At a ceremony Friday in Pristina, Kosovo took another step toward revitalizing the territory's ruined economy.

The Banking and Payments Authority of Kosovo (BPK) was transformed Friday into a central bank for the region. The move provides more independence and regulatory authority to Kosovo's new banking system.

Many people in Kosovo lost large amounts of savings, as the old Yugoslavia broke up at the start of the 1990s, and its state-run banking system was unable to cope without freezing assets. Since then, Kosovo struggled to jump-start the economy through its struggling banking system.

Officials see this recent move as crucial to Kosovo's plan to establish a Western market system in place of a state-controlled economy effectively destroyed by war, mismanagement and mistrust.

The top U.N. economic official in Kosovo, Paul Acda, says, the U.N. Mission in Kosovo, known as UNMIK, is placing more financial responsibility in the hands of Kosovo's people.

"This is because part of Unmik's [the UN authority] mandate is to strengthen and enhance local institutions," he added.

The French chief of Kosovo's central bank, Paul Svechin, says using the euro currency is a strong asset for Kosovo's economy.

"The direct monetary policy here is conducted by the European Central Bank, since we are, you know, a kind of passive member of the euro [currency] zone," said Mr. Svechin.

The euro has provided stability for Kosovo, but the economy of the U.N.-administered province continues to be depressed. Finance Minister Haki Shatri does not expect significant growth this year. The economy declined in 2005. Unemployment is at least 40 percent of the work force. Shatri anticipates that a decision on Kosovo's status, now the subject of internationally mediated talks, could provide the stability that would allow for economic expansion of three to five percent in 2007.

He agrees that the euro has helped boost Kosovo's economy.  But while inflation is low, under three percent, interest rates on bank loans are high, over 12 percent.

Kosovo faces enormous challenges economically. The U.N. presence is being reduced, and its budget is equal to about one-quarter of the government's budget. Finance Minister Shatri hopes that likely independence for Kosovo will lead to an increased flow of assistance from international institutions.

Ethnic Albanians comprise about 90 percent of Kosovo's population of 2 million. They favor independence. Serbia is willing to grant Kosovo broad autonomy, but opposes full independence.