Jewell: BiH Central Bank funds cannot be used for fiscal purposes

SARAJEVO, (Patria) - Today in Sarajevo, Andrew Jewell, Resident Representative of the International Monetary Fund for Bosnia and Herzegovina, made the following statement.

“There have recently been calls from the public for the Central Bank of Bosnia and Herzegovina (CBBH) to use surplus funds above the mandatory reserve in the fight against the crisis caused by COVID-19. These calls are ill-considered.
While it is true that the amount of surplus funds above the mandatory reserve held by banks at the CBBH at the end of March 2020 amounted to approximately BAM 2.45 billion, this money does not belong to the Central Bank. It is the money of commercial banks in BiH. These banks have chosen to keep their money at the CBBH, however, they are free to use it for other purposes, including lending to the economy. The CBBH cannot dictate how commercial banks will use their surplus funds above the mandatory reserve.”

“Also, there have recently been calls for the CBBH to reduce the mandatory reserve ratio, which currently stands at 10%. This is a legal policy option that the CBBH can decide to use at some point, as it has done before, e.g., during the global financial crisis of 2008-09. Reducing the mandatory reserve ratio would mean that part of the money that commercial banks currently need to hold at the CBBH would become surplus funds and would be available to banks for lending. However, banks already have a large amount of surplus reserves, and increasing them would not necessarily lead them to lend more.”

“As I stated in previous statements, any attempt to use the CBBH's funds - its foreign exchange reserves - for fiscal purposes would undermine the currency board. Currently, the CBBH can exchange every KM for Euros, if there is demand for it, because every issued KM is fully covered by Euro funds. This makes the currency board safe. If the currency board were to collapse, the KM would lose value against the Euro, debtors with obligations in Euros or obligations tied to Euros would suddenly face a higher debt burden. The country, in addition to the health and economic crisis caused by the pandemic, would also face a financial and currency crisis," said Jewell.