The Czech koruna or Czech crown has been the currency of the Czech Republic since 8 February 1993 when, together with its Slovak counterpart, it replaced the Czechoslovak koruna at par.

The official name in Czech is koruna česká. The ISO 4217 of Czech koruna code is CZK and the local acronym is Kč, which is placed after the numeric value. One koruna equals 100 haléřů.

The Czech Republic planned to adopt the euro in 2012, but its government suspended that plan in 2007. Although the country is economically well positioned to adopt the euro, there is considerable opposition to the move within the Czech Republic.

Summary info

Summary information about Czech koruna

ISO 4217 Code:

CZK

Currency sign:

Kč

Country:

Czech Republic

Subunit:

Czech haléř

Coins:

1 Czech koruna, 2 Czech koruny, 5 Czech koruny, 10 Czech koruny, 20 Czech koruny, 50 Czech koruny

Banknotes:

100 Czech koruny, 200 Czech koruny, 500 Czech koruny, 1000 Czech koruny, 2000 Czech koruny, 5000 Czech koruny

Central bank:

Czech National Bank

History

The November 1989 revolution and the social changes that followed brought about a search for parallels with the ideas and practical systems applied in the former democratic Czechoslovakia. As far as the economy was concerned, however, it was clear that the manner and objective of the transformation had been preordained by the almost 50-year period of totalitarian rule and the situation in the more advanced neighboring world, rather than by the legacy of a bygone era when Czechoslovakia had been a democratic legal state with a market economy.

This is not to underestimate the eminent economists of the inter-war First Republic, who made the Czechoslovak koruna one of the strongest currencies in the world. Thanks in particular to the foresight of the first Minister of Finance, Alois Rašín and the successful reforms he engineered, Czechoslovakia successfully avoided the wave of hyperinflation that struck Germany, Austria, Hungary and other countries after the First World War. Monetary policy had other leading lights — for instance the governors of the National Bank of Czechoslovakia Vilém Pospíšil and Karel Engliš. And it is the legacy of these figures, that is, the legacy of non-inflationary and prudent policy, that inspires the CNB to this day.

Sadly, these traditions were not resumed after the Second World War. After 1948, the banking sector — just like the entire system of economic management — was subordinate to central planning and command management by the political center. 1950 saw the establishment of the State Bank of Czechoslovakia (SBCS), which was given a monopoly on central and commercial banking. The public’s savings deposits were administered by Česká spořitelna and Slovenská sporiteľňa (the state-owned Czech and Slovak savings banks).

This bringing together of commercial banking activities and the central bank’s monopoly under one roof, i.e. in the State Bank of Czechoslovakia, came under criticism in the dying days of Communism, when an economic reform program was prepared and slowly implemented. This period saw the drafting of the State Bank of Czechoslovakia Act and Banking Act, both of which took effect on 1 January 1990. These constituted a key step in splitting the functions of central and commercial banking; otherwise, though, they were very much a product of their time, reflecting the endeavor to reform a communist economy. The task of approving the principles of banking and monetary policy fell to the government. Typical of the time was a provision that banks were obliged to issue a loan provided that it arose out of „the binding outputs of the state plan”. In 1990, the commercial activities of the former „monobank” were transferred to the newly established Komerční banka (on Czech territory) and Všeobecná úverová banka (in Slovakia). The law permitted new banks to be founded without providing for adequate conditions governing their establishment and subsequent activities. State supervision of banks was made the responsibility of the Czech and Slovak ministries of finance.

The central monetary institution set up in the Czech Republic in 1993 was not an entirely new phenomenon. Indeed, its legal status, primary tasks, modus operandi and organizational structure were all based on those of the State Bank of Czechoslovakia in the former federation. And the SBCS in turn had been strongly shaped by the main changes ongoing in society, the economy and, within it, banking in the preceding three years since the „Velvet Revolution” in late 1989.

The three-year existence of the Czech and Slovak Federal Republic (CSFR) was, in the economic area, marked by two key factors:

1. the beginnings of the implementation of structural changes in the economy, changes necessitated by the profound change in its engagement with the international environment. In just a short space of time, its geographical orientation swung drastically away from the states of the former COMECON, which had accounted for three-quarters of Czechoslovak foreign trade, and towards the advanced Western nations. This caused problems for many companies and led to an economic downturn: gross domestic product was around 13% lower in 1992 than it had been in 1989;
2. the implementation of economic reforms, involving rapid liberalization of prices and foreign trade, extensive privatization, and stringent policies to ensure macroeconomic stabilization while maintaining an essential social safety net;

Of huge importance to future monetary policy, and economic policy as a whole, was the setting of the exchange rate regime and initial exchange rate of the Czech koruna. The system of many different rates for the former Czechoslovak koruna was incompatible with the needs of the economic transformation. It would be impossible to liberalize foreign trade or prices without abandoning this administratively and subjectively created system.

The monetary authorities of the states tackling the issue of transition to a market economy were faced with two problems:

1. choosing between a fixed exchange rate and a floating exchange rate;
2. if they chose a fixed exchange rate, deciding on the initial rate;

The CSFR opted for a fixed rate within a horizontal band, whereas in their transformation processes Hungary and Poland for the most part applied a „crawling peg”, where the exchange rate of the domestic currency was periodically depreciated at a predetermined rate. The main arguments for choosing a fixed rate were as follows:

• a fixed rate functions as a nominal anchor for internal macroeconomic variables such as prices, wages and budgets;
• a fixed rate imports price stability from abroad;
• a fixed rate stabilizes inflation expectations and makes economic calculations easier to perform;

After three devaluations in 1990, the exchange rate was fixed at 28 korunas to the dollar. This level allowed the initial nominal exchange rate to be maintained for several years with no major problems. It also bolstered the competitiveness of the Czechoslovak economy (in 1992 alone, for example, exports to the countries of the European Community rose by 36% on the previous year) and provided domestic companies with temporary protection for implementing structural changes (this protection was reinforced at the start of the reform with an import surcharge).

These factors had a strong bearing on economic performance and, within that, on banking and the currency:

• the sudden liberalization of prices led to high annual consumer price inflation in 1991 (of 57%). The speed and comprehensiveness of the reforms, however, subsequently stabilized inflation at a much lower level;
• relative to other European transforming economies, the Czech Republic was in better macroeconomic shape;
• with its stabilization policy (caps on lending, a relatively high discount rate and a high required reserves ratio) the SBCS prevented the onset of an inflationary spiral;
• the liberalization of foreign trade also necessitated some liberalization measures in the forex area. „Internal convertibility” of the koruna was introduced, giving businesses virtually free access to foreign exchange for current account payments;
• the rapid and extensive privatization program spawned dozens of new businesses and related demand for banking services. At the start of 1990 there had been six banks operating in the CSFR, whereas by the end of the following year there were 38. The capital market was virtually non-existent, so bank loans were the sole way of financing the transformation and privatization of the economy. However, banks lacked the necessary information and experience when it came to assessing the soundness of new businesses;
• the banking sector assumed many doubtful claims on domestic and foreign entities. For this reason Consolidation Program 1 was launched in 1992 in order to clear such debts from the portfolios of the existing banks and move them into the public-sector Konsolidační banka („Consolidation Bank”, a vehicle founded originally to assume and deal with the debts inherited from the communist era). The losses — i.e. the net costs of this program — totaled some CZK 100 billion;

An important moment was the renewal of Czechoslovakia’s membership of both the International Monetary Fund and the World Bank. Following the signing of the relevant treaties in September 1990, discussions were opened on a program of financial aid. The negotiations proceeded quickly and the subsequent loans enabled the economic reforms to proceed more smoothly. The terms under which the aid was granted bolstered the CSFR’s credibility and in turn generated better access to the financial markets. The IMF played a major role in providing technical assistance to the SBCS and, later on, the CNB by helping to train staff and draft new laws and other regulations.

Hand in hand with the implementation of the economic reform scenario, new banking legislation was prepared in 1990 and 1991. Two new laws — the SBCS Act (No. 22/1992 Coll.) and the Act on Banks (No. 21/1992 Coll.) — took effect on 1 February 1992. Experts from the IMF and other financial institutions and central banks assisted in drafting these laws. This meant the creation of modern legislation whose principles could be assumed without problem by the CSFR’s successor states.

The start of the economic transformation necessitated the retaining of several regulatory powers at that time which would later be gradually phased out. These provided an insurance policy against possible unforeseen monetary excesses. For instance, the SBCS had the right to impose caps on lending by banks and to stipulate minimum interest rates on deposits and maximum rates on loans. Under a special law (No. 528/1990 Coll.), forex operations with natural persons and capital (financial) account operations remained strictly regulated. This protection of the balance of payments was bolstered by the introduction of a temporary import surcharge, which, however, had inflationary effects.

Thus far we have been discussing the breakneck development of the banking sector at the start of the transformation process. As mentioned earlier, a large number of new banks were established under legislation drafted in the period of „perestroika”. The 1992 Act on Banks may have provided for the principles of operation of commercial banks (including requirements for capital, liquidity, loan diversification and suchlike), but what was needed now was an authority to ensure that the banks were abiding by these principles. A banking supervision department was set up at the SBCS on 1 July 1991, at a time when 25 new banking licenses had already been issued. Banking licenses were issued subject to the agreement (later on the opinion) of the Ministry of Finance.

The pressure to issue licenses was justified by a need to provide competition to the large banks majority-owned by the state. It should also be borne in mind that the shift away from central planning was accompanied by considerable social and political aversion to any kind of regulatory measures placing excessive restrictions on private market enterprise. The largest commercial banks continued to provide inadequately secured loans to the enterprise sector, and this in a situation where many companies were already suffering the consequences of the collapse of traditional Eastern markets. As is well known, widely promoted privatization loans also fostered growth in bad debts and contributed to the subsequent problems of the banking sector.

The purpose of this introductory section has been to show that while the Czech National Bank and the banking sector as a whole were able to build on the positive results achieved at the start of the economic reform process, they also took on a considerable burden of open and hidden debts whose seriousness only came to light later on in the transformation process. In several cases the banks took on costs which by nature belonged in the public sector — for example support for continued production and employment in inefficient businesses.

Coins

In 1993, coins were introduced in denominations of 10, 20 and 50 haléřů, 1, 2, 5, 10, 20 and 50 Czech korun. The haléře (hallers) denominations were struck in aluminum, the 1, 2 and 5 Czech korun in nickel-plated steel, the 10 Czech korun in copper-plated steel, the 20 Czech korun in brass-plated steel and the 50 Czech korun with a brass-plated steel center and a copper-plated steel ring. The 10 and 20 haléřů coins were taken out of circulation by 31 October 2003, and the 50 haléřů coins were withdrawn from circulation on 31 August 2008 due to their diminishing purchasing power and circulation. Coins are currently in circulation are the 1, 2, 5, 10, 20 and 50 Czech korun. The coins all feature the Czech lion on the obverse, with the reverse featuring the value.

Since 1997, sets for collectors are also issued yearly with proof quality coins. In 2000, the 10 and 20 Czech korun coins were minted with different obverses to commemorate the Millennium. In the beginning coins were minted in Hamburg then in the Czech Republic. There’s also a tradition of issuing commemorative coins — including silver and gold coins — for numismatic purposes.

Banknotes

The first Czech banknotes issued in 1993 consisted of Czechoslovak notes with adhesive stamps affixed to them. Only the 100, 500 and 1000 Czech korun denominations were overstamped, the lower denominations circulated unchanged during this transitional period. The former circulated until end-August, the latter until end-July.

A newly designed series of banknotes of denominations 20, 50, 100, 200, 500, 1000, 2000 and 5000 Czech korun were introduced later in 1993 and in 1994 and were still in use as of 2006 — except for the first versions of 1000 and 5000 Czech korun banknotes, since the security features of these notes were upgraded in the subsequent issues (However, the 2000 banknote is still valid in both versions, with and without the new security features). These banknotes feature renowned Czech persons on the obverse and abstract compositions on the reverse. Modern protective elements can be found on all banknotes.

The 20 Czech korun banknote ceased to be valid on 31 August 2008 and the 50 Czech korun will be discontinued on 1 April 2011.

CZK banknotes pictures gallery

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Useful links

About Czech National Bank:

Czech National Bank

List of currencies:

Currencies

Security and design features of CZK banknotes:

CZK banknotes

CZK currency on Wikipedia:

Czech koruna

Official Website of Czech National Bank:

www.cnb.cz

Commemorative coins:

Commemorative Coins