Bosnia and Herzegovina: Technical Assistance Report-Implementation of a New Reserve Requirement Framework

October 24, 2019

Preview Citation

Format: Chicago

Bosnia and Herzegovina: Technical Assistance Report-Implementation of a New Reserve Requirement Framework, (USA: International Monetary Fund, 2019) accessed December 24, 2024

Summary

This Technical Assistance (TA) report on Bosnia and Herzegovina highlights that the negative spread in a context of structural lower returns on foreign exchange reserves and sizable capital inflows has led to a gradual and steady erosion of the currency board coverage ratio. The Central Bank of Bosnia and Herzegovina (CBBH) requested Technical Assistance to review its reserve requirement framework. The mission recommends aligning the remuneration of reserve requirements on foreign exchange liabilities to the CBBH’s opportunity cost. The mission also recommends prescribing the fulfilment in foreign currency of the reserve requirements for foreign currency liabilities. It also suggested altering the remuneration scheme of domestic reserve requirements. In order to be neutral from an intermediation perspective, the reserve requirement remuneration should be aligned to the market-neutral uncovered interest rate parity rate, whereas the remuneration of excess reserves may take place significantly below the market-neutral rate but at or above the foreign currency remuneration rate. The CBBH may benefit from a constructive dialogue with the Area Department or TA to set the new rates of remuneration of domestic reserve requirement and excess reserves.

Subject: Banking, Central banks, Currencies, Government liabilities, International reserves, Monetary policy, Money, Public financial management (PFM), Reserve currencies, Reserve requirements

Keywords: Asset yield, Coverage ratio, CR, Currencies, Eastern Europe, FX reserve, Government liabilities, International reserves, ISCR, Management implication, Maturing FX funding, Opportunity cost, Remuneration rate, Reserve account, Reserve currencies, Reserve requirements, Reserve requirements, Southern Europe

Publication Details

Pages:

55
Volume:

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DOI:

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Issue:

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Series:

Country Report No. 2019/316
Stock No:

1BIHEA2019003
ISBN:

9781513517469
ISSN:

1934-7685

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