What He Meant, He Speaks Like Dodik: Izetbegović Also Wants Central Bank of BiH Money

Written by: A. Čorbo-Zećo

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Member of the Presidency of Bosnia and Herzegovina Milorad Dodik has for some time been proposing that the Central Bank of Bosnia and Herzegovina reduce the reserve requirement rate from 10 to five percent, which would free up the necessary funds of 2.5 billion BAM for bank liquidity to support the economy and the public sector.

The coronavirus has come in handy for him, so he has spoken about it more strongly than ever. It is no longer surprising to anyone when Dodik wants to jeopardise the financial stability of BiH.

However, Bakir Izetbegović's appearance on N1 television surprised many. Namely, speaking about the recovery of the economy in BiH after the pandemic, he said the recipe is as follows: “Get into debt, withdraw reserves, bank funds, Central Bank funds, put everything into an artificial wave and infusion for the economy, so that by April next year we will be where we were before the coronavirus.”

The journalist did not ask which Central Bank funds Izetbegović meant, but he is certainly obliged to clarify this.

Andrew Jewell, the resident representative of the International Monetary Fund in Bosnia and Herzegovina, has repeatedly stated in public that calls for the Central Bank of BiH to use the excess above the required reserve in the fight against the coronavirus are ill-advised.

It is true that the amount of excess above the required reserve that banks hold in the CBBH at the end of March 2020 amounted to about 2.45 billion BAM, but 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 in the CBBH, but they are free to use it for other purposes, including lending to the economy.

The CBBH cannot dictate how commercial banks will use their excess above the required reserve. Izetbegović speaks differently, in fact, he speaks like his coalition partner Dodik.
Incidentally, the main goal of the CBBH is to maintain currency stability through the Currency Board. Thus, maintaining monetary stability.

“I remind you that the Currency Board means full coverage of monetary liabilities with foreign exchange reserves. The monetary liabilities of the CBBH, according to the Law on the CBBH, consist of cash in circulation and domestic deposits of banks and other residents. In addition, Article 27 of the Law on the CBBH stipulates that the amount of the bank's initial capital and general reserve shall be five percent of the total amount of monetary liabilities. The exchange rate of the domestic currency is fixed to the euro as the 'anchor currency',” Governor Senad Softić recently explained.

The CBBH is extremely cautious not to disrupt monetary stability in any way, which could have enormous consequences for the entire financial system.