A currency board born out of the Dayton Accords

Bosnia and Herzegovina's central bank did not exist as a unified institution until 1997, nearly two years after the Dayton Accords ended the 1992-95 war: the Central Bank of Bosnia and Herzegovina began operating under a mandate written into the postwar constitution itself, choosing a currency board arrangement rather than a conventional central bank with discretionary monetary policy. Under that arrangement, every convertible mark in circulation has to be backed by foreign-exchange reserves, first pegged to the Deutsche mark and, after 2002, to the euro at a fixed conversion rate, removing the central bank's ability to set interest rates or print money to finance deficits. Governor Senad Softic's own account of the institution's first two decades describes the choice as deliberate: in a country still split across two entities and multiple currencies in daily use at the time of unification, a rules-based currency board offered a credible, hard-to-reverse commitment to monetary stability that a young, divided state could not easily have achieved through discretionary policy. That credibility came at a cost the central bank could not offset on its own, since it left Bosnia and Herzegovina without a lever to respond to asymmetric shocks or to act as a conventional lender of last resort during banking stress.