bank of albania and lse conference monetary policy, economic integration and „ the new normal “ closing panel with the governor's roundtable : what does all this mean for integrating small economies? governor senad softic, ph. d. tirana, 1 november 2018 1. introduction mr. chairman, fellow governors, ladies and gentlemen, it is my great pleasure and privilege to participate in today's bank of albania and london school of economics and political science co - organized conference entitled : monetary policy, economic integration and “ the new normal ”. there is no doubt that the topic is relevant. we are talking about the southern - eastern europe ( see ) joining the eu. what can be more relevant for the future of our countries? after the fall of the berlin wall, three decades ago, joining eu for our region seemed like a done deal, something that might happen quite soon. after the initial adjustment to the basics of the market economy, convergence was ( relatively and depending on a country ) fast. but, as always in history, processes are neither simple, nor linear. global financial crisis ( gfc ) has changed the world we live in, especially for us, central bankers. indeed, as our organizers pointed out in the conference agenda, it is time for some serious reconsideration of previous experience, but even more so of some future challenges. 1 of 7 having in mind the organizer ’ s guidance, for the rest of my speech, i will focus on the following questions : what are the consequences of monetary policy changes in developed countries after the global financial crisis ( gfc ) on the central bank of bosnia and herzegovina ( cbbh ) and bosnia and herzegovina itself ( bh )? what do we expect from " normalization " of the policy and when do we expect it to happen? role of foreign banks and the capital market, about fintech and artificial intelligence and what can the cbbh do on bh's road to eu? so, let me start. 2. what are the consequences of monetary policy changes in developed countries after the gfc on the central bank of bosnia and herzegovina ( cbbh ) and on bosnia and herzegovina ( bh )? bh is a small open economy trying to be part of the european union ( eu ), and therefore the euro area. that is our strategic goal. we have applied for the eu membership two and a half years ago, but we are still a potential candidate country. awaiting avis, we hope to

system in the future that will serve our economy in the best possible way. fintech, innovations and in general disruptive technologies in this area are something that will keep us busy for a long time to come. thirdly, we are learning to use „ the latest ” monetary policy instrument i. e. communication policies, as well. fourthly, the cbbh research function, including financial stability report and our annual report is a significant contribution to better understanding of economic trends in bh and contribution to the financial system ’ s 3 of 7 development in bh. in addition, coordination of the banking supervision agencies in bh and chairing of the scfs ( standing committee for financial stability ) are part of the cbbh mandate. during the „ collateral damage “, done to bh in the aftermath of the gfc, we used very actively those coordinating mechanisms and reserve requirement. we intend to intensify coordination to be ready for the future crisis. nobody knows when or how the next crisis will hit us, but there is no doubt there will be one before we join the eu and we want to be ready for it. finally, if the exchange rate is nominally linked to the euro, i. e. we cannot use nominal exchange rate as a policy tool, this does not mean that we cannot influence competitiveness of the bh economy. i am referring to the real exchange rate. first by maintaining price stability ( by adhering to the currency board arrangement ) and second, we try to use our public appearances and publications to advocate quicker and deeper structural reforms. for the region, monetary history is important and one must not forget ours, the hyperinflation and misuse of permanent devaluation in the former state. that is why we want a different step forward. having in mind constant political pressures for the currency board to be " weakened " or to be abandoned, it is very important for the cbbh to maintain the existing policy independence and thus, maintain and strengthen the credibility of the currency board. so we do not think about the proper moment to exit the currency board and have „ independent policy “, because we consider that we should enter the eu with the currency board and then the euro area, too, in the same or similar way as baltic states successfully did, not long time ago. 3. what do we expect from „ normalization " of the policy and when do we expect it to happen? first, will interest rates increase? for our central bank, it