SECOND BUSINESS ROUNDTABLE WITH THE GOVERNMENTS OF BOSNIA AND HERZEGOVINA Sarajevo, September 22-23...
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Transcript of SECOND BUSINESS ROUNDTABLE WITH THE GOVERNMENTS OF BOSNIA AND HERZEGOVINA Sarajevo, September 22-23...
SECOND BUSINESS ROUNDTABLE SECOND BUSINESS ROUNDTABLE WITH THE GOVERNMENTS OF WITH THE GOVERNMENTS OF BOSNIA AND HERZEGOVINABOSNIA AND HERZEGOVINA
Sarajevo, September 22-23Sarajevo, September 22-23
PETER NICHOLLPETER NICHOLL
GOVERNOR GOVERNOR
CENTRAL BANK OF BOSNIA AND HERZEGOVINACENTRAL BANK OF BOSNIA AND HERZEGOVINA
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THE CENTRAL BANK OF BH (CBBH)THE CENTRAL BANK OF BH (CBBH)
Commenced its operations on 11 August, Commenced its operations on 11 August, 1997 1997 A state-level institutionA state-level institutionOperates under its own LawOperates under its own LawAn independent institutionAn independent institutionIts strategic direction is set by a Governing Its strategic direction is set by a Governing BoardBoardIt has five offices:It has five offices:
Three Main Units – Banja Luka, Mostar and SarajevoThree Main Units – Banja Luka, Mostar and SarajevoTwo branch offices – Brčko and PaleTwo branch offices – Brčko and Pale
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The most important function of CBBHThe most important function of CBBH
The CBBH operates monetary policy The CBBH operates monetary policy through a Currency Board arrangementthrough a Currency Board arrangement
Choice of a Currency Board:Choice of a Currency Board:It Provides a firm nominal anchor in the form of a fixed It Provides a firm nominal anchor in the form of a fixed exchange rate. exchange rate.
It removed discretion in a situation where there was It removed discretion in a situation where there was considerable difficulty in establishing institutions and considerable difficulty in establishing institutions and making political decisions.making political decisions.
Works well in some other Eastern European CountriesWorks well in some other Eastern European Countries
MONETARY POLICYMONETARY POLICY
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The fixed exchange rate is specified in the The fixed exchange rate is specified in the CBBH LawCBBH Law
Full foreign exchange backing for all the Full foreign exchange backing for all the KM liabilities of the Central BankKM liabilities of the Central Bank
Full convertibility of the CBBH’s KM Full convertibility of the CBBH’s KM liabilities into the anchor currencyliabilities into the anchor currency
THE CURRENCY BOARDTHE CURRENCY BOARD
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The fixed exchange rate is 1KM = 0.51129 The fixed exchange rate is 1KM = 0.51129 euro. euro. Initial exchange rate was 1 KM = 1 DEMInitial exchange rate was 1 KM = 1 DEM
The KM exchange rate has been The KM exchange rate has been unchanged since the CBBH commenced its unchanged since the CBBH commenced its operations in 1997operations in 1997
Transition from the DEM to the euro as the Transition from the DEM to the euro as the anchor currency went smoothlyanchor currency went smoothly
THE FIXED EXCHANGE RATETHE FIXED EXCHANGE RATE
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CBBH FOREIGN RESERVESCBBH FOREIGN RESERVES
(end of period – in KM millions)
DATEDATE NET FOREIGN NET FOREIGN RESERVESRESERVES
MONETARY MONETARY LIABILITIESLIABILITIES
FREE FREE RESERVESRESERVES
Dec 1997Dec 1997 144,1144,1 161600,3,3 - 16,2- 16,2
Dec 1998Dec 1998 283,3283,3 253,9253,9 29,429,4
Dec 1999Dec 1999 865,7865,7 836,7836,7 29,029,0
Dec 2000Dec 2000 1021,21021,2 973,2973,2 48,048,0
Dec 2001Dec 2001 2666,62666,6 2591,62591,6 75,075,0
Dec 2002Dec 2002 2463,22463,2 2345,12345,1 118,1118,1
AugAug 2003 2003 22405405,,00 2226260,00,0 114343,,88
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FULL CONVERTIBILITYFULL CONVERTIBILITY
KM ISSUED FROM AUGUST 11, 1997 UNTIL KM ISSUED FROM AUGUST 11, 1997 UNTIL SEPTEMBERSEPTEMBER 1818, , 2003 2003 (in (in KM KM billions)billions)
KM ISSUED TO BH KM ISSUED TO BH BANKSBANKS
KM PURCHASED KM PURCHASED FROM BH BANKSFROM BH BANKS
NET KM ISSUEDNET KM ISSUED
11,11,744744 9,9,633633 22,,111111
The The table shows that the KM has been a table shows that the KM has been a convertible currency within BHconvertible currency within BH
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The Currency Board has been a very The Currency Board has been a very successful type of monetary policy for BHsuccessful type of monetary policy for BHThe KM has been a stable currency against The KM has been a stable currency against the DEM and the euro since it was the DEM and the euro since it was introduced.introduced.Inflation in BH is low and stable. Inflation in BH is low and stable. KM use has risen steadily and the KM is KM use has risen steadily and the KM is the dominant transactions currency in all the dominant transactions currency in all parts of the country. parts of the country.
SUCCESS OF THE CURRENCY BOARD SUCCESS OF THE CURRENCY BOARD
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INFLATION IN BHINFLATION IN BH
(Retail price index, Annual % growth)
Year endedYear ended Federation of Federation of BHBH
Republika Republika SrpskaSrpska
BH averageBH average
Dec 2000Dec 2000 4,04,0 16,116,1 8,08,0
Dec 2001Dec 2001 0,30,3 2,22,2 0,90,9
Dec 2002Dec 2002 - 0,7- 0,7 2,42,4 0,30,3
July July 20032003 0,0,44 11,,44 0,70,7
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FOREIGN DIRECT INVESTMENTFOREIGN DIRECT INVESTMENT(in KM millions)
PERIODPERIOD FOREIGN DIRECT INVESTMENTFOREIGN DIRECT INVESTMENT
19981998 117,4117,4
19991999 324,5324,5
20002000 310,1310,1
20012001 274,1274,1
20022002 604,604,33
2002 Q12002 Q1 140,8140,8
2003 Q12003 Q1 11881,71,7
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Decision of the BH Presidency that the Decision of the BH Presidency that the Currency Board will continueCurrency Board will continue
The Currency Board produced major The Currency Board produced major economic and social benefitseconomic and social benefits
Long term goal –Long term goal – take BH economy closer take BH economy closer and into Europeand into Europe
THE CURRENCY BOARD THE CURRENCY BOARD WILL WILL CONTINUECONTINUE
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New CBBH Board appointed from 11 New CBBH Board appointed from 11 August, 2003August, 2003
Governor Nicholl reappointed until 31 Governor Nicholl reappointed until 31 December, 2004December, 2004
Vice Governor Kemal Kozarić will become Vice Governor Kemal Kozarić will become Governor on 1 January, 2005Governor on 1 January, 2005
Decisions by the BH Presidency were:Decisions by the BH Presidency were:taken early, thus avoiding uncertaintytaken early, thus avoiding uncertainty
provide a high degree of continuityprovide a high degree of continuity
look well ahead, thus assisting the smooth transition look well ahead, thus assisting the smooth transition to a new Governor in 2005to a new Governor in 2005
NEW GOVERNING BOARD NEW GOVERNING BOARD
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REQUIRED RESERVES (RR)REQUIRED RESERVES (RR)
RR is the only instrument of monetary policy available to the Central Bank of BH, under the Currency Board ArrangementRR is the only instrument of monetary policy available to the Central Bank of BH, under the Currency Board ArrangementGoals:Goals:
Efficiency and flexibilityEfficiency and flexibilityHarmonizationHarmonizationFinancial stabilityFinancial stability
Features:Features:Applied to all deposits (KM & foreign currencies)Applied to all deposits (KM & foreign currencies)5% (CBBH 5% (CBBH LawLaw permit permitss ratio to be set by the CBBH Governing Board between ratio to be set by the CBBH Governing Board between 0% and 20%0% and 20%))Reserve deposits at CBBH are remuneratedReserve deposits at CBBH are remunerated
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CHANGES IN THE BANKING CHANGES IN THE BANKING SECTORSECTOR
Reform of the payment system Reform of the payment system
Significant increases in a banks’ minimum capital requirements Significant increases in a banks’ minimum capital requirements
Inter-entity banking Inter-entity banking
Deposit insuranceDeposit insurance
Arrival of foreign banksArrival of foreign banks
Privatization of government owned banksPrivatization of government owned banks
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CAPITAL STRUCTURE IN BH CAPITAL STRUCTURE IN BH BANKING SECTORBANKING SECTOR
(in %)
DATEDATE December December 31, 200031, 2000
December December 31, 31, 22001001
December December 31, 200231, 2002
May 31, May 31, 20032003
STATE STATE CAPITALCAPITAL
4747 1919 1010 88
PRIVATE PRIVATE CAPITALCAPITAL
5353 8181 9090 9292
DOMESTICDOMESTIC NANA 2525 2424 2121
FOREIGNFOREIGN NA*NA* 5656 6767 7272
* The data is not available, but the % of ownership would have been low* The data is not available, but the % of ownership would have been low
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An improving banking sectorAn improving banking sector Return of confidenceReturn of confidence
Return of depositorsReturn of depositors
Lending on more reasonable termsLending on more reasonable terms
Real competitionReal competition
High level of foreign investmentsHigh level of foreign investments
ObstaclesObstaclesHigh banking risksHigh banking risks
THE BANKING SECTORTHE BANKING SECTOR
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FUTURE INITIATIVES IN THE BH FUTURE INITIATIVES IN THE BH FINANCIALFINANCIAL SECTOR SECTOR
National Capital Markets Council (NCMC)National Capital Markets Council (NCMC)
Sovereign credit ratingSovereign credit rating
Securities marketSecurities market
Stock exchangesStock exchanges
Banking supervisionBanking supervision
Harmonization with the EU standards and regulationsHarmonization with the EU standards and regulations
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Economic outlook hard to predictEconomic outlook hard to predict
BH going through several transitions BH going through several transitions simultaneouslysimultaneously
Regulatory, tax and legal systems need to be Regulatory, tax and legal systems need to be changedchanged
Improving, but still too complicated, environment Improving, but still too complicated, environment for private investmentfor private investment
Stable macroeconomic situationStable macroeconomic situation
6% to 7% expected economic growth rate per 6% to 7% expected economic growth rate per annumannum
For investment in BH, the balance between For investment in BH, the balance between opportunity and risk now favors opportunityopportunity and risk now favors opportunity
THE ECONOMIC OUTLOOKTHE ECONOMIC OUTLOOK