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Monetary Policy in Bosnia and Herzegovina Under the Currency Board Regime

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  • Shirley J. Gedeon
  • Dzenan Djonlagic

Abstract

It is widely held that one major strength of a currency board regime (CBR) over traditional central banking is that monetary policy is deactivated and the central bank primarily acts as a warehouse, issuing domestic currency against foreign currency holdings. The payments adjustment mechanism, functioning like the price-specie-flow mechanism of the gold standard, is understood to provide for endogenous changes in domestic money supply. We challenge the argument that monetary policy intervention is not necessary or pursued under CBRs. Using the CBR of Bosnia and Herzegovina as a case study, we show that banks resort to creating their own central bank intermediaries to carry out open market operations needed to address liquidity challenges and the mismatch of maturity of deposits with loans.

Suggested Citation

  • Shirley J. Gedeon & Dzenan Djonlagic, 2009. "Monetary Policy in Bosnia and Herzegovina Under the Currency Board Regime," Eastern European Economics, Taylor & Francis Journals, vol. 47(2), pages 21-36, March.
    • Handle: RePEc:mes:eaeuec:v:47:y:2009:i:2:p:21-36
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    Cited by:

    1. Gedeon Shirley, 2010. "The Political Economy of Currency Boards: Case of Bosnia and Herzegovina," South East European Journal of Economics and Business, Sciendo, vol. 5(2), pages 7-20, November.

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