The Czech National Bank, ( cs, Česká národní banka, ČNB) is the

central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a central ba ...

and

financial market A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial markets ...

supervisor in the

Czech Republic The Czech Republic, or simply Czechia, is a landlocked country in Central Europe. Historically known as Bohemia, it is bordered by Austria to the south, Germany to the west, Poland to the northeast, and Slovakia to the southeast. The ...

, headquartered in

Prague Prague ( ; cs, Praha ; german: Prag, ; la, Praga) is the capital and largest city in the Czech Republic, and the historical capital of Bohemia. On the Vltava river, Prague is home to about 1.3 million people. The city has a temperate ...

. It is and a member of the

European System of Central Banks The European System of Central Banks (ESCB) is an institution that comprises the European Central Bank (ECB) and the national central banks (NCBs) of all 27 member states of the European Union (EU). Its objective is to ensure price stability t ...

. It was established on from the division of the

State Bank of Czechoslovakia The National Bank of Czechoslovakia ( cs, Národní banka Československá) was the central bank of Czechoslovakia between 1926 and 1939. Between 1939 and 1945, its activities were divided into the National Bank for Bohemia and Moravia in Prague ...

as part of the process of

dissolution of Czechoslovakia The dissolution of Czechoslovakia ( cs, Rozdělení Československa, sk, Rozdelenie Česko-Slovenska) took effect on December 31, 1992, and was the self-determined split of the federal republic of Czechoslovakia into the independent countries o ...

, together with the

National Bank of Slovakia National Bank of Slovakia ( sk, Národná banka Slovenska, NBS), is the central bank of Slovakia, a member state of the European Union since 2004 and of the euro area since 2009. It was formed on from the division of the State Bank of Czecho ...

. In accordance with its primary objective, the CNB sets

monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money supply, often a ...

, issues

banknote A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable instrument, negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand. Banknotes w ...

s and

coin A coin is a small, flat (usually depending on the country or value), round piece of metal or plastic used primarily as a medium of exchange or legal tender. They are standardized in weight, and produced in large quantities at a mint in order t ...

s and manages the circulation of the

Czech koruna The koruna, or crown, (sign: Kč; code: CZK, cs, koruna česká) has been the currency of the Czech Republic since 1993. The koruna is one of the European Union's 9 currencies, and the Czech Republic is legally bound to adopt the euro currenc ...

, the payment system and settlement between banks. It also performs supervision of the banking sector, the

capital market A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers t ...

, the insurance industry, pension funds, credit unions and electronic money institutions, as well as foreign exchange supervision.

Overview of the Czech National Bank

Mission

The primary objective of CNB as stated in the Act on the Czech National Bank and the

Constitution of the Czech Republic The Constitution of the Czech Republic ( cs, link=no, Ústava České republiky) is the supreme law of the Czech Republic. The current constitution was adopted by the Czech National Council on 16 December 1992. It entered into force on 1 Januar ...

price stability Price stability is a goal of monetary and fiscal policy aiming to support sustainable rates of economic activity. Policy is set to maintain a very low rate of inflation or deflation. For example, the European Central Bank (ECB) describes price s ...

. The secondary objective is to support sustainable

economic growth Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate of ...

. It currently employs

inflation targeting In macroeconomics, inflation targeting is a monetary policy where a central bank follows an explicit target for the inflation rate for the medium-term and announces this inflation target to the public. The assumption is that the best that moneta ...

monetary transmission mechanism. The goal is to stabilize inflation around 2.0% per annum.

Organization

The Czech National Bank, located in Prague at 28 Na Příkopě, has remained in the same building through multiple government transitions. The leaders of the Czech National Bank are on the "Bank Board". The Bank Board is responsible for setting and implementing monetary policy. The Bank Board consists of seven members: The Governor of the Czech National Bank, two Vice-Governors and four other members of the Bank Board. The Governor and Vice-Governors are appointed and relieved by the President of the Republic. No person is able to hold a position on the Bank Board for more than two terms. Each term lasts for six years and acts independent of other Governing bodies.

Currency

The CNB maintains exclusive rights to issue and regulate banknotes and coins. The Bank oversees the legal and technical protection of the currency, the Koruna (also called the Crown). The Czech Republic was scheduled to adopt the Euro in 2010, but due to popular opinion, the Czech government opted to stay with the crown. Consequently, the implementation of the Euro was suspended indefinitely. The Czech National Bank issues 1Kč, 2 Kč, 5 Kč, 10 Kč, 20 Kč and 50 Kč coins. The note denominations consist of 100 Kč, 200 Kč, 500 Kč, 1,000 Kč, 2,000 Kč and 5,000 Kč.

Czech National Bank and the Euro

The Czech Republic officially joined the European Union on 1 May 2004. The original intention of the Czech National Bank was to adopt the Euro, but after relatively strong economic progress within the Czech Republic and a favorable national attitude for the Czech Koruna there are no current plans to change the currency. With no political or public urgency, the Czech Republic will most likely not join the Euro Area and adopt the Exchange Rate Mechanism in the coming years.

Czech National Bank regulation of the markets

As the supervisor of the financial markets in the Czech Republic, the CNB maintains authority over, the banking sector, capital markets, the insurance industry, pension funds, credit unions, and payment system institutions.(CNB Website) The CNB sets the rules and regulations for the industries that they preside over and systematically check in on the many financial institutions. Any institution that does not conform to the regulations outlined by the CNB is subject to penalties and restrictions.

Monetary policy

The CNB states that their primary objective is to maintain price stability. In order to keep prices stable, the Central bank implements tools, such as setting interest rates. Upon entry into the European Union the CNB will yield policy and control over to the European Central Bank. The favored pursuit of the CNB in order to control monetary policy is inflation targeting. By using inflation forecasts and macroeconomic predictions the CNB attempts to achieve an optimal inflation rate of between 1-3%. By forecasting the various factors and inputs of inflation and adjusting interest rates accordingly, the CNB has been able to control their inflation. Banks can deposit excess liquidity overnight with the CNB at the discount rate and can borrow overnight funds at the lombard rate. Thus these two rates create a corridor for the short-term money market rates. Moreover, the CNB conducts

open market operations In macroeconomics, an open market operation (OMO) is an activity by a central bank to give (or take) liquidity in its currency to (or from) a bank or a group of banks. The central bank can either buy or sell government bonds (or other financial as ...

in the form of

repurchase agreement A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is a form of short-term borrowing, mainly in government securities. The dealer sells the underlying security to investors and, by agreement between the two par ...

s (REPOs). The basic duration is 2 weeks. Currently the CNB is absorbing excess liquidity. The aim of these operations is to influence short-term rates which subsequently affect economic activity, the flow of capital, and inflation.

Main instruments of monetary policy

Open Market Operations: Open market operations are used to steer interest rates. Most of the Open Market Operations are completed through Repo operations. Repo operations are repurchase agreements, where the government sells securities to traders, usually on a short-term agreement. Automatic Facilities: Automatic facilities create liquidity for the Czech National Bank through independent banks depositing money overnight or other banks that have a Repo agreement with the central bank may take out a loan. Extraordinary Facilities: In order to support the government bond market, the Central Bank introduced Extraordinary Facilities in 2008. This Extraordinary liquidity provided Repo operations on a longer-term basis of two weeks to three months. Minimum Reserves: As one of the main monetary instruments in order to control the amount of liquidity on the market, the Central Bank establishes a reserve requirement. By controlling the Minimum Reserves, the Central bank helps the interbank system run smoothly. FX interventions: By purchasing foreign currencies against the Czech Crown, the Central Bank limits risk in the market. FX interventions decrease volatility and help to ease or tighten monetary policy when necessary.

Financial markets

The Czech National bank determines the value of the Czech currency against foreign currencies. Under the regulation of the Ministry of Finance, the central bank continually adjusts and fixes the exchange rate. Further involvement of the Czech National Bank in Financial markets is the analysis of inflation expectations. The National Bank analyzes the factors, such as interest rate and exchange rate, that determine the inflation rate and make predictions on expected fluctuations. The prediction of the changes in inflation rate is key to the monetary policy of the central bank. Because of the central banks immediate response to new reports regarding exogenous shocks, policy changes and other market conditions, changes in interest rates and exchange rates prove to be good signals for the central banks market expectations.

Governors of the Czech National Bank

Josef Tošovský Josef Tošovský () (born 28 September 1950) is a Czech economist and former governor of Czech National Bank (from 1993 to 2000). From 17 December 1997 to 22 July 1998 he was the prime minister of the Czech Republic in a caretaker government. C ...

, January 1993 – December 1997 * Pavel Kysilka, December 1997 – July 1998 *

, July 1998 – November 2000 *

Zdeněk Tůma Zdeněk Tůma (born 19 October 1960) is a Czech economist, who was the Governor of the Czech National Bank from 1 December 2000 to 30 June 2010. He had previously served as Vice Governor of the Bank from 13 February 1999 to 30 November 2000. Care ...

, December 2000 – June 2010 * Miroslav Singer, July 2010 – June 2016 * Jiří Rusnok, July 2016 – June 2022 *, from July 2022 Source:

References

Citations

External links

*
Czech National Bank official site
*
Czech National Bank building on Prague-wiki
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