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The crown is too thick. The Czech Republic is threatened with a collapse of the currency and a new crisis?

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However, the situation is completely different than it was a quarter of a century ago. The Czech Republic is not a young developing country, the CNB still has a huge block of foreign exchange reserves from the time of foreign exchange interventions between 2013 and 2017, when it kept the exchange rate against the euro above 27 crowns, buying foreign currency into the market. And unlike that time, the exchange rate of the Czech currency is floating, so it constantly changes depending on the demand and supply of foreign currency. But it floats with the cap placed on it by the Czech Natiol Bank, which keeps it at about 24.50 per euro through interventions, and for now the krone is even a little firmer. Now the CNB is using the exchange rate as a tool to fight inflation instead of taking money out of circulation by raising interest rates. This works in a similar way. The CNB sells euros for kroons, which it withdraws from circulation. And it keeps the prices of imported goods low, which is especially helpful in the case of gas and oil. This slows down the growth of domestic prices.

But there is a downside to this, especially when our inflation is still significantly higher than our euro neighbors, which is true for all advanced economies in Western Europe, despite the current slight slowdown in prices in the Czech Republic. The difference for the whole year in the average increase in the price level will be about eight to ten percent. This is good for the citizen, because the crown is so unobtrusively but noticeably strengthened and the purchasing power of his salary is now higher in Germany or Austria. That is why shopping there will be much more profitable than shopping in the country.

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Source: E15

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