Outstanding contribution for capacity building: Peter Nicholl

Governor of Bosnia’s central bank helped rebuild an economy ravaged by civil war
Peter Nicholl, Central Bank of Bosnia and Herzegovina
Peter Nicholl, during his governorship of the Central Bank of Bosnia and Herzegovina

One day in the late 1990s, an International Monetary Fund official walked into the Washington office of his colleague Peter Nicholl. The official asked Nicholl if he would like to be a central bank governor. Nicholl had come to the IMF after a distinguished career at the Reserve Bank of New Zealand (RBNZ), where he last served as deputy governor. He said he was certainly interested: “And then [the IMF official] said: ‘It’s Bosnia.’ And I said: ‘Ahh … I might have to think about that.’”

Between 1992 and 1995, the ethnic conflict in Bosnia had killed approximately 100,000 people. In December 1995, the warring parties signed the Dayton Accords, under strong pressure from the US. The agreement set out protocols for reconstructing the shattered country, including the creation of a central bank. They specified that, for the first six years, the central bank governor must be a foreigner, appointed by the IMF.

Several fund officials, including economist Warren Coats, began looking for a governor. “Appointing [Nicholl] in Bosnia-Herzegovina seemed ready-made,” Coats tells Central Banking. Nicholl’s previous career had included chairing the working group that advised New Zealand’s government on giving the RBNZ operational independence on monetary policy. Nicholl agreed to take the job.

Central Bank of Bosnia and Herzegovina
Central Bank of Bosnia and Herzegovina
Photo: Peter F/Alamy

He arrived in Sarajevo in October 1997, accompanied by his wife Glynyss, who helped him carry out an urgent audit of the new central bank. Bosnia, with a population then of about 4 million people, used four currencies – the Serbian dinar, the Bosnian dinar, the Croatian kuna and the Deutschmark. The new central bank had little capital and almost no income. This made it difficult to run the strict currency board specified by the Dayton Accords.

Early on, the Central Bank of Bosnia-Herzegovina broke the currency board’s rules, prompting a private threat of action by the IMF. Nicholl demanded that the fund provide the CBBH with the DM25 million in capital it had promised. The CBBH, he says, received that plus an extra DM4 million. Nicholl was able to negotiate the repayment of a deficit in the central bank’s funds left by the wartime Bosniak government.

Bosnia had 76 banks, the result of a licensing free-for-all during the conflict, and their total deposits were small. The CBBH encouraged foreign banks to open Bosnian subsidiaries. As the banking sector revived, the CBBH was able to grow its balance sheet.

Inflation was running in the double figures early in Nicholl’s governorship, and was extremely high in many neighbouring countries. The central bank lacked many of the monetary policy tools available to its peers. But Nicholl found controlling credit growth by raising bank reserve levels to be an effective means of reducing inflation.

Appointing [Nicholl] in Bosnia-Herzegovina seemed ready-made … I think he was really quite ideal for the post because he had respect from everybody in terms of his competence and fairness

Warren Coats

He used his influence with donors to protect Bosnia’s chief banking supervisor, a local official whose clean-up had made him enemies among the country’s politicians. Back then, firms handled large transactions by a cumbersome legacy system of ‘payments bureaus’. The CBBH led the complex operation to replace this with a modern payment system.

Nicholl increased staff numbers to around 200, opening offices in other parts of Bosnia. He worked to create a culture of openness and devolved decision-making. Nicholl also introduced many of the internal structures and processes he had learnt in the RBNZ into the CBBH. These included management and investment committees, a formal budgeting process and strategic planning, which are still in place in the CBBH today. He began by giving the three vice-governors, one from each community, a spell taking the lead in managing the CBBH. “I think he was really quite ideal for the post because he had respect from everybody in terms of his competence and fairness,” says Coats.

The CBBH law also required the central bank to introduce a new currency – the convertible mark. But Bosnia’s politicians disagreed bitterly on the currency’s name and the symbols that would appear on banknotes. Nicholl worked through the rival proposals to see what all three groups might agree on. “In the end, they just quietly accepted it,” says Coats. “That was quite an accomplishment on Peter’s part.”

When the euro replaced the Deutschmark, the CBBH persuaded Bosnians to convert their Deutschmarks into convertible marks and to deposit cash in banks. The latter was not a trivial task, as Bosnians had previously mistrusted local banks, and frequently held cash in their homes. But the new confidence in the banking system meant that deposits increased rapidly, more than doubling the amount of foreign exchange reserves over a three-month period. The CBBH also led an effort to publish accurate GDP figures for Bosnia, using Italian expertise to account for the contribution of the ‘grey economy’.

L to R: Peter Nicholl and Kemal Kozarić
L to R: Peter Nicholl and Kemal Kozarić

As Nicholl’s six-year term neared its end, the leaders of Bosnia’s three communities were initially unable to agree on a successor. The three political leaders, one from each community, who were Bosnia’s co-presidents, asked him to stay on for another 18 months, to which he agreed, so long as they decided on a new governor. They were able to decide that vice-governor Kemal Kozarić should have the role. Nicholl left the post in 2004 after seven-and-a-half years, staying on the board for a further year to help with the transition.

The CBBH started off undercapitalised, with few staff, in a divided country. In its first years, it significantly reduced inflation, helped rebuild the banking sector, and introduced a new currency and payment system. The central bank built up its own staff of dedicated officials.

Perhaps most importantly, it became an institution that was trusted across the divides.

“It happened probably 20 or 30 times that I could be walking down the street or [sitting] in a restaurant and someone I didn’t know would come up to me and thank me for giving them low inflation and a stable exchange rate,” says Nicholl.

He laughs: “Never happened to me in New Zealand.”

Nicholl himself praises the contributions of the Bosnian staff and international experts who helped him in his time as governor. But his leadership was crucial to the central bank’s success in deeply unpromising circumstances, and represented an outstanding contribution to capacity building.

The Central Banking Awards were written by Christopher Jeffery, Daniel Hinge, Dan Hardie, Victor Mendez-Barreira, Ben Margulies and Riley Steward

  • LinkedIn  
  • Save this article
  • Print this page  

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact [email protected] or view our subscription options here: http://subscriptions.centralbanking.com/subscribe

You are currently unable to copy this content. Please contact [email protected] to find out more.

You need to sign in to use this feature. If you don’t have a Central Banking account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: