For years, euroization has limited the effectiveness of monetary policy in Serbia. When households and companies borrow or save primarily in euros, changes in the National Bank of Serbia’s dinar interest rate influence only part of the financial system. Foreign-currency borrowing can also expose clients whose incomes are in dinars to exchange-rate risk.
The structure of household lending has changed materially. The dinar share of household loans increased from 35.1% in 2012 to 56.8% in May 2026. This helped lift the dinar share of total lending to households and companies to a record 40.3%, 12.3 percentage points above the end-2012 level.
Deposit behavior is moving in the same direction. Dinar savings increased by almost 8% during 2025 and by another RSD 24 billion in the first six months of 2026, reaching RSD 230.1 billion. Dinar deposits represented 60.7% of corporate deposits, while the combined dinarization rate for household and corporate deposits reached 45.3% in May.
The domestic-currency share of public debt was approximately 20.3%. Although lower than the comparable shares for private deposits and lending, the development of a longer-term dinar government-securities market helps establish local benchmark yields and supports the broader use of dinar instruments.
The benefits of dinarization extend beyond the direct reduction of currency mismatches. A larger dinar funding base strengthens the transmission of NBS policy decisions, reduces banks’ dependence on foreign-currency liabilities and gives savers more opportunities to hold domestic-currency assets. It can also lower the financial system’s sensitivity to abrupt changes in external funding conditions.
The process remains incomplete. With total credit dinarization at 40.3%, close to 60% of lending to households and companies is still denominated in, or indexed to, foreign currency. Long-term housing and corporate investment loans remain especially difficult to shift because borrowers often compare the lower initial rates on euro-linked products with more expensive dinar alternatives.
A stable exchange rate can paradoxically slow the transition by reducing the perceived danger of foreign-currency borrowing. Borrowers may treat exchange-rate stability as permanent even though the contractual risk remains with them.
Further progress will depend on sustained confidence in low inflation, deeper markets for long-term dinar funding and a broader range of fixed-rate domestic-currency products. Dinarization is most durable when households and companies choose the currency because it offers credible long-term value—not simply because regulation discourages the alternative.
