1918–1926
Building the gold reserve
The key prerequisite for introducing a gold–standard currency – that is, a currency with a defined gold content and backed by gold (or gold-backed foreign currencies) – was the creation of sufficient foreign exchange reserves in gold. At its inception, Czechoslovakia had no valuable reserves and therefore had to build them up gradually.
The first source of the Czechoslovak gold reserve was the proceeds from a collection for the gold reserve, which initially arose as a personal initiative by individuals enthusiastic about the creation of an independent state. At Alois Rašín’s instigation, these donations were used to establish a special fund known as the “Gold Reserve of the Czechoslovak Republic”. The fund grew most rapidly in 1918–1919 and again after Rašín’s death in 1923, in line with his wish that the funds intended for his memorial be donated to the gold reserve. In 1923, the fund also began receiving proceeds from the minting of Czechoslovak ducats. In addition to the collection, the state foreign exchange loan proved highly effective, enabling citizens to deposit hard currency and precious metals in exchange for bonds. Domestic sources later included gold obtained from mining in Czechoslovak deposits.
When the state took over Austro-Hungarian banknotes, it was expected that the resulting treasury note debt would be covered by the assets of the Austro-Hungarian Bank. However, during its liquidation it became clear that far more banknotes were in circulation than its assets could cover. After foreign creditors had been satisfied, Czechoslovakia received a much smaller share of assets than anticipated. The Banking Office of the Ministry of Finance obtained only ten tonnes of pure gold for Austro-Hungarian banknotes withdrawn in Czechoslovakia.
A significant part of the gold held by the Banking Office also consisted of metal purchased using funds from foreign exchange loans.
The problems of the Czechoslovak economy during the deflationary crisis and the associated monetary difficulties were reflected in the pace of growth of the gold reserve. While between 1920 and the end of 1923 it increased by an average of around 11.4 tonnes per year, from early 1924 to the end of 1925 the average annual increase was just 162 kilograms. On 31 December 1925, shortly before the establishment of the National Bank of Czechoslovakia, the reserve amounted to just under 41 tonnes of pure gold.