Theoretical concept of Central Bank independence and legal status of the National Bank of Serbia

Abstract

The modern theoretical concept of independence is crucial for the establishment of institutional arrangements relating to monetary authority. It is theoretically demonstrated and empirically verified that a central bank can function effectively only if it is provided with institutional independence. The modern theoretical concept of central bank independence is presented in the first part of the paper, while the second part deals with applicable legislation defining the institutional framework and legal status of the National Bank of Serbia. By juxtaposing the formal and factual status currently afforded to the National Bank of Serbia with institutional arrangements derived from the practical application of the theoretical concept of independence, the author takes a critical position toward the domestic institutional framework. The adequate legal solutions are highlighted in the paper while, at the same time, the appropriate amendments are suggested for the solutions that clearly violate the institutional independence of the National Bank of Serbia.