaving little scope for discretionary monetary policy, some flexibility may be afforded depending on the strictness of the board’s rules. Examples: Estonia, Lithuania, Bulgaria, Bosnia- Herzegovina.

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