100 years of the Czech koruna..

As I keep saying the year 2018 is just so much about anniversaries.

Jiří Rusnok, Governor of the Czech National Bank (their central bank) in this speech talks about the 100 year journey:

It is an honour and a pleasure for me to welcome you to today’s conference on the currency, taxes and other institutes of financial law. The 100th anniversary of the foundation of the independent Czechoslovakia is a good opportunity to look back and identify the main features of our national economic history. As you know, we have been through four periods since 1918 – the period of political and economic emancipation from Austria-Hungary, the wartime economy, the era of central-planning-based totalitarian communism, and finally almost three decades of democracy and a market economy. So, more than enough has happened in our country over the last 100 years.

Although these periods could not have been more different, two common features have appeared in various guises. I would characterise them on the one hand as economic moderation, prudence and discipline, and on the other as a struggle for economic independence and a willingness and ability to bear the consequences. Let me give some examples of both.

Czechoslovakia’s founding fathers Tomáš Garrigue Masaryk, Karel Kramář and Alois Rašín were well aware that nurturing a sound financial environment was crucial to the prosperity of the young nation. The Czech Lands had been a key industrial and economic part of the former Austria-Hungary and hence had a relatively well-developed banking sector. An awareness of the close links between government finances, the banking sector, firms and households shaped the economic policy of the First Czechoslovak Republic.

Karel Engliš worked systematically to balance the budget and deserves most of the credit for sorting out public finances in the early 1920s. In 1927 he submitted three tax laws that substantially lowered corporate taxation and supported the creation of capital. At the same time, though, he tied the tax reform, which led to lower revenues, to cuts in government expenditure and a streamlining of the civil service. So, Rašín and Engliš established a trinity of traditions in our country: a stable currency, sound government finances and non-inflationary economic policy. These traditions became a theoretical, practical and moral legacy for subsequent generations of economic policymakers.

It is unusual these days to look back to the communist period for economic inspiration. The socialist system was inefficient and cumbersome and discouraged initiative and innovation. Central planning by definition made the system less adaptable to change and created an economy of shortage. Despite this, the Czechoslovak version of socialism tried to eliminate the most glaring imbalances and preserve basic macroeconomic equilibrium. Fortunately, our central planners didn’t cause any major imbalances in the consumer market in the 1980s, so the savings surplus wasn’t as large as in other communist countries. Not that I want to defend the past economic regime in any way, of course, but let’s not forget that it had elements which can be traced back at least implicitly to the pre-war period.

Not very often you see central bankers having a soft corner for socialist past.

There are 3 lessons from the past which have mattered for post-1989 economy:

  • …..the liberalisation of prices and foreign trade in 1991 was accompanied by effective stabilisation measures.
  •  is an ability to cope with the consequences of the struggle for economic independence.
  • All this tells us that the Czech nation is reasonably good at running its own macroeconomic, monetary and financial affairs.

Finally:

To sum up, the past 100 years have not been a series of random economic events. Despite all the discontinuities, there has been some continuity. In the same way that we inherit various physical and personality traits from our forebears, economists learn their craft from those that came before them and pave the way for those that come after. I am sure this conference will bear me out on that.

Nice bit…

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