Strict Currency Board

In the first place, the statute would have to set out a clear objective. The objective should be unambiguous and achievable. This allows everyone to know what the institution is charged with doing and what it will (or should be) judged against. It is appropriate that the objective of monetary policy is set by the politicians as part of their overall mix of policy objectives and tools.

This is the case in the CBBiH Law. The CBBiH operates as a very strict currency board. Its target is a fixed exchange rate against the anchor currency³⁸⁸³ and the maintenance of convertibility of the local currency. The main reasons this type of monetary policy was adopted in BiH are first, it provided a firm nominal anchor for the country’s monetary policy. This was considered critical for the very uncertain post-war economic environment BiH faced. Second, it took into account the difficulty there would be in making political decisions in the complex political environment in BiH. Additional reasons were that in 1997 there were virtually no financial markets through which to implement market-based monetary policy and currency boards were working well in the Baltic States.

This objective satisfied the key characteristics of clarity, achievability and accountability. It has had a significant and positive impact on the way the CBBiH is structured, performs and is judged.