Central Bank of BiH will never deviate from the principle of maintaining sufficient foreign exchange reserves

(Patria) - In recent days, there have been frequent inaccurate claims in public discourse about the role, tasks, and powers of the Central Bank of Bosnia and Herzegovina (CBBH) as prescribed by the Law on the Central Bank of BiH and the Constitution of Bosnia and Herzegovina, and we wish to inform the public of the following. 

"The CBBH is focused on its key role, which is to preserve monetary stability, thereby contributing to financial stability in turbulent circumstances caused by the pandemic. Therefore, adequate management of the CBBH's foreign exchange reserves is of utmost importance to us, with an emphasis on investment security, in order to preserve the currency board arrangement. In this regard, the domestic currency (KM) is stable and enjoys full confidence, and in this way, the CBBH best contributes to the stability of the banking and financial system, macroeconomic stability, and the preservation of prerequisites for economic recovery.

Frequent public calls for the use of foreign exchange reserves for direct financing of budgets and the economy in BiH could lead to a much larger and more lasting crisis. Disturbances in the small foreign exchange market can escalate into a major crisis overnight. Abandoning or disrupting the currency board would have catastrophic consequences for the financial and economic stability and development prospects of BiH. The value of the domestic currency would fall, people would become further impoverished, and a sense of insecurity would spread. 

BiH institutions, within their mandates, strive to ensure favorable financial arrangements through which domestic and international banking funds, which are available in large amounts on the market, would be mobilized. The surplus of reserves in the account with the CBBH available to banks at the end of March amounts to 2.45 billion KM. This is money that belongs to banks and, ultimately, their depositors.

We are all obliged to preserve the value and liquidity of the funds that our citizens and economy have entrusted to the banking system. The availability and value of these funds are a condition for our survival. The most that the CBBH can do in such circumstances within its mandate is to consider reducing the mandatory reserve rate if the banks' surplus reserves prove insufficient for financing public programs. If such a situation arises, rest assured that we will do so. 

As we have emphasized many times, the CBBH regularly supplies commercial banks with cash, in accordance with their requests. There is enough cash in circulation, as our citizens have seen. It is evident that citizens also use other forms of payment, as well as the fact that deposits are stable.

Also, in these extraordinary circumstances, our priorities are to ensure the completely uninterrupted functioning of interbank settlements in the payment system. In accordance with the Law, the CBBH provides banking and fiscal agent services, and accordingly, upon the orders of its depositors and in accordance with concluded agreements, it also performs foreign and domestic payment transactions. The CBBH operates during standard working hours for these types of transactions and is fully aligned with the operations of correspondent foreign banks and payment systems. In accordance with all of the above, we note that the CBBH has always processed all received depositor orders within the stipulated deadline.

The CBBH continues to invest its assets only in the highest quality securities of European Monetary Union member countries and deposits with the highest quality banks. The reason for this is that these funds are a guarantee of the currency board system. Therefore, anyone can exchange their KM for euros whenever they wish, and we guarantee it. To be able to guarantee this, the CBBH must be sure that it can withdraw its funds (investments) in full (solvency) and on time (liquidity) when it needs them, or when citizens want them. This is the foundation on which the currency board rests, as well as the stability of the entire financial system in BiH for over two decades. If the central bank's investments were made in lower-quality securities, not only would it be against regulations, but it would also significantly reduce the credibility of the entire system. 

The Central Bank of Bosnia and Herzegovina will fulfill its mandate and will never deviate from the principle of maintaining sufficient foreign exchange reserves that guarantee monetary stability in Bosnia and Herzegovina.