Historical Sketch

The Austro-Hungarian defeat in the First World War triggered the fall of the Habsburg monarchy. The Austro-Hungarian Empire collapsed and disintegrated into different national states. The former crown lands of Bohemia, Moravia and Slovakia merged into Czechoslovakia in 1918. In the late 1930s, Nazi Germany first obtained the cession of the Sudetenland border territory, then occupied and dissolved Czechoslovakia before the outbreak of World War II. Bohemia-Moravia became a German protectorate while Slovakia attained nominal independence. After the liberation in 1945, Czechoslovakia was restored under communist rule. In the 1990s the dissent between the two parts of the country became apparent again, and at the end of 1992, Czechoslovakia was dissolved for the second time and split into Czechia and Slovakia.

Monetary History Overview

The treaty of Saint-Germain prescribed the liquidation of the Austro-Hungarian Bank and the nationalization (counter-stamping) of the circulating Austro-Hungarian banknotes. In Czechoslovakia, this was done in March 1919, 40% of the cash holding were withdrawn and transformed into state loans. A government Banking Office temporarily took over the operative duties of the liquidated bank until the new central bank could take over in 1926. In the April 1919 currency law created the 1st Czechoslovak Crown as national currency. The exchange was done on par with overprinted Austro-Hungarian banknotes. During the 1920s, the Crown depreciated as the economy remained weak, however, a hyperinflation like in neighbouring Austria and Hungary did not occur. In 1929, the Crown got pegged to the US Dollar and remained stable until the German occupation of Czechoslovakia and the subsequent dissolution of the state and its institutions. Border territories were annexed by Germany, Hungary, and Poland, and immediately adopted their monetary order. The newly created Bohemian-Moravian and Slovak states created currencies of their own.

In late 1944, when the German defeat was already foreseeable, the government-in-exile passed a decree introducing an interim monetary authority for the preparation of the post-war monetary order. In the territories annexed in 1939 the reconversion of the money was done immediately after their liberation. Since no national currency had been re-instituted yet, the currencies of the neighbouring countries were exchanged into the Bohemian-Moravian and Slovak wartime currencies. Presidential decrees of October 1945 re-established the Czechoslovak National Bank and restored the national currency. The 2nd Czechoslovak Crown. replace the Bohemian-Moravian and Slovak currencies on par, and the wartime banknotes were withdrawn within a couple of days. Cash holdings above a threshold were not exchanged but had to be deposited on a blocked account. The Crown was pegged to the US Dollar at a rate that corresponded to about half the pre-war value. The National Bank became state-owned in 1948, and two years later, it was transformed into the Czechoslovak State Bank, a Socialist monobank with central bank and state commercial bank functions combined. In 1953, the currency war reformed again, creating the 3rd Czechoslovak Crown. At the currency exchange, the official ratio of five-to-one applied to salaries and pensions, but for money holdings only up to a threshold. Exceeding amounts in deposits and holdings were converted at lower rates, thus partially confiscated. The blocked accounts that had to be created in the 1945 reform were liquidated without compensation, thus another confiscation. The Crown re-pegged to the Soviet Ruble at a artificially high rate, which corresponded to an up-valuation of more than one third against the US Dollar, but was inconvertible. In 1957, more flexibility got introduced into the exchange policy, and effective rates were created for transactions with hard-currency economies. In 1989, before the end of the Communist rule, the official exchange rate was abolished. The Crown got devalued by about 60% and the exchange rate floated, causing another 50% decline until end 1992. The monobank structure of the State Bank was abolished in November 1989, turning it into a pure central bank again. With the dissolution of Czechoslovakia into the Czech and Slovak Republics in December 1992 all institutions were split up between the two constituents. The State Bank handed over operations to the central banks of the new states, which then began issuing their own national currencies.

Czechoslovakia joined the International Monetary Fund (IMF) on 27.12.1945 as one of the founding members. On 31.12.1954, it withdrew and joined again on 20.09.1990. On 31.12.1992 the Czechoslovak membership expired, and the Czech and Slovak Republics joined the IMF as new members.

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