Skopje, 17 August 2005

Press release of the NBRM

On August 18, 2005, the National Bank of the Republic of Macedonia along with the commercial banks, signatories of an Agreement with the NBRM, will start operating on the foreign exchange market under new rules. For the purposes of improving the operations on the foreign exchange market, the NBRM undertook measures, introducing an electronic platform for monitoring the movements of the rate in real time with direct electronic trade in foreign currency among the banks. The banks, signatories of the Agreement with the NBRM, bound themselves to conduct the sale and the purchase of foreign currency among each other at rates, with a bid-ask spread per 1 Euro not exceeding 0,07 Denars and a minimum amount of Euro 350,000 per transaction. The banks, signatories of the Agreement, together with the other banks, are bound to list, at any time, rates with a maximum bid - ask spread of Denars 0.25 per 1 Euro and a minimum amount of Euro 30,000 per transaction. The above measures achieve higher purchase and sale of foreign currency among the banks and more objective setting of the Denar exchange rate. These measures do not imply that the NBRM withdraws from the foreign exchange market, but alters the manner of acting, meaning that it will remain present at the market, preserving its discretionary right to intervene. Such practice is identical to the practice of the central banks in the advanced economies. The signing and the adherence to the agreement by the bank is voluntary and already signed by 4 banks, thus ensuring normal operating of the foreign exchange market under the new rules.

Governor's Office National Bank of the Republic of Macedonia

Explanation of the new rules for functioning of the foreign exchange market

The foreign exchange market in the Republic of Macedonia has been operating successfully more than a decade, showing some weaknesses in its operations not typical for markets in advanced economies such as:

-          low level of concluded transactions of purchase and sale of foreign exchange among banks

-          high bid-ask spread of the banks

-          excessive presence of the central bank on the foreign exchange market

For the purpose of improving the operations on the foreign exchange market and eliminating the aforementioned weaknesses, from April to August 2005, the National Bank of the Republic of Macedonia undertook the following measures:

   Introduction of an electronic platform for listing and trading among banks on the foreign exchange market. The electronic platform enables monitoring of the information on the movements of the rates in real time and immediate electronic trade in foreign currency

-  Increase in the minimum requirement per transaction among the banks from Euro 15,000 to Euro 30,000

-          Conclusion of Market Makers Agreement

The application of the above measures is expected to result in:

-          higher purchase and sale of foreign currency among the banks

-          lower bid-ask spread of the banks per 1 Euro

-          lower dependence of the banks on the National Bank of the Republic of Macedonia in securing foreign currency

-          more real presentation of the market developments by the exchange rate of the Denar against the Euro in its setting;

The involvement of the market makers implies that they are bound to conduct the purchase and the sale of foreign currency among each other at rates with a maximum bid-ask spread per 1 Euro of 0,07 Denars (instead of the previous spread of Denars 0.32) and a minimum amount of Euro 350,000 per transaction. The market makers, together with the banks that did not sign an agreement with the central bank, are bound to list, at any time, rates with a maximum bid-ask spread of Denars 0.25 per 1 Euro and a minimum amount of Euro 30,000 per transaction.

-          these measures will also ensure identical position of the central bank regarding this issue with the position of the central banks in the markets of more advanced economy, i.e. to intervene at their discretion.

These measures do not imply that the National Bank of the Republic of Macedonia withdraws from the foreign exchange market, but alters the manner of acting on the foreign exchange market. It means that the National Bank of the Republic of Macedonia will remain being present at the foreign exchange market with a view of maintaining the Denar exchange rate stability, preserving its discretionary right to intervene. The signing and the adherence to the agreement by the banks are voluntary. At the end of July, this agreement was offered to all banks authorized to perform international operations, and signed by 4 banks, which is sufficient for the foreign exchange market to operate under the new rules.

National Bank of the Republic of Macedonia