Research in Applied Economics ISSN 1948-5433 2013, Vol. 5, No. 4 www.macrothink.org/rae 48 Effects of Unofficial Euroisation in Serbia With Regards to the Inflation and Real GDP Siniša Ostojić 1,* & Zoran Mastilo 2 1 University of Novi Sad, The Faculty of Economics Subotica, Department in Novi Sad, Segedinski put 9-11, 24000 Subotica, Serbia 2 Faculty of Business Economics, University of Bijeljina, Semberskih ratara bb, 76300 Bijeljina, Bosnia and Herzegovina *Corresponding author: Tel: 381-63511-271 E-mail: sostojic@beotel.net Received: September 10, 2013 Accepted: September 27, 2013 Published: October 23, 2013 doi:10.5296/rae.v5i4.4260 URL: http://dx.doi.org/10.5296/rae.v5i4.4260 Abstract The term euroisation or dollarization involves several different monetary systems that are very different from one another, but have a common feature of having a foreign currency widespread as a means of payment in the formal or informal transactions. Therefore, Serbia has the highest index of unofficial euroisation in the region of South Eastern Europe. The aforementioned index demonstrates clearly the high level of informal euroisation in Serbia in the balance sheets of commercial banks. The share of dinar (RSD) corporate loans in Serbia is modest, having 77% of the total loans to corporations in Serbia being either euro-indexed or credited directly in euros. During the financial crisis in 2008 and 2009 euroisation was not reduced, but quite the contrary, it was increased and has begun gaining momentum. Despite favourable conditions for dinar loans in terms of lower inflation rate, lower interest rates on dinar loans in such conditions, but also due to the reduction of RRs required (mandatory) reserves to dinar share of commercial banks’ balance sheet, the share of loans in dinars is not increased, but, on the contrary, the loan activity of commercial banks in Serbia is reduced. The current level of informal euroisation in Serbia represents a serious challenge in terms of active monetary policy, due to controlled exchange rate, lack of local funding, high foreign exchange risk and lack of hedging instruments in terms of foreign exchange risk mitigation, which are the limiting factors of an active monetary policy. JEL: E, E4, E42, E43 Keywords: euroisation or dollarisation, unofficial euroisation