Policy of the Central Bank of Montenegro for 2001



The objectives of Central Bank of Montenegro policy in 2001, which comply with the objectives of economic policy of the Government of Montenegro, are: (a) to form an efficient banking system and strengthen financial discipline for the purpose of maintaining macroeconomic stability, (b) to provide liquid financial system in the Republic of Montenegro (hereinafter: the Republic), (c) to efficiently manage foreign reserve assets of the Republic, and (d) to undertake efficient supervision of the payment system as well as activities to reform the payment system in the Republic.  

1.        The Central Bank of Montenegro (hereinafter: the Central Bank) shall, for the purpose of creating an efficient banking system and strengthening financial discipline, undertake activities to improve the soundness of banks and establish credibility in the banking system, through: 

a.      Implementation of a comprehensive bank regulatory infrastructure, including international accounting standards, through a new institutional framework and strict licensing policy;

b.      Active monitoring of commercial banks through direct on-site inspection of business books and other documents in banks and international-standard off-site regulatory reporting;

c.      Undertaking active prudential supervision and, if necessary, direct administration of banks which are not sound;

d.      Improvement of communication with international institutions, especially those performing banking supervision;

e.      Prescribing minimum reserve requirements that the domestic banks shall hold at their accounts abroad, when necessary;

f.       Promoting the formation of credit potentials and development of financial intermediation through a gradual and selective decrease, to 80%, of the present 100% reserve requirement, for those banks evaluated as sound;

g.  Creating conditions for the salaries of public servants, as well as benefits from social institutions to be paid through bank and post accounts;

h.      Activities for establishing a restricted secure system of deposits.

 2.        The Central Bank shall serve as the fiscal agent on behalf of the Ministry of Finance and Government of Montenegro (hereinafter: the Government).

 3.        The Central Bank shall provide technical services related to the Government short-term securities to be issued for the purpose of satisfying short-term liquidity needs of the budget of the Republic.  The government short-term securities shall be used as a tool for performing certain functions of the Central Bank.  In this respect, the government securities shall be used: (a) as a collateral for daily liquidity loans, (b) as an alternative investment of free funds of banks and (c) for creating channels for converting savings into investments.

 4.        The Central Bank shall not provide direct credit of any kind to the Government, or to other natural or legal persons.

 5.        The Central Bank shall provide liquidity to the financial system of the Republic, through:

a.      Extending daily liquidity loans from its own resources to commercial banks licensed to operate in the Republic higher than the interbank rate;

b.      Undertaking operations with short-term government securities for the purpose of providing or withdrawing liquidity of the banking system in the Republic;

c.        Active implementation of reserve requirement instruments. 

6.        The Central Bank shall manage foreign reserve assets of the Republic, for the purpose of (a) maintaining overall liquidity for international payments, (b) minimize credit, liquidity, interest rate, and foreign exchange risk on reserve assets, (c) earn a market rate of return on these assets and (d) facilitate the conversion of currency from the German mark to the Euro.

The foreign reserve assets shall be managed through: (a) their placement with first class commercial banks, (b) the purpose of short-term securities issued or guaranteed by European Union or country members of EU and (c) purchasing and selling foreign exchange on domestic and foreign markets, for the purpose of gaining an optimal currency structure of foreign reserves and protection from changes in exchange rates of convertible currencies.  The amount of foreign reserve assets held abroad shall be limited to an amount which shall provide sufficient currency for smooth payments system functioning.

 7.        The Central Bank shall develop a special program according to which the conversion of DM to Euro shall be performed, according to the terms and schedules established by the European Monetary Union, the Bundesbank, and the European Central Bank.

 8.        The Central Bank shall, within the framework of its powers, cooperate and coordinate activities of Republic bodies with international financial organizations, and particularly work on: (a) adjusting data and settling external debt to foreign creditors with NBY, and (b) shall regulate relations with the Paris and London Club relating to external debt reprogramming.

 9.        The Central Bank shall monitor the schedule of using financial funds allotted to the Republic of Montenegro by the Donors’ Conference in Brussels, on June 29, 2001.

 10.    The Central Bank shall supervise the payment system in the Republic.  The Central Bank shall provide the necessary amount and denomination structure of DM as a legal tender currency and shall adequately distribute bank notes and coins, as to satisfy the needs of financial transactions.

 11.    The Central Bank shall work on realization of the Action Plan of payment system reform which was also adopted by the Government, and which includes timelines for ZOP transformation to be completed.  The stipulated timelines are subject to revision depending on conditions for a performing payment system in banks to be created through the fiscal system reform and by making the Central Bank capable to implement adequate regulations related to banks and payment systems.

 12.    The Central Bank shall encourage the entry of sound foreign banks into the Republic and well as the expansion of financial markets.