Exchange Fever

The change of Serbian citizens' foreign currency investments into Euros in Serbia, which is so far away from European Monetary Union (EMU), will not be such a spectacular event as in the twelve countries of the EU, but it will surely demonstrate some remarkable characteristics of the domestic monetary system.

Let us speak clearly, our country has no international obligation to perform the switch in favour of the euro, simply because it is not the member of EMU. But, unlike all other East European countries and the countries of Central Europe, the monetary policy of which is still in transition, the former and current Yugoslavia has always been more devoted to the German mark than, for example, to the US dollar. For that reason, the most part of foreign currency investment in the local banks is specified in German marks. I would not mention here the private savings outside banks. The fascination with the German currency is also visible in the model of the dinar/mark exchange rate, established by the National Bank of Yugoslavia. However, the other republic, Montenegro, has recently replaced the national dinar with the German mark in the internal PLATNI PROMET. In that situation, the necessity to incorporate Serbia in the biggest 'money switch in the history' stems from the fact that, since February 2002, nobody will recognise the German mark as a valid currency. All prices and transactions will be given and carried out in the euros.

REGAIN OF TRUST: Besides many possible conclusions that 'Germany is not what it has been in the past', the monetary switch will be carried out in compliance with objective circumstances. This business, which is meant to be supervised, managed and coordinated by the central bank, has already seen lots of preparatory steps made on the part of all future participants. The banks are competing in posting advertisements in all available media, trying to convince their clients that the switch will be made with the least possible commission. Of course, there are conditions for that. In order to be able to receive euros instead of the still valid currencies of the EMU countries they had once deposited in the banks, they have to keep certain amounts of money stored in the banks. That will, of course, cause much restraint among the 'turbo wealthy', since the currency switch in the banks urges the home reserves to become public, and forces their owners to enter the legal monetary routes. It is reasonable that the aim of business banks is have more cases like this. Apart from the legalisation of the capital, the banks are trying to prove that they are gradually regaining the trust of the citizens in the banking system. Besides, what is more important, the benefit of such inflow is quite substantial, when the positions of liquidity of business banking are taken into consideration. Finally, the citizens and potential credit users can also benefit from that, since the saving (both in dinars and foreign currencies), represents one of the most important long-term sources of revenue. The existence of such money enables the business banks to begin with approving long-term credits to their clients, for example in the duration of 20-30 years. How serious the banks are in their wish to enhance the extent of their facilities, (the foreign currency savings of which presently amount to 120 million DM) - is evident from the statement by the special counselor in the Association of Banks of Yugoslavia, Rade Backovic, who says that the banks are going to give up the money switch commission even if the client decides to leave the deposit in the bank for just one month. The calculation is clear: meanwhile, the bank will benefit from the exchange commission more than from charging a money switch fee.

SWITCHING ON THE LAMP: However, there are a few problems in all that, at least on the part of the owners of foreign currencies. If we neglect the distrust in the domestic banking system for a while, as one of major causes of the low level of investments, one has to bear in mind that
many people still cling towards storing their riches in a total discretion. The reasons for such attitude can be traced from the way in which the money was accumulated (drugs, weapon smuggling, advantages of the former regime, etc.), to the duties towards the state as a consequence of the legalisation of the 'shadow economy'. First of all, it refers to the tax on extra profit, but also to pressing the charges against those involved in the criminal actions. One should not forget that anyone who happens to possess a serious property is automatically a target of 'young lions' of the Serbian underground. Nevertheless, it'll soon come to the surface who is right about the estimation of the amount of foreign currencies kept concealed by the citizens: Governor of the National Bank of Yugoslavia, Mladjan Dinkic, who is of the opinion that it amounts to about 2-3 billion DM, or the majority of local dealers, who claim that there cannot be more money in private reserves than one third of this sum.

All this is confirmed by the statements of Mikro Investment Bank's employees, the administrator of the monetary switch in Kosovo and Metohija. According to their estimates, in the south Serbian province, on the territory of which the FRY laws are not valid, about 2.5 billion DM are currently in transaction in private exchange offices, or more precisely 200,000 DM per week. This bank has passed the following decree: if someone wishes to change more than 10,000 marks, it is necessary to deposit them in the bank, and then to have them changed. However, any bigger sum, such as 30,000 marks would immediately be exposed to the examination of its origin. Apart from the danger of 'money laundry', there is a serious fear of counterfeit. The internationally well-known centre of counterfeited coins is situated in Bulgaria, from which a consignment of forged money has recently arrived in Kosovo, but it was fortunately discovered in time. Since very little is known about the outer shape and design of the euro banknote, especially in the countries such as ours, it is clear that the switch into will not be a naive undertaking. Regardless of everything, Governor Dinkic stated that the switch commission would not exceed 1%.

COMMISSION: Concurrently with the stories of the monetary switch, there are numerous rumours within Serbia's dealer-banking circles about the advantage of changing the currencies of the 'twelve' into either US dollars or Swiss franks. Such transactions would enable those who wish to keep their 'home' accounts concealed fulfill their aims. The money would still remain out of legal monetary flows. If the rest of Central and East Europe can enjoy that alternative, why wouldn't Serbia, regardless of its specific features? If this type becomes the central type of transactions in our country, the first logical question will be: how come such an amount of US dollars in a country in which 'anti-Americanism' is one of the major issues of morality? Moreover, the USA has never been a significant financial-trade partner with our country, unlike the European Union, above all Germany. The e Governor and other officials have not yet spoken publicly about this problem. Private dealers, on the other hand, have an answer to this question. A certain amount of US dollars has been coming from the friendly orientated Russia for some time, which is one of the mentioned east European countries in the dollar zone. Almost everyone is interested in the conversion of this type: Dinkic's private exchange offices, the number of which is about to reach one thousand by the end of the year, the Post Office, which already has 1,000 cashier desks in function, and the business banks. The reason is quite simple: the 'compensation for conversion' into the US dollar or the Swiss frank is, as Rade Backovic from the Bank Associations says, a pure favour to the owners of the foreign currencies, so the compensation for it is a few times bigger than the commission for the conversion into euros. In some banks, the compensation reaches even 5%. Along with the high price, many private exchange officers anticipate the growth of the dollar exchange rate by 30% (by the end of the year).

In the meantime, while preparations for the monetary switch are taking place, including its carrying out until February 28th 2002, more questions might get their answers. One of them concerns the future policy of the dinar exchange rate. Mladjan Dinkic is expected to say what the new monetary authorities are going to opt for, instead of the present dinar/ mark the ratio. Are we going to express the value of the dinar in euros, US dollars, or Swiss franks? The German currency in Kosovo, for example, will be converted into euros at the rate of 1.95:1. Is that exchange rate going to be applicable in Serbia too? At the end, but not less significantly, is the model of the so-called fluctuating course still going to be effective? Let us listen to what Governor Dinkic says, trying to assure us that there is no reason for panic and that everything will be sorted out by the first half of the next year. Just to remind you that after February 28th 2002, the German marks, for example, can be converted only in the Bundesbank.