Therefore, rehabilitation and privatization of banks were undertaken, Deposit Insurance Fund was established and new regulation on prudential operations in line with Basel Principles for Efficient Banking Supervision was adopted and implemented. Ladies and Gentlemen, We said that this approach of looking back at the past six decades actually means considering of central banking from a functional viewpoint on the basis of which, with all risks of arbitrariness, we have distinguished among three developmental stages for the institution upon whose invitation you bestowed us to organize this grand meeting of excellencies, honorable guests and friends of the Central Bank and of the Republic of Macedonia. If we consider the development of central banking from another aspect, conditionally calling it a reflection of the environment, i.e. from the aspect of the social system in which central banking and banking in general have been developing until now, then undoubtedly there are only two stages. The first one took place in the period from 1946 until 1991, and the second one, from 1991 until present day. This classification is important and extremely didactic from a historical point of view. In the first stage, central banking, just as everything else, was established on a negation of the fundamental principles of market economy, i.e. on a negation of the ownership which in the beginning was defined as state ownership, then as workers' ownership, which least was, and later it was defined as selfmanagement ownership, which was impossible to define even with the best formulations.

The choice made was  2  BIS Review 100/2006  imposed by the circumstances: lack of developed financial instruments and institutional financial structure; absence of the interest rate transmission mechanism, and high interdependence between the aggregate demand and money supply. In October 1995, NBRM made a shift towards monetary strategy of targeting the nominal exchange rate against the German Mark, and later against the Euro, with the Denar exchange rate stability being the intermediate monetary policy objective. Such a strategy, applied in a small and open economy such as ours, has proved to be very successful for maintaining the price stability until present day. All reforms in the monetary policy instruments since the independence have been directed towards introducing indirect, market-oriented instruments for enabling efficient monetary policy conduct. Therefore, in 1993 deposit and credit auctions were introduced, and at the end of 1994 CB bills auctions were introduced. The initial development and strengthening of the financial system of the Republic of Macedonia, especially of the government securities market, enabled us to include new instruments, following the example of the modern central banks. In April 2005, we promoted the overthe-counter market for government securities. In the same year, we launched the general repo agreement and we started with repo operations when concluding lombard credits. In March this year, together with the Ministry of Finance we introduced Treasury bills for monetary policy purposes. The transition of the monetary strategy and of the monetary instruments would not have been successful without adequate banking reforms.