The National Bank of Serbia (Serbian: Народна банка Србије / Narodna banka Srbije) is the central bank of Serbia. The responsibilities of the bank are: monetary policy, sole issuer of Serbian banknotes and coins, protection of price stability and promotion of stability of the financial system within Serbia.

The status, organisation, mandate and functions of the National Bank of Serbia, as well as the relationship between the National Bank of Serbia and other bodies of the Republic of Serbia and international organisations and institutions are regulated by the Law on the National Bank of Serbia.

The current Governor of the bank is Jorgovanka Tabaković, as of August 6, 2012.

History

Following the liberation from the centuries-long period of the Ottoman domination in the Balkans in the nineteenth century, the re-established Serbian state embarked on setting up the cornerstones of the new cultural and state institutions, namely the National Library (1832), an institution offering higher education (1838), a precursor of the academy of sciences (1841), national museum and national theater (1868).

Throughout this period of re-establishing national authorities, Serbia had no national legal tender and as many as 43 foreign currencies were in circulation.

What became actually apparent at this point was a need to put Serbia’s monetary and treasury affairs in order and establish a national bank. The year 1854 saw the publication of an article entitled "Current Monetary Crisis" in the "Srpske novine" newspaper in which the author called for establishment of such an institution. Nevertheless, thirty years passed until this initiative was realized. It was only in 1884 that the institution entitled the Privileged National Bank of the Kingdom of Serbia was founded.

This bank was organized on the model of the Belgian national bank, which was, at the time, viewed as a paragon of a modern banking institution. It had its Shareholders’ Committee, Principal Council, Governing Council, Supervisory Council, Discount Council, Bank’s Governor (the first Governor was Aleksa Spasic, previously Minister without the portfolio) and a Vice-Governor.

At first the National Bank of Serbia’s seat was located in downtown Belgrade, in Knez Mihajlova street, it was later moved to an even more presentable new building in Kralja Petra Street, which is still its head location. A well-known Viennese architect, Konstantin Jovanovic, son of Anastas Jovanovic, a majordomo at the Court of Prince Mihajlo Obrenovic, worked out the blueprint for the head office building. In 1890, when the National Bank of Serbia moved into the new building and in the same year the architect received a high state decoration for this monumental work in the neoclassic style which, in the words of Felix Kanic, “would be the pride and joy of any metropolis in the world”.

Following the World War I, when the part of South Slavs united into a single state, the law passed on January 26, 1920 envisaged the transformation of the National Bank of the Kingdom of Serbia into the National Bank of the Kingdom of Serbs, Croats and Slovenians. In its new form it assumed the role of a central bank for the whole territory of the newly formed state. However, this transformation called for a larger building so that the architect who designed the original project had to make for an extension the original structure (built between 1923 and 1925). The extension was most appropriately integrated into the older building to form a smoothly rounded up and integrated whole.

Although the bank was founded as a privileged holding institution, Bank’s operations were under constant control of the state. It was only after changes that befell the country in 1920 that the Bank was legally recognized as a principally lending institution. From the year 1931 on, the Bank’s primary responsibility focused of streamlining the national monetary policy and assuming direction of the lending policy. In line with the new name and the extended territory of the country, the Bank changed its name into the Bank of the Kingdom of Yugoslavia with its core purpose to maintain the integrity and value of the national currency.

During World War II (Aril 1941 – October 1944) the Bank operated from its representative main office in London. In September 1946, the Bank was nationalized and operated under the name of National Bank of Yugoslavia.

Pursuant to Law on the Implementation of the Constitutional Charter of the State Union of Serbia and Montenegro effective as of February 4, 2003, the National Bank of Yugoslavia continues to operate as a government institution of the Republic of Serbia. Position, organization, scope of authority and functions of the National Bank of Serbia are regulated by the Law on the National Bank of Serbia, effective as of July 19, 2003.

Functions

The National Bank of Serbia is independent and autonomous in fulfilling its functions stipulated by the Law on the National Bank of Serbia and other legislation, and is accountable for its work to the National Assembly of the Republic of Serbia.

The primary objective of the National Bank of Serbia is to achieve and maintain price stability. Without prejudice to its primary objective, the National Bank of Serbia also contributes to the safeguarding and strengthening of the stability of the financial system.

The National Bank of Serbia has the following functions:

• Determining and implementing monetary and foreign exchange policies;
• Managing foreign exchange reserves;
• Establishing and implementing activities and measures coming under its remit, relating to the preservation and strengthening of financial stability;
• Granting and revoking operating licences, supervising bank solvency and legality of operations and performing other activities in line with the law governing banks;
• Granting and revoking operating licenses and/or authorizations to insurance companies, supervising these companies and performing other activities in line with the law governing insurance;
• Granting and revoking operating licences to voluntary pension fund management companies, supervising these companies and performing other activities in line with the law governing voluntary pension funds;
• Granting and revoking operating licenses to financial leasing companies, supervising these companies and performing other activities in line with law governing leasing operations;
• Issuing banknotes and coins and managing cash flows;
• Regulating, controlling and promoting uninterrupted functioning of the payment system;
• Performing statutory tasks for the Republic of Serbia or tasks established by treaties, without affecting thereby its autonomy and independence.

Organization

The governing bodies of the National Bank of Serbia comprise: Executive Board, Governor and Council of the Governor.

The Executive Board determines monetary and foreign exchange policies, and in particular: the conditions and mode of issuing securities, terms and manner in which the National Bank of Serbia carries out open market operations and discount operations, short-term lending policy, dinar exchange rate policy, strategy of foreign currency reserves management, the key policy rate and other interest rates of the National Bank of Serbia, the base for calculating required reserves and the reserve requirement ratio. The Executive Board establishes measures and activities, pertaining to the National Bank of Serbia’s remit, for the purpose of maintaining and strengthening financial stability, as well as measures for maintaining bank liquidity. The Executive Board also decides on granting and revocation of operating licenses to banks, insurance companies, financial leasing companies and voluntary pension fund management companies.

Meetings of the Executive Board shall be held when necessary, but no less frequently than once in 30 days, provided at least three of its members are present. The Executive Board shall take decisions by the majority vote. In case of a tie, the Governor’s vote shall decide. Meetings of the Executive Board are chaired by the Governor.

Upon the Executive Board’s proposal and with the Government’s consent, the Council establishes the dinar exchange rate regime, adopts National Bank of Serbia’s By-Laws and the National Bank of Serbia’s development strategy, and monitors their implementation. The Council adopts the financial plan and annual financial statements of the National Bank of Serbia, appoints the external auditor and discusses the auditor’s report.

Furthermore, the Council supervises the National Bank of Serbia’s financial reporting system, assesses adequacy of the accounting policies and procedures, supervises and adopts the annual internal audit plan. In addition, the Council submits to the National Assembly the report on its operations, at least once a year, as well as the annual statement of accounts along with the certified auditor’s report not later than on 30th June of the following year. The Council submits the report establishing the fulfillment of conditions for termination of office and/or removal of the Governor from office to the President of the Republic of Serbia and the National Assembly.

The Governor of the National Bank of Serbia is appointed by the National Assembly of the Republic of Serbia for a term of six years, with the right to re-election. The Governor is in charge of and responsible for the achievement of the objectives of the National Bank of Serbia, and in particular for the implementation of decisions of the Executive Board and the Council, for the organisation and operations of the National Bank of Serbia, drafting legislation falling under the competence of the NBS, enacting legislation that falls under the remit of the National Bank of Serbia but not under the scope of activities of the Executive Board and the Council, and for other activities as defined by the Law on the NBS and other legislation, but without prejudice to the key objective referred to in Article 3 of the Law on the NBS.

The National Bank of Serbia is a legal entity with its headquarters located in Belgrade. The National Bank of Serbia may establish branches, even though the branches do not enjoy the status of legal entities and their internal organization and the scope of authority and operations are set forth in the NBS By-Law.

The National Bank of Serbia has one specialized organizational unit, namely the Institute for Manufacturing Banknotes and Coins – Top cider, the duties and responsibilities of which are stipulated by the Law on the National Bank of Serbian and the NBS By-Law.

Operations of the National Bank of Serbia

Pursuant to the Accounting an Auditing Law (Article 2) and Law on the National Bank of Serbia (Article 79), the National Bank of Serbia is under obligation to keep its business books and compile and present its financial statements in accordance with the accounting principles defined by the International Accounting Standards, i.e. under obligation to recognize, assess and present financial statements in line with the International Accounting Standards.

The National Bank of Serbia is obliged to compile and present its financial statements with balances as of the day of 31 December of the current year (Article 24 of the Accounting and Auditing Law).

Financial statements include:

• Balance sheet;
• Income statement;
• Cash flow statement;
• Statement of changes in equity;
• Notes to the financial statements.

As a system, the National Bank of Serbia prepares its financial statements by unifying individual bookkeeping records maintained in its main organizational units: head office, branches and specialized organization – Institute for Manufacturing Banknotes and Coins - Topčider.

With a view to ensuring a consistent flow of information and statistical processing, the Governor prescribes the financial statement forms, i.e. minimum contents and form of data contained therein, by the Rules on Forms and Contents of Positions in the Financial Statements Forms of the National Bank of Serbia (Article 26 of the Accounting and Auditing Law).

The Governor also prescribes Rules on the Chart of Accounts and Content of Accounts of the National Bank of Serbia, according to which the National Bank of Serbia discloses balance of and changes in assets, equity and liabilities, revenues and expenditures, and determines business result.

Auditing of financial statements is compulsory for the National Bank of Serbia (Article 37 of the Accounting and Auditing Law and Article 81 of the Law on the National Bank of Serbia).

The NBS Council is required to deliver the annual statement of accounts of the National Bank of Serbia with authorized auditor’s report to the National Assembly no later than by 30 June of the next year (Article 79 of the Law on the National Bank of Serbia). Monetary and Financial Stability

The core purpose of the National Bank of Serbia is to provide monetary and financial stability.

Monetary stability means a low, stable and predictable inflation and confidence in the currency.

Financial stability means a sound financial system in which banks and other financial organizations function well and responsibly safeguard their clients' money.

In pursuit of both purposes, the National Bank of Serbia implements appropriate monetary policy.

The National Bank of Serbia manages money and interest rates so as to accomplish a low, stable and predictable inflation rate, which creates an environment conducive to sustainable economic development and employment growth.

NBS influences the strengthening and maintenance of public confidence in the dinar, facilitating business decision making and forward-looking planning for businessmen and citizens.

The National Bank of Serbia maintains financial stability, ensuring safety and efficiency of the payment system, as well as monitoring and supervising the activities of commercial banks and other financial organizations.

NBS is the Government's banker, in that it manages public funds and public debt.

Payment System

In the broadest sense of the term, payment system is a set of systems enabling transfer and circulation of funds. To perform its role successfully, the payment system must fulfill three prerequisites. One is that the financial assets should be kept in payment transaction channels for as short a time as possible. The second involves reliability and implies secure performance of transactions and uninterrupted availability, while the last, but not the least, is the affordability of the prices of these services.

Considering that the payment system strongly influences the velocity of flows in the economy, overall costs and liquidity of participants, and that it serves as a monetary policy transmission channel (disruptions in the payment system could compromise public confidence in the financial system as a whole), it comes naturally that the central bank should be the one highly interested in ensuring its efficient functioning.

In fact, one of the key legally-mandated functions of the National Bank of Serbia is to regulate, oversee and promote smooth operation of the national payment system.

International Relations

The International Monetary Fund

The IMF has confirmed on July 21th 2006 (Press Release No. 06/161 ), the continuity of the Republic of Serbia in respect of the State Union of Serbia and Montenegro, and has also confirmed that the Republic of Serbia continues membership with the existing quota of SDR 467,7 million and all rights and obligations arising from such membership.

In the period 2000-2006, the funds approved under the three financial arrangements (Emergency Post-Conflict Assistance, Stand-by Arrangement and Extended Facility Arrangement), totaling SDR 966.9 million, significantly supported implementation of economic reforms, macroeconomic stability and stable growth rates in the Republic of Serbia. The repayment of the first two arrangements was effected on time.

The stabilization of the country’s financial position and further increase in foreign exchange reserves provided conditions for the National Bank of Serbia to effect, in agreement with the IMF, early repayment of funds granted under the three-year Extended Facility Arrangement in the amount of SDR 650 million. The last installment was repaid on March 15th 2007, upon which all financial obligations towards this international institution were settled.

The cooperation between the Republic of Serbia and the IMF is conducted through regular consultations as defined by the Article IV of the IMF Articles of Agreement, based on which the IMF assesses the country’s economic situation and adequacy of its economic policy measures.

The Bank for International Settlements

The National Bank of the Kingdom of Yugoslavia became a member of the Bank of International Settlements (BIS) in 1931. The participation of the former Socialist Federal Republic of Yugoslavia in the BIS’s share capital amounted to 8,000 shares, 4,000 of which were subscribed for on June 30th 1931, whereas the subscription of the remaining part took place on June 9th 1969. The total value of the shares amounts to 20 million gold francs, representing 1.33% of the total BIS capital. More specifically, in question are five million in effective money and 15 million in “on-call capital”, which brings in an annual dividend worth approximately 200 gold francs per share).

On December 18th 2000, the National Bank of Yugoslavia and the BIS reached an agreement for a loan worth USD 100 mil. secured against gold and foreign exchange reserves of the former SFRY with the BIS.

The Federal Republic of Yugoslavia officially re-joined the Bank for International Settlements on June 10th 2001.

An Extraordinary General Meeting (EGM) of the Bank for International Settlements that decided on the renewal of membership rights of the FR Yugoslavia with this bank also took a decision on the division of shares, gold and foreign exchange of the former SFRY deposited with the BIS. The BIS has issued an equivalent number of new shares that were divided among the five successor states to the former Socialist Federal Republic of Yugoslavia. These are the Central Bank of Bosnia and Herzegovina, the Croatian National Bank, the National Bank of the Republic of Macedonia, the Bank of Slovenia and the National Bank of Yugoslavia.

The division brought the FR Yugoslavia 2,920 shares each worth 16,000 gold francs, as well as gold and foreign exchange worth approximately USD160 mil. which will be credited to the foreign exchange reserves of the country.

The European Union

Joining the European Union (EU) and its single market, which enables free movement of people, goods, capital and services, represents the strategic priority of the Republic of Serbia.

The Stabilization and Association Agreement between the European Communities and its Member States, and the Republic of Serbia was initialed on 7 November 2007. Once the Agreement is signed, Serbia will acquire the status of an associated country and for the first time formalize its institutional cooperation with the European Union. The two most important obligations to be taken on by the Republic of Serbia under this Agreement will be to gradually liberalize trade in industrial and agricultural goods and to harmonize legislation with the EU acquis communautaire.

The European Partnership remains one of the key instruments of the European Union’s pre-accession strategy towards the Republic of Serbia. In that context, in February 2008 the EU Council of Ministers passed a Decision revising the European Partnership for the Republic of Serbia. The new European Partnership specifies priorities that Serbia has to address in the coming two-year, i.e. four-year period.

In order to facilitate preparations of the country, particularly those of public administration, for meeting new challenges and obligations arising from the Agreement, in December 2007 the Government of the Republic of Serbia passed a Decision on preparing the National Program for the Integration of the Republic of Serbia into the EU (NPI). The NPI is a comprehensive document that will enable the planning and efficient coordination of all Government activities in the accession process. The Program would replace several other documents prepared during the previous stages of Serbia-EU relations and serve as a special roadmap for future steps. It will deal not only with the obligations regarding the transposition of the EU acquis in domestic legislation, but also with the tasks that will have to be implemented to ensure compliance with the political and economic accession criteria.

London Club

After several years’ negotiations with foreign commercial banks (2002-2004), a general agreement with the London Club creditors was signed on July 7, 2004 – “Memorandum of Understanding on the Debt Restructuring Under the NFA and TDFA Between the Republic of Serbia and the International Coordinating Committee”, which envisages a write-off of approximately 62% of the debt, a repayment period of 20 years and a grace period of 5 years. The Memorandum was ratified on July 24, 2004.

Pursuant to the provisions of the general agreement, early in April 2005, after the accompanying legal documents have been signed, the debt of the Republic of Serbia was exchanged for bonds in the amount of approximately USD 1,020 million and the bonds were listed on the Luxembourg Stock Exchange.

Following the completion of legal and technical activities related to the exchange of the Republic of Serbia debt in respect of the remaining London Club creditor, in late September 2005, an additional issue of bonds amounting to approximately USD 57 million took place under the same terms as the previously issued bonds.

Bonds were issued in conformity with the Law on the Restructuring of Debt Under the NFA and TDFA by Issuing Republic of Serbia Bonds, subject to which the total issue of Republic of Serbia bonds was envisaged to amount to up to USD 1,080 million.

Paris Club

The Agreed Minute on the Consolidation of the FR Yugoslavia Debt to Paris Club Creditors was signed in Paris in December 2001. This document provided a basis for conducting bilateral negotiations with each of the Paris Club member countries separately, which resulted in the signing of bilateral agreements with 16 countries (Denmark, Sweden, Spain, Netherlands, Austria, Germany, Canada, Norway, Belgium, France, Great Britain, Switzerland, USA, Russian Federation, Finland, Japan and Italy).

The National Bank of Serbia, in cooperation with commercial banks, completed a complex procedure of debt reconciliation which preceded the conclusion of bilateral agreements.

Conclusion of the three-year Extended Fund Facility Arrangement with the International Monetary Fund in 2002 paved the way for the realization of the first phase of debt write-off in the amount of 51%. Condition for the successful realization of the second phase of debt write-off was met in February 2006 following the IMF’s positive assessment of the three-year Arrangement. Secretariat General of the Paris Club approved an additional 15% debt reduction for this category of creditors, effective as of 6 February.

As the State Union of Serbia and Montenegro has been voted out of existence in June 2006, signed bilateral agreements will have to be revised so that the Republic of Serbia and the Republic of Montenegro could regulate their obligations to Paris Club creditors on an individual basis.

Useful links

Currency of Serbia:

Serbian dinar

List of Central Banks:

Central Banks

Official website of National Bank of Serbia:

www.nbs.rs

Ministry of Finance and Economy of Serbia:

mfp.gov.rs