Czech Interventions

Hello guys, as you know my name is Robert, this is Matěj and Richard and we are going to tell you something about the interventions of the Czech National Bank(CNB) and influences on the Czech crown.

What is the intervention

First I’m gonna explain to you what the intervention is and how and why the Czech National Bank started intervening their own currency. Foreign exchange interventions are transactions by which the central bank affects the domestic currency exchange rate. If the CNB sells the domestic currency and buys the Euro, it intervenes the domestic currency. If, on the other hand, the CNB purchases domestic currency and sells its foreign exchange reserves, it strengthens the domestic currency. The CNB wanted to boost economic growth, domestic consumption and exports by intervening so that the Czech crown would be of lower value. How is it done? Simply, you can print out enough local currency and start buying foreign currency. Because we live in the time of computers, the crowns do not have to be printed anymore, and it is all just computer-based accounting.

It ALL began in November 2K13

The CNB started the intervention at the end of 2013. CNB announced in november 2012 that they will probably start intervening the czech crown if economic situation gets worse and if there will be threat of a deflation. Immediately after the launch, the Euro exchange rate depreciated the Czech crown (approximately by 1czk). Main reasons, how the CNB substantiated the beginning of the interventions, was the fear of deflation and the intended support for exports. The interventions were not welcomed by everybody but exporters appreciated them. I will explain why. Imagine a situation where for example german merchant wants to buy some goods for 10KC a piece. Exchange rate is 25CZK/eur. He has to pay 400 000 euros. Image if there is rate 27czk/eur. He has to pay approx 370 000 eur so its cheaper for him and czech sellers are now in advantage. the former CNB governor Miroslav Singer said that if he had known how the economic situation in Europe would develop he would have intervened earlier and much more significantly.