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. Last Updated: 07/27/2016

Latvia Keeps Currency Pegged

MADRID -- Latvia will keep its currency pegged to a unit set by the IMF, Central Bank President Einars Repse announced. That would make the Baltic nation's one-month treasury bills one of the best deals around, he said.

Repse said investors could exchange dollars freely for lats, the country's currency; buy T-bills, which yield 24 percent annually, regardless of inflation; redeem the bills; and buy dollars back again.

T-bills worth 25 to 30 million lats ($45 to $55 million) are in circulation in Latvia, which earlier this year pegged its currency at 0.7997 SDR, or Special Drawing Right, a unit that the International Monetary Fund uses for accounting purposes. The peg was introduced to help boost the lat's stability.

Notwithstanding his country's use of T-bills to finance short-term deficit, Repse said that in general he opposes a T-bill market, or indeed budget deficits and foreign debts -- the beginning, he said, "of the slippery slope."

"We should not have taken funds from the World Bank and IMF," he added, which issued extra reserves to fund reforms in Eastern Europe and the countries of the former Soviet Union. What these countries needed, Repse said, was foreign capital investment.

Since Latvia abandoned the Soviet ruble in 1992, the country's gold and currency reserves have grown from 60 million lats to 230 million. And while rising reserves can be inflationary by increasing money supply, Repse forecast the nation's inflation for 1994 at just over 20 percent, in contrast to 35 percent last year -- that is, he said, "if nothing unexpected happens, like nuclear war, or socialists coming to power."