Appointed as a Special Advisor to the White House in 1996 to oversee the monetary implementation of the Dayton Peace Accords, I played a critical role in ensuring Bosnia and Herzegovina adopted a strictly "leak-proof" orthodox currency board, actively refining the Central Bank law to prevent discretionary political interference in a fractured state. By championing a system where the new Convertible Mark (KM) was pegged 1:1 to the German Mark and legally enshrined in the national constitution, I helped construct a monetary firewall that prohibited government lending and required 100% foreign reserve backing. This rigid framework successfully replaced the three competing war-time currencies with a single stable tender, consistently delivering the lowest inflation rates in the Balkans and surviving well past its initial six-year mandate to become a permanent pillar of the country's economic stability.

History

Following its 1992 independence, Bosnia and Herzegovina descended into a brutal civil war that fractured the country into three hostile monetary zones, each relying on the unstable currency of its political patron. They are the hyperinflating Yugoslav dinar, the Croatian kuna, and the Bosnian dinar. While the German Mark became the only trusted de facto store of value. The 1995 Dayton Peace Accords, recognizing that deep-seated ethnic animosities rendered a traditional, discretionary central bank politically unviable, explicitly mandated the creation of a strict currency board within the national constitution to function on "autopilot" free from ethnic vetoes.

My ‘Money Doctor’ Treatment

My treatment for Bosnia centered on an orthodox currency board enshrined directly within the national constitution.

The new Central Bank of Bosnia and Herzegovina was stripped of all discretionary power, mandated to peg the new Convertible Mark (KM) 1:1 to the German Mark and required to back every unit in circulation with over 100% foreign reserves. To further insulate the system from political manipulation, the bank was placed under the initial authority of a foreign governor and was strictly prohibited from lending to the government, effectively locking the printing press and forcing the state to operate solely on collected revenue.

Consequences

The introduction of the currency board in 1997 achieved the effective economic unification of a fractured state, replacing three volatile war-time currencies with the stable Convertible Mark (KM) and instantly eliminating the transaction barriers between ethnic regions. By pegging the KM to the German Mark, Bosnia was shielded from the hyperinflation ravaging neighboring Yugoslavia, keeping its own inflation consistently in the low single digits (the lowest in the Balkans at that time) and fostering a stable environment that attracted essential post-war foreign investment. The system's rigid "no printing" rule imposed necessary fiscal discipline on the entity governments, while the currency's credibility was so profound that it survived the 2008 financial crisis without devaluation and seamlessly transitioned to a Euro peg in 2002, remaining the country's primary anchor of economic stability today.