On the Currency Reform That Put Montenegro Center Stage

The tiny Balkan state of Montenegro appeared on center stage last week at the NATO summit of world leaders in Brussels. Indeed, Montenegro’s Prime Minister, Dusko Markovic, was a bit too much front and center for President Trump. So, Trump moved Markovic to the side, and rightfully so. After all, Montenegro isn’t even a formal member of NATO yet, but only a state in the process of becoming a member — something that has, among other things, raised Russia’s hackles.

This is not the first time that Montenegro was at the center of a strategic tug-of-war. The Sage of Baltimore, H.L. Mencken, writing in the June 1934 issue of The Seven Seas after a visit to Montenegro, reminds his readers of just how strategic Montenegro has been over the centuries. “It has been, in its time, Roman, Venetian, Turkish, Spanish, Serbian, Hungarian, Bulgarian, Russian, French, English and Austrian, and all the while it was really Montenegran.”

Montenegro’s march to NATO started with a bold currency reform. Indeed, I was a part of that 1999 reform. At that time, I was a State Counselor to Montenegro and advisor to President Milo Djukanovic, a position I held until 2003.

This is not the first time that Montenegro was at the center of a strategic tug-of-war.

Back in 1999, Montenegro was still part of the rump Yugoslavia. In that year, NATO actually bombed Yugoslav forces in Montenegro. But, there was trouble in paradise. Djukanovic was tired of laboring under Slobodan Milosevic’s yoke. And many Montenegrins were fed up with the economic madness that Milosevic was dishing out from Belgrade. Just recall Milosevic’s great hyperinflation, which started in January 1992 and peaked in January 1994. At its peak, the inflation reached an astonishing rate of 313 million percent per month. For some color, consider that the worst month of Weimar Germany’s 1922-23 hyperinflation saw prices go up by only 29,500 percent per month. The Yugoslav hyperinflation was devastating. Long before NATO struck Belgrade in 1999, Milosevic’s monetary madness had destroyed the Yugoslav economy.

From the first time I met Djukanovic in 1999, it was clear that he envisioned Montenegro’s secession from the rump Yugoslavia. But, how would he make the break? That’s where I came into the picture. The Yugoslav dinar was Milosevic’s Achilles’ heel, and Djukanovic knew it.

With Zeljko Bogetic, I wrote a book, Cronogroska Marka (1999). It laid out the modalities for Montenegro to dump the Yugoslav dinar, which would be the first step in the march towards secession. As soon as this book hit the streets and I was appointed as State Counselor and Djukanovic’s advisor, I became one of Milosevic’s marked men. The official accusations that swirled in Belgrade claimed that I was, among other things, the head of a group that was trying to destabilize Serbia by unloading counterfeit dinars into the economy.

The German mark was the unofficial coin of the realm throughout the rump Yugoslavia. We knew that the German mark was Djukanovic’s trump card. If Montenegro officially adopted the mark, it would not only stabilize the economy, but also pave the way for reestablishing Montenegro’s sovereignty. On November 2, 1999, Djukanovic boldly announced that Montenegro was officially adopting the German mark as its national currency. This was Montenegro’s first secession step - a step that was eventually supported by the United States and its allies. On November 4th, I, with the help of Senators Steve Symms and Trent Lott, arranged a meeting at the U.S. Capitol in which Djukanovic and I made a case for Montenegro’s currency reform and the start of Montenegro’s secession. The members of Congress in attendance — Trent Lott, Steve Symms, Richard Lugar, John Warner, Harry Reid, Larry Craig and Kay Bailey Hutchison, among others — warmly received our message.

That the currency reform and the German mark would pave the way for a successful secession from the rump Yugoslavia was clear in 1999. What was not clear was that Montenegro would be center stage in a 2017 NATO summit in Brussels. The last act of this play remains to be written.

Steve Hanke is a professor of applied economics at The Johns Hopkins University and a senior fellow at the Cato Institute.