Interview with Gent Sejko, Governor of the Bank of Albania, News24

Publication date: 16.10.2019


News24: A few days ago, the Bank of Albania launched the new banknotes that are expected to be issued into circulation. We are going to talking about this topic and other topics perhaps with the Governor of the Bank of Albania, Mr Gent Sejko.

Mr Sejko, given your busy agenda, thank you for this interview with News 24, to discuss and inform the public on a very important topic, the issuing of the new banknotes into circulation.

Governor: Thank you and welcome! 

News24: Mr Governor, a few days ago, the Bank of Albania launched the new banknotes that are expected to enter into circulation. Can you tell us what the denominations are and what innovation these banknotes will offer citizens?

Governor: The Bank of Albania presented the new series of banknotes a few days ago The new Albanian banknote series consists of six denominations, which include bills for 200 Lekë, 500 Lekë, 1000 Lekë, 2000 Lekë, and 5000 Lekë. The novelty regarding this series is that, next year, we will also launch the 10000 Lekë banknote denomination, which, as we presented, will feature the theme of the national hymn.

The banknotes of the new series include additional security elements. One of the main reasons is that existing banknotes have exceeded their intended lifespan, so it was time for a change. For this new series we have improved the quality of each denomination and added new security features. It is very important that we have modern, secure banknotes, which are difficult to counterfeit. It is important to mention that with the existing series we did not have a high level of counterfeiting, but it was time to add more security, since if we look at the banknotes of other countries, they have modern security elements and our banknotes should be of the same calibre. We have made great efforts and, we may say, that we have managed to realise a series that is high quality, modern and contains additional security elements. We have also changed the dimensions of the banknote denominations. The new denomination that will be put into circulation next year, the 10000 Lekë denomination, since it is the denomination with the highest nominal value, will have the largest size. This denomination will have almost the same dimensions of the highest denomination that we have today, which is the 5000 Lekë, whereas the dimensions of the other denominations will be smaller.

It is important to mention that at the premises of our Bank, there is also the Museum of the Bank of Albania, where you can see in more detail the security elements, as well as the innovations of the new banknote series.

News24: Regarding the two new banknotes, the 200 and 5000 Lekë denominations. When are these denominations expected to be put into circulation? You talked a little about the fact that there is no current problems with counterfeiting, but how secure are these denominations for the citizens?   

Governor: The Bank of Albania has increased the number of security elements adequately to make counterfeiting difficult. We are convinced that the new denominations serve as secure means of payment for citizens, as they employ modern security features. If you look, both the security thread and the hologram are the most contemporary elements in terms of banknote security. The 200 Lekë banknotes are made of a particular plastic material, called polymer. This material gives the banknote more longevity, resistance and durability, compared with the cotton paper banknote. The paper banknote is made with a specific material as well, which is cotton fibre. This banknote is the smallest denomination and circulates more. As you can see, it is the most used, deteriorated and outdated. With the entering into circulation of the new 200 Lekë polymer banknote, we have secured a longer lifespan.

The 5000 Lekë banknote entered circulation at the same time as the 200 Lekë note, on 30 September 2019. This denomination as well has additional security features, and a more modern and contemporary view.

Then, next year, we will put into circulation the 1000 Lekë and 10000 Lekë denominations. In 2021, we plan to put into circulation the 2000 Lekë denomination. The last denomination of this series, the 500 Lekë denomination, will be launched in 2022. This is our calendar for launching each banknote into circulation. This cycle of putting into circulation has been chosen because the Bank of Albania currently has a stock of banknotes, and this stock will surely continue to circulate. Our calendar for putting the denominations into circulation is based on an analysis carried out by the Issue Department of the Bank of Albania.

News24: In fact, one question that we all have is what will happen with the current banknotes? Will they circulate in parallel with the new 200 Lekë and 5000 Lekë denominations?  

Governor: Both the 200 Lekë and the 5000 Lekë banknotes, the two new denominations, will continue to circulate alongside the existing banknotes. Hence, these banknotes will not be taken out of circulation, but will continue to be in use. The Bank of Albania will withdraw these banknotes from circulation gradually, putting into circulation the new banknotes. This will happen over a period of years. Nevertheless, the existing banknotes that will be gradually withdrawn from circulation, even after ceasing to be legal tender, will retain their value and may be exchanged at face value with new ones.

News24: Mr Governor, you mentioned earlier the banknote that is expected to be issued into circulation in 2020, the 10000 Lekë banknote. Why did you choose the next year and why did you choose a completely new banknote to launch into the market?

Governor: The 10000 Lekë banknote is the banknote with the highest nominal value. Economic conditions have matured, prompting for a denomination with a higher nominal value, which will be the 10000 Lekë banknote. This will also create practical opportunities for users, since it is the highest denomination. Of course, we want to decrease the use of cash in the economy and we have many plans for the digitalisation of the banking system, the modernisation of the payment system.  But cash is inevitable in an economy like ours and will continue to be in circulation. In this regard, in order to create convenience for users, we will put into circulation the 10000 Lekë banknote.

The choice to launch the 10000 Lekë denomination next year has no particular reason other than the time required for the production, design and all the other elements tracked by the Issue Department.

News24: Mr Governor, actually, why do we still use the Albanian lek and not the euro, since we aim to progress toward integration with the European Union?

Governor: We will continue to use the lek as a national currency, since integration into the European Union is first and foremost an economic integration process. The currency of a country, among other things, reflects the economic strength as well as the products expressed by the value of a country. Like other countries, we do not have the possibility of using the euro. I often hear discussions on potential risks arising from the exchange rate. To avoid exchange rate risk there is a preference among certain groups to have the currency of the European Union. If this was possible, that would be preferable for us as well. This because we would avoid many headaches, like the production of banknotes, exchange rate risk, the impacts that exchange rate risk has on financial stability, inflation and all the elements that we monitor and try to prevent.

The use of the euro would be ideal.  It would be a beautiful dream. Pragmatically, like every country, we need to develop our economy toward integration through structural reforms, through hard work, in many economic, social and political aspects, in order to accelerate and facilitate Albania’s integration into the European Union. Opening negotiations is a very important step, but this does not mean that Albania is integrated, since until the time of accession, we have still much work to do.

Even in the case of integration, if we look at many countries that are members of the European Union, like Poland, the Czech Republic, Romania and Bulgaria, they continue to use their national currency. Despite the fact that the level of economic development of these countries is much higher than that of our country, they still continue to use their currency, because it is impossible or difficult for them to use the euro at this time. Of course, these countries are working toward integration, toward convergence, and one day they too will be part of the euro area. But for the moment they are working with their currency.

There are several elements not only theoretical, but also practical, where the use of the national currency has several advantages, such as the transmission of monetary policy. By using the national currency, central banks have a better transmission of monetary policy, ensuring that several risks are avoided. Central banks supply the banking financial system with liquidity and by producing the national currency it is easier for them, in every aspect, to supply the system. Let us look at some countries that are also members of the euro area like Greece and Italy.  I will focus mainly on Greece, which is the best example to show the approach to a crisis. Many analyses were carried out in Greece and were many ideas were presented to go back to their national currency, since it would have created a certain flexibility to ensure the stability of the economy, like a better amortization of external and internal shocks. These are some of the elements that practically and theoretically make the use of the national currency necessary.

We must be clear that, it is not the use of foreign currency, the euro in this case, which will make Albania integrated. What would make Albania integrated would be the development and implementation of structural reforms, a certain economic development level so that we have an economic and social convergence as fast as possible so that we are closer to the other countries and not only become members of the European Union.  One day we also use the euro.

News24: Regarding the new banknotes, in fact, you have here at the Bank of Albania a museum, where almost all the new banknotes are displayed. Have you prepared a calendar for the citizens that want to be informed on this issue and how to proceed?

Governor: A few days ago, we presented the new banknote series. The Museum of our Central Bank, among other things, on its second floor, is presenting the new banknote series, together with the security features and other printing elements. The Bank of Albania collaborates with commercial banks, since the supply of the market with banknotes is carried out through commercial banks. We have also published, on our official internet site, the relevant calendar for putting the new banknotes into circulation, which we have also mentioned on many television shows in these days.

Concretely, on 30 September 2019, we put into circulation the banknotes with 200 Lekë and 5000 Lekë denominations, and for the moment it is important that information is focused on these two denominations. Very soon, the public, users, will be presented with the new denominations. The first moment of contact, I believe, will be interesting, particularly from the point of view of the curiosity to touch these banknotes personally. Then the public will get familiarized with their use and we will continue consequently with putting the rest of the series into circulation, as well as informing the public in cooperation with commercial banks.

News24: Mr Governor, I would also like to discuss a little about the latest economic developments. I would like to refer to an International Monetary Fund report, which has called attention to the introduction of new stakeholders into the banking system. Do you have a comment regarding this issue, as the Governor of the Bank of Albania?

Governor: I will try to summarise since this is an issue that requires time to discuss. The important thing is that during this period we had structural changes in the banking system, where the financial stability of the country has been maintained well. We have not compromised the security parameters of commercial banks. We have managed structural changes, maintaining a stable and sound banking system, as well as continuing activity and lending in the economy, in parallel with structural changes. This is very important since we have seen several countries that had certain shocks or risks in financial stability, due to structural changes or difficulties that commercial banks have encountered.

It is precisely because of these difficulties which banks in the euro area have encountered that many large groups after 2008 changed their strategies for operating with subsidiaries and branches in countries outside the European Union. Unfortunately these banks have stepped back, including some large groups, as we have seen in Albania as well. They have not stepped back only from Albania, but from the entire region due to their difficulties and the impositions made by the European Central Bank and the European Banking Authority. Against this backdrop, the central banks of all the countries of the region, with whom we have cooperated, have also faced structural changes. This has been the main cause and the process has come to an end in the last four years.  This history started 10 years ago after the crisis of 2008-2009. 

In parallel with this situation, we have tried to maintain financial stability in Albania and pursue the consolidation of our banking system, which is one of our objectives. There were 16 banks operating in the Republic of Albania. After the structural changes, we have decreased the number of banks to 12. Consolidation of the banking system, which, in line with the analyses of the Bank of Albania was a targeted objective, has been achieved.

So, with structural changes consolidation has taken place. After these changes we observe that there are an equal number of large, medium-sized and small banks. From the point of view of competition, these banks will be more motivated to operate not only in lending, but in other products that the public needs. Also, key parameters like capital adequacy were maintained during and after the changes. All banks have a very good level of capital adequacy, which makes them more stable and of higher quality. Banks are in a very good liquidity position. Indeed, one of our challenges has been to turn this liquidity, which represents a cost for the banks, into sound lending to the economy. If we look, during the latest period, in three consecutive quarters, we had a good increase of lending, particularly lending in lek, due to our accommodative monetary policy. But on the other hand, we also had a decrease in non-performing loans. So, at the same time, we achieved providing credit to the economy through the banking system and were able to maintain credit quality. Within the lending portfolio, non-qualitative loans refer mainly to past loans, whereas we observe that, in relative terms, we have qualitative loans, which means that banks have learned from the past, so they are more careful in their analysis of credit risk.

I am not going any further into the lending segments, but the important thing, to answer your question, is that with the structural changes that happened, we have achieved consolidation of the banking system, have maintained the quality of banks, and have made it possible for banks to continue to operate and provide financial products to the market. Of course we will continue to monitor and supervise the market after the structural changes.  This is one of the recommendations of the Monetary Fund. But, even in absence of this recommendation, we would do it anyway. We will more intensively supervise the changed banks with new shareholders and the new shareholding structures in order to ensure that they continue to operate in a stable manner, in accordance with all the regulatory legal requirements of the Bank of Albania.  

News24: Thank you M Governor!

Governor: Thank you!