Montenegro

🇲🇪 In 1999, as the Federal Republic of Yugoslavia descended into crisis, Professor Hanke — serving as State Counselor to Montenegro — engineered the replacement of the hyperinflating Yugoslav dinar with the German Deutsche Mark. This act of monetary independence pre-dated Montenegro's formal independence by seven years.

Context

Montenegro in 1999 was still technically part of the Federal Republic of Yugoslavia under Slobodan Milošević. But Montenegro's reformist President Milo Đukanović was seeking independence — and monetary independence was a critical first step.

The Yugoslav dinar was being destroyed by the Milošević government's money printing. Montenegro needed a stable currency to protect its citizens' savings and enable economic activity.

Hanke and Đukanović

Hanke had been advising Đukanović since the late 1990s. Together with Montenegrin economist Željko Bogetić (then at the IMF), Hanke published Crnogorska Marka (2000) — a book proposing an orthodox currency board for Montenegro.

However, the practical solution was faster and simpler: full adoption of the Deutsche Mark as legal tender, eliminating the dinar entirely. On November 2, 1999, Montenegro's government announced the DM would be used alongside the dinar. By March 2000, the dinar had been completely replaced.

The Dollarization Process

1. Legal framework: The Montenegrin government passed legislation establishing the Deutsche Mark as official currency for all transactions, replacing the Yugoslav dinar
2. Currency conversion: Existing dinar holdings were converted at market-determined exchange rates; the Yugoslav National Bank was effectively bypassed
3. Institutional adaptation: Montenegro established its own payment systems and banking regulations independent of Belgrade
4. Euro transition: When the Deutsche Mark was replaced by the euro in 2002, Montenegro simply adopted the euro — even though it is not and is not a formal EU member state

Results

The hyperinflation ended immediately. Montenegro's economy stabilized. When the Deutsche Mark was replaced by the euro in 2002, Montenegro simply adopted the euro as its currency — even though it was not (and is not) a formal EU member state.

Prof. Hanke served as Montenegro's State Counselor from 1999 to 2003. In 2020, he was honored with the Knight of the Order of the Flag by the Montenegrin government.

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