a lot of stress ” said alan greenspan in his autobiography, as “ each produces both winners and losers ”. are we fully market - oriented or are we still feeling nostalgic for various subsidies, incentives and agreements? unfortunately, the market and the economy at large have no sympathy for our past or future challenges, serbian market reacts like any other market in the world would! conclusions i am aware that some of you and maybe even many of you – i sincerely hope not all of you – are disappointed since i can not promise a simple and fast solution in the form of stimulative, adequate and stable exchange rate that would suit all exporters. few days ago i discussed this topic with some economists and we remembered mistakes made when “ monetary policy of associated labour ” was implemented. should we now invent “ monetary policy of exporters ”!? as for exchange rate fluctuations, they are simply a part of the regular market mechanism ( oil, gold, dollar.... ). but, if these fluctuations are not to somebody ’ s liking, there is a solution! first, nowadays it is possible for exporters to fix several months in advance the exchange rate at which they will convert their export proceeds! by doing so they are protecting themselves from the strengthening of the dinar, but at the same time, they forsake the chance of profiting from possible weakening of the dinar. of course, exporters may opt not to avail themselves of this chance and decide to gamble hoping for a much more favourable exchange rate in the future. they are free to make their own choices. what is important is to know that in such case they are assuming the whole of the foreign exchange risk as they have decided to step out of the body of their professional knowledge. assumption of the foreign exchange risk by exporters is an example of irresponsible behaviour. it is a job of banks, just like payment operations, granting of credits, etc. what about the real exchange rate trends? real appreciation is something that many countries in the region and wider are currently faced with. it is quite possible that the exchange rate of rsd 77 for eur1 is as unacceptable as rsd 83 or rsd 100 for eur 1. none represents the equilibrium rate. but stronger dinar is an encouragement to exporters and forces them to restructure and specialize in exports of specific products which would reward them with a higher price ( mark up ). stronger dinar also means

beneficial to everybody, including exports sector, and such beneficial effect has two aspects. first, it increases efficiency of operations of economic entities. when inflation is low, changes in prices give an important signal to producers when taking decisions on what to produce, what to buy, how much to put aside for savings, etc. because changes in prices represent something concrete, a change in either demand or supply. on the other hand, when inflation is high, it is difficult to interpret changes in prices – we cannot know whether demand for such product is increasing or a change in price is actually a result of the general increase in prices. investment decisions taken in the environment of low inflation are almost always better than those taken in the environment of high and variable inflation. for that particular reason, most economists believe that economies operating at a lower level of inflation have a higher average growth rate than those in which the rate of inflation is higher. second, low inflation is beneficial to the exports sector as well as to the economy in general as it induces lowering of interest rates. i can safely say today that, despite all the shocks to which our economy ( and not only ours ) is exposed, inflation is under control. many may ask : if inflation is under control, why are interest rates still high in real terms? there is not much enthusiasm in serbia today for saving money even though interest rates are quite high, but people are very enthusiastic when it comes to borrowing at such rates. thus, regardless of the fact that we assess current interest rates as high in real terms, we borrow more and save less. therefore, my second message reads as follows : the best option for the nbs is to persist in its attempts to attain low and stable rate of inflation in order to ensure low interest rates in real terms. but what about the exchange rate? is it true that appreciation of the exchange rate keeps inflation under control by putting an enormous burden on the exports sector? i wish to underline that the monetary policy implemented by the nbs aimed to accomplish only the main objective which is defined by the law – „ to achieve and maintain price stability “. during the period when we were raising the key policy rate because of increased inflationary pressures at end - august, we managed to strengthen the dinar. tight monetary policy was indispensable in order to keep inflation within the announced target range, which in this year is closer to the lower bound of the projected range, and at the same time, making sure that we will