Abstract
The research answered the question of what affects BH foreign exchange reserves and what is the lower limit of the optimal level of foreign exchange reserves of the Central Bank of Bosnia and Herzegovina (CBBH). We defined excess foreign exchange reserves as the difference between the balance of foreign exchange reserves and the lower limit of the optimal level of foreign exchange reserves. In most of the analyzed period, foreign exchange reserves are significantly above the lower limit of the optimal foreign exchange reserves. In 2022, the banking sector had the largest excess of foreign exchange reserves in the scenario of a floating exchange rate, without considering the degree of euroization. The excess is the lowest in the fixed exchange rate regime, in which, through the money supply, we allowed a high impact of euroization on optimal foreign exchange reserves. Even under this most conservative scenario, the excess foreign exchange reserves amount to 1.9 billion KM or about 4% of nominal GDP in 2022. Changes in BH monetary regime, enabling the CBBH to lend to residents and a possible transition to a floating exchange rate, are possible while maintaining a satisfactory level of foreign currency liquidity of the CBBH.
Publisher
Centre for Evaluation in Education and Science (CEON/CEES)
Subject
General Earth and Planetary Sciences,General Environmental Science
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