Currency Crackdown in Kosovo Turns the Screws on Ethnic Serbs

Gresa Kraja and Misha Savic
·4 min read
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(Bloomberg) -- A Fiat van was stopped by police on a Saturday morning this month in a sleepy Serb community near Kosovo’s border with Montenegro. The vehicle and 4 million Serbian dinars ($37,000) were seized.

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But the cash wasn’t contraband in any conventional sense — and the vehicle belonged to Serbia’s postal service. The drivers were making payments to Serb welfare and pension recipients, a task that’s now become illegal under new rules laid out by Kosovo’s government to make the euro the country’s sole currency.

The regulation, which went into effect Feb. 1, is adding to the tensions between Kosovo and Serbia, which refuses to recognize its former province as an independent state. Over the past year, their enmity has triggered some of the worst violence in two decades, imperiling a fragile peace that has held since the end of the Balkan wars of the 1990s.

While Kosovo has used the euro as its de facto currency since the single currency’s creation in 2002, ethnic Serbs have continued to rely on the dinar and they say the rules will cut off a financial lifeline. Despite the protests of the US and the European Union, Prime Minister Albin Kurti said Kosovo’s ban on using the dinar for cash transactions is “non-negotiable.”

“What kind of state is this?” asked 73-year-old Milan, a former library worker sipping coffee and brandy in a Serb town near Kosovo’s capital Pristina, who said he fears losing access to his pension. “They can’t just make such rules. We’ve always used dinars here.”

The seizure was part of a string of raids on Serb-run offices that prompted an angry reaction from Kosovo’s main international backers. The European Commission urged Kurti to avoid unilateral action that would fuel tensions. James O’Brien, the US assistant secretary for European and Eurasian Affairs, told him to address his differences with Serbia through dialog rather than by “announcing decisions in the middle of the night after your closest partners tell you it’s a bad idea.”

“If we are not treated as a partner, we will not treat the government of Kosovo as a partner either,” O’Brien said in an interview this week with Voice of America.

‘Only Death Can Take Me’

Kurti promised a three-month delay to manage the transition, but US officials say he should halt the measure entirely and return to the negotiating table.

“We are not banning dinar — we’re just formalizing it,” Kurti said in a Bloomberg interview this week. “There will be no more sacks with cash dinar coming from Belgrade to Kosovo to destroy political pluralism and to finance terrorist organizations.”

The currency question threatens to scupper US and EU efforts to coax the two sides into normalizing their relationship, a condition for both parties to advance with the efforts to join the EU. High-level diplomacy, including a meeting with top EU leaders last year, has so far failed to bring Kurti and Serbian President Aleksandar Vucic together.

Although Kosovo isn’t part of the euro area — and even EU membership is a distant aspiration — it initially adopted the deutsche mark like a number of other nations that broke away from Yugoslavia and then switched to the euro.

But even after Kosovo unilaterally declared independence in 2008, the ethnic Serb population continued to use the Serbian currency — with many in the community of about 90,000 receiving payments from Serbia, primarily through state-owned bank Postanska Stedionica. Offices of NLB Komercijalna bank, part of Slovenia’s NLB Group, closed in the Serb communities at the end of January, ahead of the currency crackdown.

Serbia’s central bank said that Kosovo’s authorities are trying to encourage a further exodus. Around 200,000 Serbs and other non-Albanians fled soon after Belgrade withdrew its forces from Kosovo in 1999 and the Serb community dwindled by another 10% last year.

Ruzica Arsic, a pensioner who lives on €200 ($215) a month in the village of Gusterica, mostly inhabited by ethnic Serbs, insisted she won’t be forced out.

“Only death can take me away from Kosovo,” she said. “This is my home. We have nothing in Serbia.”

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