BiH: CBBH under fire, defends its policy

BiH: CBBH under fire, defends its policy

Following repeated criticism by Republika Srpska leaders to the Central Bank of Bosnia and Herzegovina (CBBH) that it has, but does not want to release, its resources to fight the coronavirus pandemic and maintain the economic flow in BiH, the Bank was forced to respond with a statement saying such a move would do more harm than good.

BiH Presidency Member from RS, Milorad Dodik, as well as other officials, argue that the Bank has far more resources than it needs to cover the currency but, quite illogically, refuses to allocate them to the entities at this time of need. The bank, however, says that it is focused on its key role, which is to preserve monetary stability, which contributes to financial stability in the turbulent circumstances caused by the pandemic.

“Therefore, it is of utmost importance for us to adequately manage the CBBH’s foreign exchange reserves, with an emphasis on investment security, to preserve the currency board arrangement. In this respect, the local currency (KM) is stable and fully trusted, and thus the CBBH best contributes to the stability of the banking and financial system, macroeconomic stability and preservation of the prerequisites for economic recovery”, the Bank says in a statement.

CBBH adds that frequent public calls for the use of foreign exchange reserves to directly finance the BiH budget and economy could lead to a much larger and more lasting crisis. Disruptions in the small foreign exchange market could turn into a major crisis overnight, it is argued.

“Leaving or disrupting the currency board arrangement would have catastrophic consequences for the financial and economic stability and development prospects of BiH. The value of the local currency would fall, there would be further impoverishment of the people, and the feeling of insecurity would spread”, CBBH notes.

The BiH institutions seek, within their mandates, to secure favourable financial arrangements to mobilize domestic and international banking resources, which are available in large amounts.

“The surplus reserves in the CBBH account available to banks at the end of March amounted to BAM 2.45 billion (EUR 1,25 billion). This is money that belongs to banks and, ultimately, their depositors. Together, we have a duty to safeguard the value and liquidity of the funds entrusted to our banking system by our citizens and the economy. The availability and value of these assets are a condition of our survival. The best that CBBH can do under such conditions within its mandate is to consider a reduction in the reserve requirement rate if the excess reserves of banks prove insufficient to finance public programs. If this situation arises, rest assured that we will do that”, CBBH stresses.

“The CBBH regularly supplies commercial banks with cash following requirements. There is ‘enough cash in circulation, which is something our citizens can see for themselves’. It is also evident that citizens use other forms of payment, as well as the fact that deposits are stable.

Also, under these extraordinary circumstances, Bank priorities are to ensure the smooth functioning of interbank settlements in the payment system.

“CBBH will continue to invest its assets only in the highest quality securities of European Monetary Union countries and deposits at the highest quality banks. The reason is that these funds are a guarantee of the currency board arrangement. Therefore, anyone can change their KM for euro at any time and we guarantee that.  The Central Bank of BiH will carry out its mandate and will never deviate from the principle of maintaining sufficient foreign exchange reserves to guarantee monetary stability in Bosnia and Herzegovina”, concludes the Bank./ibna