BAM - Bosnia and Herzegovina Convertible Mark

The History of Bosnia and Herzegovina Convertible Mark

The Bosnia and Herzegovina Mark is a convertible currency established under the Dayton Agreement in 1995. This agreement, aimed at achieving peace between Bosnia and Herzegovina, led to the creation of the Mark, which replaced the Bosnian and Herzegovinian dinar, the Novi Yugoslav dinar, and the Croatian kuna. 

The Mark officially became the common currency of Bosnia and Herzegovina in 1998, with an exchange rate equivalent to the former German Mark (DM). However, since the German Mark was replaced by the euro in 2002, the exchange rate has been set at 1 EUR = 1.95583 BAM.

Banknotes and coins of Bosnia and Herzegovina have been noted for various mistakes and inconsistencies. While only one banknote has officially not been released due to an error, several other flawed notes have circulated.

Some of the notable mistakes with the Bosnia and Herzegovina Convertible Mark banknotes are misspelled names, wrong abbreviations, and misidentified reserves. Moreover, the name of the subdivision of the convertible mark is incorrectly engraved as “fening” instead of “pfenig” on coins. This mistake has become widely accepted, leading to “fening” being officially recognized as the name for the hundredth unit of the KM.

Types of Bosnia and Herzegovina Convertible Mark issued

The BAM (Bosnia and Herzegovina Convertible Mark) is issued in two main forms: coins and banknotes with the denomination as follows:

BAM Coins 

Bosnia and Herzegovina Convertible Mark (BAM) coins were issued in denominations of 10, 20, adn 50 fenings, followed by the introduction of 5 fenings, KM 1, KM 2, and KM 5 coins.

These coins were designed by Bosnian artist Kenan Zekić and were minted at the Royal Mint in Llantrisant, Wales, United Kingdom. They come in different diameters and compositions, ranging from nickel-plated steel to copper-plated steel. On both of the observe and reserve sides of the coins, there are numerous features which are normally seen on coins, including the country’s flag, its map, coat of arms or peace dove.

BAM banknotes

In 1998, banknotes were also introduced in denominations of 50 fenings, KM 1, KM 5, KM 10, KM 20, KM 50, and KM 100.

In 2002, a KM 200 banknote was added, while the 50 fenings, KM 1, and KM 5 notes were withdrawn from circulation.

The banknotes are uniquely designed for the constituent entities of the Federation of Bosnia and Herzegovina and the Republika Srpska.

Nationwide issues affecting the BAM

Bosnia and Herzegovina's political landscape is further complicated the ongoing tensions between the Federation of Bosnia and Herzegovina and Republika Srpskav —along with the autonomous Brčko District. The country’s political structure is notably complex, presenting multiple challenges, particularly regarding the Bosnia and Herzegovina Convertible Mark. Implementing cohesive economic and financial policies at the national level is difficult with this political landscape.

The Tripartite Presidency, composed of representatives from the Bosniak, Croat, and Serb communities, rotates leadership every eight months within a collective four-year term. This rotation can lead to differing policy approaches, potentially affecting monetary decisions and complicating efforts to unify economic and financial strategies across the country, making currency management more difficult.

Additionally, Bosnia and Herzegovina’s economy is also highly vulnerable due to its reliance on foreign markets.  The country depends on exporting goods such as metals, timber, and textiles, primarily to European Union (EU) countries. Any economic slowdown in key trading partners, particularly within the EU, can directly affect Bosnia and Herzegovina’s trade balance, further impacting the value of the BAM. Consequently, while the BAM is pegged to the Euro, the currency remains vulnerable to global economic fluctuations and external events.

Factors affecting the value of the Bosnia and Herzegovina Convertible Mark (BAM)

The value of the Bosnia and Herzegovina Convertible Mark (BAM) is influenced by various factors as follows:

• Monetary policy of the central bank: The Central Bank of Bosnia and Herzegovina plays a crucial role in maintaining the value of the BAM by managing foreign exchange reserves and implementing monetary policies. Specifically, the currency peg to the Euro helps the BAM remain stable compared to other currencies in the region.

• Domestic economic conditions: Economic indicators such as GDP, inflation, unemployment rate, and economic growth have a significant impact on investor confidence. Slow economic development, high unemployment rates, and a weak economic structure can reduce the real value of the BAM.

• Political and social situation: Political divisions within the country create obstacles for unifying economic policies. Political crises, protests, or internal conflicts can create uncertainty and delay crucial financial decisions that affect the Bosnia and Herzegovina Convertible Mark (BAM), leading to a loss of confidence in the BAM, reducing its value.

• Dependence on the EU and exports: The BAM is closely tied to the EU, as Bosnia and Herzegovina primarily exports goods to EU countries. This makes the economy vulnerable to economic fluctuations in major EU countries such as Germany, Italy, and Austria. Therefore, if the Euro weakens, it will impact the value of the BAM.

• Investment and remittances: The Bosnian diaspora plays a crucial role in providing foreign currency, helping to stabilize the BAM exchange rate. Additionally, an increase in foreign investment or a strong inflow of remittances can increase the supply of foreign currency, supporting the BAM's value.

The BAM maintains stable exchange rates due to its peg to the Euro. However, in terms of value, it remains in the medium to lower range compared to other currencies such as the USD, EUR, GBP, and CHF.