Kosovo’s Central Bank is a Sleeping Giant that Needs a Poke

‘A man needs a heart transplant. Says the doctor: “I can give you the heart of a five-year-old boy.” “Too young,” says the man.
“How about that of a forty-year old investment banker?”
“They don’t have a heart,” he responds.
“A seventy-five-year-old central banker?”
“I’ll take it!” says the man.
“But why?” asks the doctor.
“It’s never been used!” 

This is a joke that the former Governor of the European Central Bank, Mario Draghi, tells everybody he meets for the first time. It’s a good joke. Unfortunately, in some instances, it can be a reflection of a deeper and truer reality: that old adage of central bankers being in control of everything, providing assurances and guarantees for a world that is now in turmoil. It sounds so last decade and frankly so last century. 

Here’s a paradox – the facts are that we have never had it so good. This might sound absurd, given the current situation, but the reality is that, considering the high levels of inflation we are experiencing, it’s a miracle that markets are still stable and liquid. Added to that the challenge ahead of us on the cost of living – making sense of the conundrums we face is truly a difficult task for any central banker, wherever their geography and whatever their powers. 

But, as in everything else in life, some central banks are luckier than others. I have, for some time, called on Kosova authorities to do something about the “lucky” Central Bank of Kosova, CBK. 

I say lucky, because I think this institution has had it easy and hasn’t been challenged enough for too long. Lucky also because, with the current infrastructure we have, they know and we the public know that there is so much we can do to change, reform and restructure this monolithic institution for the better.

As it stands, CBK is not fit for purpose. There are far too many layers of accrued responsibilities, but no accountability framework. CBK lacks innovation and agility. There is no digestible structure that delivers for the economy of Kosova and no tangible or effective framework for monitoring the overall banking ecosystem. It is a sleeping giant that needs a good poke.  Over time, if we do nothing, it will turn into a lazy institution that attracts nepotism, political influence, inefficiencies and will become a stumbling block to the reforms of our economic system which are urgent and very much needed. 

I understand that the government, as it stands, has no intention to move forward with any initiatives to reform and shake up the institution, but if we do not start tackling this problem – this huge white elephant which more than occupies the room – then any other meaningful and radical economic framework, which we desperately need, will simply not work.

We need to follow through a constructive process of amending the law 03/L-209 that regulates the legal framework of CBK to transform this institution into a more agile and fit-for-purpose organisation that will serve the needs of the people of Kosova and its economy. 

To do that, I propose the following:

• The bank should have a new charter;l “The Charter of the Regulatory Authority of the Banking System of Kosova”
• The Bank should be called “The Banking Regulatory Authority of Kosova BRAK – Rregullatori Bankar i Kosovës” 
• There should not be a Governor as its head but an Officer/Manager of the Banking Regulation Authority. 
• Two boards should operate in the overall landscape of the Authority, a non-Executive Board (attended by six non-exec external members) and also an Executive Board chaired by the Officer/Manager and eight other Division Managers.
• The eight divisions should consist of: Finance, Government relations & licensing, Public relations, Communications, Digital Money, Liquidity & Innovation, Monetary and Fiscal, Human Resources and Technological Landscape.
• The main focus of the reformed institution ought to be: Maintaining stability of the financial and banking system of Kosova; promoting the economic interests of Kosova; innovating and providing overall robust banking regulation; stringent guidelines on commercial banking activities and purpose; enforcing fines, penalties and regulatory investigations on banking conduct, accountability, responsibilities; and ensuring that liquidity platforms/channels are healthy, robust, productive and resilient.
• The new regulatory body would also ensure a healthy and resilient credit facility management and in line with the risk appetite set by the Regulatory Authority.
• The new regulatory body would enforce stringent but adaptable risk appetite metrics for commercial banks in Kosova and new legislation will be required to provide clear legislative guidance for future operations.
• The new regulatory body would work closely with other economic entities such as the Kosova Sovereign Wealth Fund, TRUST and future Prishtina Stock Exchange in order that the aforementioned institutions are supported throughout their consolidation phase.
• The new regulatory body would work on a national economic project toward establishing a digital currency of Kosova within a five-year period. The new regulatory body would propose its design, plan its implementation and build the metrics for a robust and agile and stable digital currency for Kosova.

While the CBK cannot sustain itself as a necessary entity in the shape that it is now, things can change for the better, and it is very important to emphasise here that the overall intention isn’t to degrade the entity – in fact the opposite. This is all about reforming and upgrading and redesigning an institution that will be agile with the objective of serving the interests of the people of Kosova, the financial and banking system and the overall economic architecture of the country. 

It is time that we focused on reforming this important and strategically key financial entity to prepare it for the future – a future when people will be using less cash, will use their mobiles more and more to execute daily personal and business transactions, where digital currencies are going to be the norm and where the role of future central banks will be mainly regulatory and much less political, more technical and less bureaucratic, more agile and more innovative. 

For that, we need to do more, and to do more we need to have the political will and bipartisanship to reform the Central Bank. In doing so, we will help our country prosper, support our businesses, help and protect consumers, and build industrial and innovative platforms of the future resilient enough to compete with the best in the world. Above all, we will ensure that the newly reformed banking authority plays a big part in a critical mission to fundamentally and radically transform our economy, by bringing money closer to consumers and economic activities and liquidity closer to the economic growth of the country. 

By opening up new avenues of wealth and by building a stronger banking system, we will open the taps of opportunity for our people and country. As it stands, the current shape and structure of this entity is obsolete, old fashioned and not working.

Emanuel Bajra is a former London City banker and is now a writer and financial markets and geo-political analyst. He is a member of the Kosova Sovereign Wealth Fund Working Group, appointed by the Government of Kosova.

The opinions expressed are those of the author and do not necessarily reflect the views of BIRN.