21 May 1920
Act on the Joint-Stock Bank of Issue
The Czechoslovak currency was introduced in February 1919. To ensure its functioning, it was necessary to take over part of the Austro-Hungarian banknotes, which resulted in a treasury note debt. In simple terms, this debt was a claim by Czechoslovak citizens and companies on the state, originally on the Austro-Hungarian Bank. However, due to insufficient coverage (in gold and foreign exchange), the Czechoslovak state assumed liability for this currency in circulation.
The creation of the treasury note debt meant that any new bank of issue responsible for managing the currency would also assume liability for repaying this debt. For this reason, on 11 March 1919, the Banking Office of the Ministry of Finance was established to manage the debt temporarily and gradually lay the groundwork for the establishment of a bank of issue.
The Banking Office of the Ministry of Finance conducted credit operations and managed the circulation of currency as well as the national debt. It was also responsible for currency reform and decided on the level of interest rates and purchase prices of precious metals.
Alois Rašín and his colleagues envisaged that the state-issued treasury notes administered by the Banking Office would be converted into banknotes (i.e. currency issued by the central bank) once the exchange rate had stabilised and sufficient gold reserves were in place to back them. This would pave the way for the introduction of the gold standard and, ultimately, the creation of a bank of issue.
However, expectations of rapid currency stabilisation came to nothing in 1919. The exchange rate of the Czechoslovak koruna on the Zurich exchange fluctuated from an initial 21 centimes against the Swiss franc to 34.25 centimes on 16 May 1919, down to 7 centimes by the end of 1919. This sharp depreciation prompted the government – despite protests from Alois Rašín – to intervene in December 1919 in support of the currency by passing a law on a joint-stock bank of issue. It was assumed that by signalling the adoption of a law establishing a bank of issue, the Czechoslovak government would reassure international financial circles of its commitment to help stabilise the currency. The law contained only four articles and was submitted to the Revolutionary National Assembly in January 1920.
Thanks to these measures, the decline in the exchange rate was halted, and the draft provisional law was withdrawn in March. However, a group of economists under the auspices of the Ministry of Finance was already preparing a final version of the Act on the Joint-Stock Bank of Issue. This was approved by the National Assembly on 14 April 1920 and published in the Collection of Laws on 21 May 1920 as Act No. 347.