IMF: Attempt to use foreign exchange reserves for fiscal purposes is a threat to financial stability

(Patria) - In light of recent calls for the use of funds from the Central Bank of Bosnia and Herzegovina (CBBH) in the fight against the coronavirus crisis, the Office of the Resident Representative of the International Monetary Fund in Bosnia and Herzegovina issued a statement that the Currency Board of the Central Bank of BiH has served Bosnia and Herzegovina well for more than two decades, contributing to low inflation, financial stability and confidence in the currency.

"Under the currency board, the CBBH's assets – its foreign exchange reserves—must cover at least 100 percent of the domestic currency in circulation. This ensures the fixed exchange rate of the convertible mark and the euro. Any attempt to use the Central Bank's foreign exchange reserves for fiscal purposes would undermine the currency board, pose a threat to financial stability and create a risk of significant inflationary pressures. Such attempts undermine the anchor of macroeconomic stability and should be avoided at all times, especially in crisis situations.”

As BiH prepares for the impact of the COVID-19 pandemic, BiH also has the advantage that its banking sector is largely stable. Banks are sufficiently capitalized, liquid and profitable, and these indicators are improving. The excess liquidity in banks implies that banks are capable of lending. Nevertheless, trends in credit and liquidity need to be closely monitored. The IMF, together with the World Bank, is ready to provide emergency assistance and help Bosnia and Herzegovina fight the consequences of the pandemic caused by the coronavirus.“