23 April 1925
Amendment to the Act on the Bank of Issue
Upon his return from London in May 1924, Vilém Pospíšil and Augustin Novák began working on the requirement for the immediate establishment of a national bank. Even so, it took another year before an amendment to the Act on the Bank of Issue was adopted, enabling work on its establishment to begin.
First, it was necessary to persuade the political leadership to agree to the creation of a bank of issue despite the absence of a stable currency. Politicians feared that discussions about a bank of issue might raise public concerns that its establishment would be accompanied by monetary measures that could jeopardise their savings. Pospíšil and the entire Banking Committee therefore had to wait for the right moment. This came in February 1925, when the government decided to issue a declaration against high prices. Following intervention by the Banking Committee, the declaration was supplemented with wording emphasising the need for rapid currency stabilisation.
From December 1924 onwards, Vilém Pospíšil prepared a draft amendment to the Act on the Bank of Issue to enable a national bank to be established as quickly as possible. In early 1925, he submitted it to the Banking Committee for comments, which resulted in several minor adjustments. The Ministry of Finance then submitted the draft to the National Assembly for debate, and the amendment was approved on 23 April 1925.
The new law comprised 28 articles revising the previous wording. The key provision was Article 2, which defined the previously unspecified currency unit of the future banknotes as the “Czechoslovak koruna” (Kč). Article 3 set its value at the koruna’s exchange rate against foreign gold-backed currencies (i.e. the US dollar) over the preceding two years (USD 2.90–3.03 per Kč 100). Establishing the objective of maintaining the koruna’s value against the US dollar within a defined fluctuation band was regarded as one of the first steps towards attaining the gold standard. This provision effectively brought the koruna into indirect parity with gold.
Perhaps the most significant changes concerned the provisions on share capital and the organisation of the bank of issue. The original share capital of CZK 75 million, expressed in unspecified monetary units (probably future Czechoslovak gold francs), was recalculated as USD 12 million, divided into 120,000 shares of USD 100 each. One-third of the shares were to be allocated to the state, with the remainder sold to private investors.
Changes were also made to the composition of the Bank Board. Under the previous version, the Bank Board was to comprise of the governor and nine other members, whereas now a tenth member could be co-opted. Vilém Pospíšil introduced this change in response to a possible demand from foreign financial institutions to be represented in the bank’s management if an international loan was approved. For this reason, unlike the other members of the Bank Board, this person was not required to hold Czechoslovak citizenship. To avoid creating the impression among foreign financial circles that the bank of issue had limited autonomy, the government’s right to retrospectively approve all members of the Bank Board and the Audit Committee elected by the general meeting was also abolished.