Mojmír Hampl, Vice-Governor, CNB
Opening remarks at the Annual Conference of the European Association for Banking and Financial History
Prague, 15th May 2015
Ladies and gentlemen, dear fellow colleagues, dear Mr Bänziger, good morning!
Let me welcome you cordially here to the Czech National Bank on behalf of the whole Board of the bank and on behalf of our governor, who unfortunately cannot be with us here today.
It is a pleasure and an honour for us to host your annual meeting this year and to have such a distinguished gathering of experts and scholars in the area of banking and monetary history here. Believe me this does not happen every day.
Ladies and gentlemen, let me share with you one point. You are going to deal with the issue of inflation from the long-term perspective. It will be interesting to discuss this topic right here in this country, which – in line with its rather conservative monetary tradition – has actually never experienced any real high inflation or hyperinflation to speak of in its modern history, be it in the times of the former Czechoslovakia, or now, in the times of the stand-alone Czech Republic. 1
Many outsiders do not believe that even after WWI, when the whole region of Central Europe was full of countries experimenting desperately with hyperinflation 2 (Austria, Poland, Hungary and, most notably, Germany), the newly established Czechoslovakia – surrounded by all these hyperinflationary neighbours – actually experienced deflation. This was because of the strict monetary policy imposed on it by its first finance minister Alois Rašín. His deflationary policy, albeit applied in a less strict form at a later stage, ended only in 1925, two years after his violent death.
Then, in the 1930s we had almost five years of demand-driven deflation. Only in 1934 did a devaluation of the currency end both the recession and the five-year-long deflation related to the impacts of the Great Depression on the former Czechoslovakia.
And still, maybe quite interestingly for a central banker in this country, it is relatively easy and straightforward to explain the dangers of inflation, or price instability with a “plus” sign. The public understands it well, despite not having any experience with it even in its distant memory. It is much more complicated to explain that price instability can also have a “minus” sign and that demand-driven deflation can be equally dangerous or even worse than inflation. This is despite the fact that – paradoxically – we have had some experience with this price malfunction on this territory in the past.
But unlike in the area of inflation, as far as deflation is concerned, central bankers and the general public do not necessarily share the same enemy.
We have once again learned this lesson painfully relatively recently. After reaching the zero lower bound like many central banks around the world, we started using the exchange rate in 2013 as a new instrument of monetary policy, trying to ease monetary conditions further to fight demand deflationary pressures in the economy. This policy has been causing a lot of controversy ever since.
It is here that monetary and banking history comes into play. I have always tried to learn from history, and my personal experience is that for almost every phenomenon we deal with in the present there is at least one, but most likely several, similar cases in the past to learn from. Without knowing history, as in the case of the former Czechoslovakia and the Czech Republic, we sometimes cannot properly assess the current situation, do not understand what is going on and are unable to formulate correct recommendations for the future.
That is why I believe your contribution as historians is invaluable now and will always be so in the future. That is my firm belief.
Therefore, I wish you fruitful and stimulating discussions today. Enjoy the meeting and enjoy Prague!
Thank you.
1 The so-called “transformation inflationary shock” related to the liberalisation of prices shortly after the collapse of communism, which helped to adjust totally distorted relative prices, was just a one-off affair without any impact beyond a period of a couple of quarters.
2 See Sargent, T. J.: The Ends of Four Big Inflations, in: Hall, R. E. (ed.): Inflation: Causes and effects, University of Chicago Press, 1982, pp. 41–98.