Perspectives of Application of Currency Board Arrangement with Special Emphasis on Bosnia and Herzegovina

Abstract

The relevance of an exchange-rate policy is at top priority list of the monetary authority especially taking into account that the main function of CB or monetary authority is to maintain the stability of the domestic currency. Namely, with the processes of globalization and internationalization of the financial markets the exchange rate of the national currency is more significantly influenced by trends and movements of their most important (global currencies) world currency exchange rates. The aim of this paper is to provide an overview and analysis of development and application of CBA in B&H primary with the aspect of achievement of its functioning as well as its sustainability. Starting from the problem and research objectives following hypothesis is set: Application of CBA in B&H led to the preservation of monetary stability in B&H. For the purposes of assessment of sustainability CBA in B&H we used four types of indicators: Indicator of currency board stability, Indicator of coverage monetary base by foreign reserves, Indicators of coverage monetary base by money supply, as well as Indicator of coverage monetary liabilities by net foreign reserves. The introduction of the CBA in B&H has proved to be very successful. Regulation of the monetary system and restore lost public confidence were significant results of CBA policy.