Press release

The monetary policy of Bosnia and Herzegovina has been regulated by the Law on the Central Bank of Bosnia and Herzegovina. The Central Bank of Bosnia and Herzegovina (the CBBH) operates under the currency board arrangement with the following features: full coverage of monetary liabilities with foreign exchange reserves, required reserve is used as a monetary policy instrument, lending and open market operations are forbidden, and the exchange rate of the local currency is fixed to euro as the "anchor currency".

Monetary liabilities of the CBBH have to be fully covered with foreign assets, i.e. the Law on the Central Bank of Bosnia and Herzegovina requires that the total amount of its monetary liabilities should never exceed its net foreign exchange reserves. Monetary liabilities of the CBBH, according to the Law on the Central Bank of Bosnia and Herzegovina, include the cash in circulation and local deposits of banks and other residents.

Coverage of the local currency in foreign currency in relation to the needed minimum of 100% is used to act in case of unexpected events in foreign financial markets, and it is also reflected in the position of the general reserves in the CBBH capital, which enables constant allocation of profit, according to Article 27 of the CBBH Law, in the ratio 60% to the account of the institution in charge of the budget of Bosnia and Herzegovina and 40% to the general reserves of the CBBH.
Specifically, Article 27 of the CBBH Law regulates that the amount of initial capital and general reserves is equivalent to five percent of total amount of monetary liabilities, in order to adhere to the mentioned ratio in the profit distribution. In this way, the CBBH, in the last 10 years, paid KM 380.9 million at the account of the institution in charge of Bosnia and Herzegovina budget, and in April this year, we will pay in KM 21.4 million, based on distribution of profits for 2014.

This model of monetary policy provides stability to the national currency, and the confidence of citizens and institutions in KM is unquestionable. Foreign exchange reserves are stable and permanently growing, as well as savings in local currency - KM.
An eventual lack of coverage of the domestic currency would cause inflationary pressure, lack of confidence in monetary policy and "escape" towards foreign currency. The model of currency printing for crediting the state has been outdated model from long time ago in all economies and monetary policies, not only with the currency board, which in the case of Bosnia and Herzegovina, in any case, is not permitted by Law. Herein, the legal norm is clear.

Pursuant to the Constitution of Bosnia and Herzegovina, the Central Bank of Bosnia and Herzegovina is not a stock company, but the state institution, the only one authorized to issue money and to run monetary policy throughout Bosnia and Herzegovina.
I remind you that according to the Constitution of Bosnia and Herzegovina, the competencies of the CBBH are determined by the Presidency of Bosnia and Herzegovina and the Parliamentary Assembly of Bosnia and Herzegovina to which the CBBH submits the report on its operations.