BOSNIA AND HERZEGOVINA MONETARY SYSTEM AND TRADE DEFICIT

Abstract

Currency Board system in BH gained solid confidence of BH public thanks to the relatively low inflation rate in the period since it has been introduced as well as thanks to its resistance to the shock created by current world economy crisis. Still, some economists are very suspicious about its long terms subsistence relating it to the constantly high trade deficit and low unemployment rate in the country. A discussion about satisfaction of Marshal-Lerner-Robinson’s requirement for successful devaluation has arisen because the foreign currency exchange rate was one of the measures suggested by this group of economists. Tests conducted in this paper show that this requirement is not satisfied. Consequently, BH should turn to the real economy reforms instead of the measures of abandonment of present monetary system.