Chapter IV Monetary Function and Activities of the Central Bank

CHAPTER IV Monetary Function and Activities of the Central Bank Article 31. Rule for Issuing Currency (Currency Board Arrangement)

1. The Central Bank is obliged to ensure that the total amount of its monetary liabilities never exceeds the equivalent amount (expressed in the currency of Bosnia and Herzegovina) of its net foreign exchange reserves.
2. For the purposes of this law: a. The total amount of the Central Bank's monetary liabilities is always the sum of: (A) all banknotes and coins issued by the headquarters, main units, and other branches of the Central Bank; and (B) credit balances of all accounts held in the books of the Central Bank and its organizational units by resident account holders; and b. The net foreign exchange reserves of the Central Bank represent at all times the difference between the fair market value of the following assets and liabilities of the Central Bank: Assets: (A) all gold and other precious metals and gemstones held by or on behalf of the Central Bank; (B) all banknotes and coins in freely convertible foreign currency held by or on behalf of the Central Bank; (C) any claim payable in freely convertible currency held in accounts of the Central Bank, in the books of foreign central banks or other foreign financial institutions; (D) Special Drawing Rights of the International Monetary Fund held by the Central Bank; (E) all bills of exchange, promissory notes, certificates of deposit, bonds, and other debt securities issued by residents of countries other than Bosnia and Herzegovina, which are payable in freely convertible foreign currency and held by or on behalf of the Central Bank; and (F) all forward purchases or repurchase agreements entered into by the Central Bank which are contracted with or guaranteed by foreign central banks or international financial organizations, all forward transactions, as well as all contracts of the Central Bank with option rights that provide for payment in freely convertible foreign currency by residents of countries other than Bosnia and Herzegovina. Liabilities: (A) any claim payable in freely convertible foreign currency or the Convertible Mark and recorded in the books of the Central Bank, in accounts of foreign central banks or other financial institutions; (B) all Convertible Marks held by the International Monetary Fund; (C) all matured credits to foreign central banks and governments, international organizations, and foreign financial institutions; (D) forward contracts of the Central Bank for sale and resale which it has concluded with, or for which it guarantees, a foreign central bank or international financial institution, and all forward transactions of the Central Bank as well as contracts with option rights that provide for sale to residents of countries other than Bosnia and Herzegovina in freely convertible foreign currency; (E) all other liabilities to non-residents. Article 32. Official Exchange Rate for the Currency of Bosnia and Herzegovina The official foreign exchange rate for the currency of Bosnia and Herzegovina is one Convertible Mark for one German Mark. Article 33. Guaranteed Convertibility of the Currency of Bosnia and Herzegovina
3. Upon request, the Central Bank on the territory of Bosnia and Herzegovina shall purchase and sell Convertible Marks for German Marks without limitation at the rate specified in Article 32 of this law.
4. Commercial banks and financial institutions in Bosnia and Herzegovina shall purchase and sell, upon request, without limitation and without commissions, fees, or other charges, Convertible Marks for German Marks, at the rate specified in Article 32 of this law. Article 34. Other Financial Transactions of the Central Bank
5. In accordance with the provisions of paragraphs 2 and 3 of this Article, the Board of Directors of the Central Bank has the authority to undertake all necessary activities for the purpose of acquiring, holding, and disposing of foreign exchange reserve assets in a safe and profitable manner, as defined in Article 31, paragraph 2 of this law.
6. The total amount of the Central Bank's gross foreign exchange reserves expressed in another foreign currency, other than German Marks, shall not be increased if, as a result of such increase, the total amount exceeds the equivalent of 50 percent of the total amount of the Central Bank's undiminished capital and reserves.
7. The total amount of the Central Bank's liabilities expressed or payable in foreign currency shall not be increased if, as a result of such increase, the total amount would exceed the equivalent of 50 percent of the total undiminished capital and reserves of the Central Bank. The Board of Directors must make a unanimous decision regarding such liabilities. Article 35. Reporting The Central Bank publishes monthly data on the total amount of Convertible Marks in circulation as well as the official foreign exchange reserves of the Central Bank, with a breakdown showing holdings of German Marks and other currencies. Article 36. Mandatory Bank Reserves
8. The Board of Directors of the Central Bank by regulation requires banks to hold deposits in Convertible Marks with the Central Bank, through the headquarters or main units, at a minimum prescribed level amounting to between 10 and 15 percent of their deposits and borrowed funds expressed in Convertible Marks. Mandatory reserves apply equally to all banks.
9. Mandatory reserves are maintained by holding cash or monetary deposits with the Central Bank through its headquarters and main units and are calculated as average daily reserves over a ten-day period.
10. The Central Bank pays banks interest at the market rate on the amount of their mandatory reserves that exceeds the equivalent of five percent of the total amount of their individual liabilities.
11. Regulations modifying the levels of mandatory reserves specify the date by which banks must provide the amount of new reserves.
12. If a bank fails to fulfill its obligation regarding mandatory reserves during two consecutive periods, the Central Bank ceases to conduct withdrawal transactions for that bank and notifies the competent banking authorities to take appropriate measures and cover the shortfall during the same week. If the failure to fulfill obligations continues for another week, the Central Bank will notify the competent banking authorities so that they may initiate the procedure for closing the bank. The Central Bank determines and charges a fine for each bank that fails to maintain mandatory reserves at the minimum level prescribed by the Central Bank, in the amount of five per mille (5/1000) daily on the achieved deficit of mandatory reserves of that bank, until such deficit is corrected. Article 37. Money Market Operations The Central Bank shall not engage in any money market operations, including securities of any kind.