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Monetary policy

A new phase in monetary history, i.e. the history of central banking in Montenegro started with the foundation of the Central Bank of Montenegro (CBCG).

The first central bank in Montenegro – Crnogorska Banka – was established in Cetinje in 1905. Founded by the court and the state, Crnogorska Banka did not have the issuing function (it issued bills of exchange), and its primary objective was to foster banks’ development, production, crafts and trade. Montenegro did not have its own currency in 1905 when the Crnogorska Banka was founded, but the money of other countries was in circulation. The Ministry of Finance issued the first Montenegrin money perper in 1906. Link: “One hundred years since the minting of the first Montenegrin state coins (1906-2006)”.

In the 1970s, the system of national banks was established, comprising of National Bank of Yugoslavia and national banks of republics and autonomous provinces of the SFRY, among which the National Bank of Montenegro (NBCG).

The NBCG stopped existing in 1993, when the new National Bank of Yugoslavia Law was adopted. With its adoption, the NBCG became the affiliate of the National Bank of Yugoslavia. Eight years later – on 15 March 2001 - the Central Bank of Montenegro was established in the existing form.

The existing foreign exchange regime in Montenegro is dollarization (Euroisation). Dollarization means a rigid foreign exchange regime (fixed foreign exchange regime) in which a country uses other country’s currency in parallel or instead of its own currency. Montenegro was under basic forms of dollarization: unofficial dollarization until November 1999, then partial official dollarization from November 1999 to November 2000, when Montenegro became officially dollarized/Euroised economy by introducing first the German Mark and then the euro in 2002, as a sole legal tender. The reasons and effects of the dollarization in Montenegro are explained in: “Economic Policy in Dollarized Economies with Special Review of Montenegro”.

The dollarization regime significantly limited the CBCG’s monetary policy. However, central banks operating in the fixed exchange rate regimes (currency board, dollarization, monetary union) play active role in society. The central banks of Bosnia and Herzegovina and Bulgaria successfully function in the currency board regime; the central banks of El Salvador and Ecuador function in dollarization regime, while the central banks of all EMU member states function in the regime of the monetary union (Austria, Belgium, Estonia, Finland, France, Greece, The Netherlands, Ireland, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, Germany, Portugal, Slovakia, Slovenia and Spain).


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