Selected Issues Papers

Financial Buffers in a Euroized Economy: Republic of Kosovo

By Javier Kapsoli, Ezgi O. Ozturk

January 16, 2025

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Format: Chicago

Javier Kapsoli, and Ezgi O. Ozturk "Financial Buffers in a Euroized Economy: Republic of Kosovo", Selected Issues Papers 2025, 003 (2025), accessed January 20, 2025, https://doi.org/10.5089/9798400298073.018

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Summary

This paper analyzes reserve adequacy measurement in Kosovo, where euro serves as the legal tender. The study adapts the IMF's Assessing Reserve Adequacy framework to Kosovo's unique monetary context, focusing on precautionary motives for holding reserves. The analysis reveals limited readily available reserves at the Central Bank of Kosovo and recommends additional government deposits of 1.75-5.75 percent of GDP. Given the significant opportunity costs of maintaining such deposits, the paper suggests alternative solutions, including exploring a private lender of last resort model and maintaining ECB repo lines.

Subject: Assessing reserve adequacy (ARA), Asset and liability management, Bank deposits, Central bank balance sheet, Central Banks, Currencies, Exchange rate risk, External debt, External position, Financial crises, Financial regulation and supervision, Financial services, International reserves, Lender of last resort, Liquidity, Liquidity requirements, Money

Keywords: Assessing reserve adequacy (ARA), Bank deposits, Bank deposits, Central bank balance sheet, Central bank reserves, Currencies, Euroization, Exchange rate policy, Exchange rate risk, Foreign exchange reserves, International reserves, Kosovo, Lender of last resort, Liquidity, Liquidity buffers, Liquidity requirements, Monetary base, Monetary policy, Reserve adequacy

Publication Details

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