Subject to the requirements and, in the case of BiH, the limitations imposed by the bank\u2019s statute, the central bank should be given clear operational independence. This is critically important for consistent and unbiased performance. This independence needs to be clearly and unambiguously specified in the bank\u2019s law.<\/p>\n
Article 3 of the CBBiH Law satisfies this criterion and this operational independence has been critical for the successful establishment and development of the CBBiH. But operational independence also needs to be implemented in practice. This was an issue in BiH. At times, the Governor had to assert the CBBiH\u2019s independence quite firmly, in order to ensure that that the CBBiH\u2019s independence was respected. This was necessary in two directions. Politicians needed to be convinced that the CBBiH was not legally required to and was not in practice going to take political direction in its day-to-day actions. In almost all such cases, political pressures could be defeated by reference to the CBBiH Law imposing certain actions or prohibiting certain others. Without such clear guidance from the law, these political battles in the early years of the CBBiH may have been difficult or impossible to win. Secondly, the CBBiH staff, who were used to working in a completely different environment, needed to be convinced that the Bank didn\u2019t need to and was not going to seek the minister\u2019s view before taking an action. The Bank would inform him\/her after having taken a certain measure.<\/p>\n
The independence of the CBBiH from politics is now well-entrenched. It continues to be bolstered strongly by the international institutions in BiH and this will continue. It also has a high level of public support. Calls to use the CBBiH more actively for development purposes, and such calls do arise from time to time, are usually seen as attempts by the politicians to gain control of the central bank\u2019s policy levers. They have not to date gained any widespread public support \u2013 more often the opposite in fact.<\/p>\n
A central bank also needs to have financial independence to give substance to its statutory operational independence. In the CBBiH Law, the CBBiH had financial independence. It was not part of the State budget process, it had potential sources of income and it only paid a dividend to the State budget after its capital reached a specified level (10% of its KM liabilities). However, the initial capital of KM 25 million, that according to the CBBiH law should have been paid in within a month of the CBBiH commencing its operations, was not paid in for over a year. The CBBiH also started with a very small balance sheet \u2013 KM 132 million in total \u2013 so its income level was very low. Because of this, in the first two years, the CBBiH\u2019s income was much less than its expenditure and it had to find donor support in order to fully establish itself. This experience showed how important financial independence is.<\/p>\n
Operational independence was sometimes compromised when seeking donor funding to open new branches, increase the number of computers, hire necessary staff, etc. The donors were extremely generous and helpful and did not impose onerous conditions on their funding \u2013 but they usually had some conditions. However, it was preferable to seek financial support from donors than to seek funding from the government as it was likely that the government would have imposed conditions that could have compromised the CBBiH\u2019s independence.<\/p>\n
From 1999 on, the CBBiH\u2019s income exceeded its expenditure and this has continued ever since. For several years, the profit was added to the CBBiH\u2019s capital, as provided for in the CBBiH Law, in order to strengthen its balance sheet. The CBBiH started paying a dividend to the State budget in 2005 (based on its profit in 2004) and has done so each year since then. In 2007, the CBBiH\u2019s profit was KM 142.6 million (more than its total balance sheet when it started in 1997) and it paid a dividend to the State budget in April 2008 of KM 59.9 million.<\/p>\n","protected":false},"excerpt":{"rendered":"