Kosovo to increase monetary policy transparency

The Central Bank of Kosovo (CBK), an independent institution in Kosovo, has taken a new decision. Since Thursday February 1, cash payments in the country have been made in euros only. Although the European currency had been used as the official currency for 22 years, it was still possible to pay with Albanian leks or dollars in the central Balkan state. The measure also concerns the Serbian dinar, a currency used in particular by some minorities (Serbs, Albanians) living in Kosovo. All market transactions using dinar were completely outside the national income accounting and hence contributing to a large share of the underground economy in the country. This new regulation therefore falls within the scope of Article 11 of the Constitution of Kosova, which states the one single currency is euro.

For the Central Bank of Kosovo (CBK), the new regulation aims to create a more transparent monetary policy and preserve the sustainability of the financial system. In taking this decision, the CBK wishes to control the quantity of currency in circulation, and combat counterfeit banknotes, money laundering and the financing of terrorist activities that plague Kosovo.

However, unofficial currencies are not excluded from the Kosovar banking system. Citizens are allowed to use them as a store of value in physical form or in bank accounts, for international payments and foreign exchange. However, currency exchanges, import and export of any currency, can only be carried out through institutions licensed by the CBK.

At a press conference on January 31, the Deputy Prime Minister for Integration, Development and Dialogue of the Republic of Kosovo, Besnik Bislimi, clarified the new Central Bank regulations. First of all, he emphasized the independence and professionalism of the CBK, enabling it to guarantee the successful integration of the Kosovar monetary system into regional cooperation mechanisms and within the Eurozone.

Bislimi went on to explain that the regulation “introduces a series of important new features, linked to the ban on the recirculation of the 500-euro bill, the establishment of precise rules for managing the import or export of banknotes denominated in euros or alternative currencies. It defines the conditions or standards for the granting of licenses to operators involved in the importation of banknotes or counting machines, but also sets out the rules for the exchange of damaged banknotes”.

The Deputy Prime Minister asserted that the regulation was not immune to criticism from the international community, assuming that the new regulation would affect Kosovo Serbs who receive financial aid from Serbia in dinars. This is why the government has established a one-month transition period to alleviate possible difficulties. “It is important to note that the priority of the Kosovar government is to provide social assistance to all citizens, regardless of their ethnicity,” says the CBK.

To help Kosovar citizens adapt to the new regulations, a free telephone hotline has been set up by CBK to answer any questions they may have. It will also relax the conditions for opening bank accounts and extend the presence of bank and non-bank branches to municipalities in the north of the country. The CBK also intends to provide mobile banking services (account opening) via commercial banks (remote banking), and to deploy ATMs and other devices enabling electronic payment and facilitating the process of exchanging dinars for euros.

Besnik Bislimi insists that the regulation does not prohibit the Serbian dinar, nor does it prevent Serbia from providing financial assistance to Kosovo Serb citizens. Payments received by this community will have to be deposited in euro accounts to facilitate their integration into the country’s banking system.

Finally, Bislimi spoke of the need for communication between the CBK and the Central Bank of Serbia to facilitate fund transfers to Kosovo Serb citizens, while ensuring their transparency. Cooperation between the two institutions should also facilitate the transition period for the Kosovo Serb community. The CBK has formally requested such cooperation, but it’s Serbian counterpart has yet to respond.