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The Money Market in Montenegro - Conditions, Development and Outlook


  • Danijela Vukajlović-Grba

    () (Deputy Director at the Central Bank of Montenegros Research and Statistics Department, Montenegro)


The money market represents a segment of financial markets wherein the objects of trading are funds with short-term maturities. The money market in Montenegro is still in its early stages of development, and is characterized by a narrow scope of trading material and by a relatively narrow variety of participants. The reasons for such slow development of the Montenegrin money market are numerous: lack of regulations, dollarization as a model of monetary and foreign exchange regime, excessive liquidity of domestic banks, insufficient liquidity in the corporate sector, limited protection of creditor rights, and minimal corporate transparency. Short-term government bonds (T-bills)- -traded exclusively on the primary market--are the only short-term securities on the Montenegrin money market. Montenegrin banks are the biggest investors in T-bills. Foreign investors withdrew from the primary T-bill market after a decrease in T-bill interest rates. For a while, many considered that inadequate solutions in the Law on Securities were the main setbacks to organizing a secondary T-bill market. However, amendments to this Law did not spark the development of a T-bill market, nor any other short-term securities market. Adequate legislation is essential for the development of the money market, but it is not a sole precondition. A decrease in banks liquidity (as competition from other financial institutions increases and/or deposit interest rates decline) is important to induce the money markets development. We can expect a concurrent decrease in lending interest rates only as the conditions of creditor rights protection and business operations transparency improve. Only under such conditions can we expect banks and other financial and non-financial legal entities to begin issuing short-term securities.

Suggested Citation

  • Danijela Vukajlović-Grba, 2007. "The Money Market in Montenegro - Conditions, Development and Outlook," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 54(3), pages 325-346, September.
  • Handle: RePEc:voj:journl:v:54:y:2007:i:3:p:325-346

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    References listed on IDEAS

    1. Oomes, Nienke & Ohnsorge, Franziska, 2005. "Money demand and inflation in dollarized economies: The case of Russia," Journal of Comparative Economics, Elsevier, vol. 33(3), pages 462-483, September.
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    More about this item


    Money market; Short-term securities; T-bills; Liquidity of banks and companies; Protection of investor and creditor rights; Business transparency.;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies


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