|Policy of the Central Bank of Montenegro for 2005|
Pursuant to Article 17, Paragraph 1, Item 1 of the Law on the Central Bank of Montenegro (“Official Gazette of the Republic of Montenegro”, No. 52/00 and 47/01), the Council of the Central Bank of Montenegro at its meeting held on 17 December 2004 adopted:
Relying upon the results of the policies in previous years, especially in the domain of the credibility of the banking system and financial stability, the Central Bank of Montenegro set the following aims for 2005:
1. Monitoring and analysing the state of the economy, and especially the financial system of the Republic with a view to determining and undertaking effective measures of monetary policy, and giving recommendations for improvement in economic policy as a prerequisite for accelerated economic growth;
2. The maintenance of the safety and stability of the banking system and financial discipline through comprehensive assessment of risks in banks` operations, and improvement in bank supervision concerning a broader division of risk and expanding to those fields defined in other legal acts;
3. Further improvement in monitoring and controlling liquidity in the banking system and the managing of the monetary reserves of the Republic of Montenegro;
4. Maintenance of the efficiency and further development in the payment system in the country supported by new technology;
5. Further improvement in the efficient performance of the functions of banker, advisor, and fiscal agent on behalf of the agencies and organisations of the Republic of Montenegro;
6. Improve the cooperation with international financial institutions and organisations, and other central banks;
7. Upgrade the personnel and technical efficiency of the Central Bank;
8. Analyse the viewpoints and expectations of the public and keep the public better informed about the activities of the Central Bank.
1. In order to monitor and analyse the state of the economy, and especially the financial system of the Republic with a view to determining and undertaking effective measures of monetary policy, and giving recommendations for improvement of economic policy as a prerequisite for accelerated economic growth, the Central Bank shall:
a) Monitor macroeconomic developments in the Republic by collecting data from relevant institutions, and preparing regular reports and other analyses of monetary, business, and fiscal developments, and developments in the field of international relations;
b) Analyse the effects of the existing instruments of monetary and economic policy, as well as potential development, and the implementation of new instruments under euroisation conditions by using a macroeconomic model for Montenegro and preparing a feasibility study;
c) Put a special emphasis on analysing the possibilities of maintaining macroeconomic stability, improving economic development, eliminating the balance of payments current account deficit, reducing interest rates, eliminating all risks, and maintaining a low budgetary deficit in the existing monetary regime with no exit options;
d) Follow the policy of optimising the money supply under the condition of limited monetary instruments and the limited opportunities to estimate cash in circulation;
e) Monitor and analyse international experiences, especially of the countries with dollarized economies, with a view to perceiving the opportunities for using the previously successful measures of monetary and economic policy in dollarization conditions;
f) Observe and point out the weaknesses in the existing statistical, methodological, and institutional basis of economic policy, and give recommendations for their elimination;
g) Take part in the preparation of new and the amendment of current regulations with a view to improving the business environment and increasing the efficiency of the Central Bank and state institutions;
h) Work on the improvement of the reporting framework in order to increase the efficiency of the aforementioned measures.
2. With a view to maintaining the stability and safety of the banking system and financial stability, the Central Bank shall work on the following:
a) Continue to improve the compliance of banks following the Basic principles of efficient bank supervision, emphasising the sensitivity to risks in banks operations and respecting the individual approach to the treatment of risk profiles by each bank;
b) Development of the current, and the introduction of new techniques, of off-site and on-site bank supervision with a view to more comprehensive risk assessment, and training employees of banks with a view to better quality and more comprehensive risk management;
c) Performing analyses for stress testing the system in order to correct certain segments of the bank supervision policy;
d) Expanding bank supervision to the implementation of other legal acts and enabling regulations that influence banks` operations, especially in the field of the prevention of money laundering and fight against terrorism;
e) Enforcement of relevant measures against banks, ensure their implementation, and sanction non-compliant banks in order to prevent the transfer of adverse effects to the whole banking system;
f) Licensing of banks and giving other approvals in order to protect depositors, strengthen competition, and spread a professional corporative culture in the banking system;
g) Supporting all policies, measures, and activities that contribute to the protection of creditors, the strengthening of financial discipline, and diminishing risks in banks` operations which are not directly regulated and controlled by the Central Bank;
h) Establishing and further improvement of cooperation with other bank supervision regulation institutions in the country and abroad.
3. With a view to the further improvement in monitoring and controlling the liquidity of the banking system and the managing of the monetary reserves of the Republic of Montenegro, the Central Bank shall:
a) Follow active reserve requirement policy;
b) Influence the creation of mechanisms for eliminating unfettered interest rates;
c) Help banks to overcome the problem of short-term illiquidity by using legal instruments – the opportunity to use their reserve requirements and loans for daily and overnight liquidity maintenance;
d) In accordance with available instruments and needs, undertake measures in order to prevent destabilising effects of the short-term movement of capital;
e) Create institutional and other prerequisites for improved quality management of liquidity surpluses in the Republic by encouraging the development of the interbank market, the money market, and open market operations;
f) Manage the monetary reserves of the Republic, both in country and other countries, by respecting the minimizing risk and maximizing profit principle;
g) Work on the improvement and development of the payment system with abroad by creating additional institutional prerequisites;
h) Provide the required amounts and denomination structure of euros, and ensure the adequate distribution of banknotes and coins to be used in financial transactions.
4. The Central Bank shall maintain the efficiency and the further development of the payment system in the country by:
a) Finishing the regulatory framework for the new payment system by enacting the Law on Domestic Payment Operations and amending enabling regulations in accordance with practical experiences;
b) Improving the functioning of the new interbank payment system;
c) Developing and implementing the information system for enforced collection, by developing the central registry of accounts in accordance with the Law on Enforcement Procedures;
d) Ensure the high quality performance of domestic payment operations for the clients of the Central Bank.
5. With a view to improving the efficient performance of the functions of banker, advisor, and fiscal agent on behalf of the agencies and organisations of the Republic of Montenegro, the Central Bank shall:
a) Develop new, and improve the quality of the current services offered to the agencies and organisations of the Republic;
b) Manage all deposit accounts of the Government after their closure with commercial banks, transfer the funds to the all-in-one account with the Central Bank, and perform domestic and foreign payment operations on behalf of the agencies and organisations of the Republic;
c) Once a year, and more often if necessary, make recommendation to the Government regarding the financing of the fiscal deficit, limits to domestic and foreign borrowing and public debt, increase in the inflow of foreign direct investments as a prerequisite for accelerated economic development and overall economic policy;
d) Monitor the inflow and use of financial assets given to the Republic as credits and donations, as well as the inflow and use of other funds from abroad;
e) Perform auctions of treasury bills of the Republic of Montenegro.
6. The Central Bank shall improve cooperation with international financial institutions and organisations, and other central banks by:
a) Improving the cooperation with the World Bank by performing the function of fiscal agent of the State Union of Serbia and Montenegro, especially in performing financial transactions for the servicing of debts of the Republic of Montenegro with the World Bank, and the fulfilment of obligations regarding the implementation of necessary reforms and conditions for obtaining financial assistance from this institution;
b) Taking an active part in the process of joining the European Union in accordance with its legal competence;
c) Intensifying the cooperation with international financial and other institutions through direct contacts, information collection, and monitoring the activities of these organisations;
d) Monitoring and improving the implementation of signed agreements, and initiating cooperation with other central banks;
e) Finishing negotiations with the National Bank of Serbia regarding the division of property and liabilities, the division of public debt, and defining the model for establishing the payment system between the two Republics;
f) Undertaking other activities regarding the international promotion of the Central Bank.
7. The Central Bank shall work on the upgrade of its personnel and technical efficiency by:
a) Training its employees, primarily in modern business communications, correspondence, and protocol;
b) Improving the technical equipping, developing and improving the level of information system security of the Central Bank;
c) Developing software applications with modern tools and migration of the existing applications to the WEB environment.
8. The analyses of the viewpoints and expectations of the public and keeping them better informed about its activities, the Central Bank shall achieve through:
a) Further improvement in communication, both within the Central Bank and with the public – partners, citizens, domestic and international media and interested groups;
b) Informing the public via the media about its regular activities, and educating the public on the functions of the Central Bank, as well as increasing the public’s awareness of the importance of financial stability and fiscal discipline.
Our ref: 0101-213/14-16
President of the Council
Podgorica, 17 December 2004
Mr Ljubiša Krgović