1915–1918
Alois Rašín and the concept of a bank of issue
The idea of establishing an independent bank of issue for Czechoslovakia was conceived during the Austria-Hungarian period by Alois Rašín, a prominent politician and economist, and one of the “Men of 28 October”, who declared Czechoslovakia an independent state in 1918 and was later the first Czechoslovak minister of finance. According to his vision, the bank of issue was to be a cornerstone of the plan to create a stable currency for the independent state.
Rašín summarised his theoretical foundations on the importance of currency and the bank of issue in several writings, most extensively in Národní hospodářství (The National Economy), which he wrote during World War I. He devoted more than one-sixth of the book to the topic of banks of issue and currency. He regarded the bank of issue as a key economic institution which, through its credit operations, responds flexibly to demand for money and thus helps preserve the value of the currency. In times of increased need, it uses bill discounting (credit activity) to expand the circulation of money in the economy, while withdrawing it in times of its excess. As he wrote: “From this we can see that this issuance of banknotes makes the money circulation flexible and easily adaptable to the needs of economic life. And therein lies the great economic significance of the bank of issue.”
The essence of the bank of issue, according to Rašín, was to be its gold reserves. These were to serve as the basis for covering the banknotes it issued and act as a monetary anchor preventing excessive issuance of currency and, consequently, growth in inflation.
The separation of the currency, its subsequent pegging to gold and, finally, the creation of its administrator – an independent bank of issue (today’s central bank) – were the three successive steps of the “roadmap” that Rašín formulated immediately after the establishment of Czechoslovakia. He was thus instrumental in the creation of not just the bank of issue, but also of a stable currency – the Czechoslovak koruna.