Exchange Rate Commitment of the Czech National Bank

Abstract

The aim of this chapter is to describe the purpose of the introduction of the exchange rate commitment by the Czech National Bank (CNB) in the period from November 2013 to April 2017 and its effects on the real economy. The main reason for introducing the exchange rate commitment was concern about the possibility of a prolonged deflationary period in Czechia. Given that the standard monetary policy instruments had already been exhausted on easing the monetary policy conditions, the CNB Bank Board opted for an exchange rate commitment. The secondary objective of the exchange rate commitment was to boost the economy through the positive effect of a weaker koruna on exports. Next, we focus in more detail on the effect of the exchange rate commitment in the economy and the course of the foreign exchange interventions. Overall, we can summarize that the CNB's foreign exchange interventions were an extraordinary monetary policy instrument – in a market economy with inflation targeting and a flexible exchange rate – used in extraordinary times.

Citation

Černohorský, J., Černohorská, L. and Teplý, P. (2024), "Exchange Rate Commitment of the Czech National Bank", Stavárek, D. and Tvrdoň, M. (Ed.) Modeling Economic Growth in Contemporary Czechia (Entrepreneurship and Global Economic Growth), Emerald Publishing Limited, Leeds, pp. 71-86. https://doi.org/10.1108/978-1-83753-840-920241005