Feb.
16
2016

A differently unorthodox central banker

The manipulation of foreign currency exchange rates is easily within the limit of the central bank’s toolkit – says Mojmir Hampl, Vice-Governor of the Czech National Bank.
In this interview he gave to Alapblog, the Czech central banker talks about the infinite opportunities of the monetary policy. However, he also says that an independent central bank cannot give any money to the government either directly or indirectly.
He does not hide his concerns about the euro either: according to him, in times of great problems, the initial expectations for a single European currency would not be fulfilled. He believes people outside of the euro-zone turn towards the euro, only when they lose their faith in their own currency; however, if their savings are still in their national currency, it means they are satisfied with the central bank.

Péter Zentai: ‘’A central bank can do as they please.’’ Do you know whom I quoted?
Mojmir Hampl
: Me.
That is right. Do you deliberately want to provoke your audience when you say such things?
I am absolutely serious when I say this. The sky’s the limit to a central bank’s actions. We could easily drop enormous amount of money from a helicopter or allocate X amount of money to each household if we wanted to.

As far as I know, the Czech National Bank does not buy properties or even paintings? Why not – since you could easily do so…
We could not do that. I only wanted to depict the boundless opportunities of the monetary policy.
When I say, the sky’s the limit, I only mean that to secure the stability of prices – and effective demand indirectly – central banks can make use almost limitless tools. However, the laws of certain countries – regarding EU member states – and European contracts prohibit central banks of becoming market operators.

The ‘productions’ of the Czech National Bank in the recent years are referred as unorthodox in the world media. Do you agree with it?
I would use this adjective more carefully. I think a central bank policy that actively influences domestic currencies for monetary stability is less unorthodox, than one where bond purchase programmes play a key role. We notoriously refrain ourselves from utilizing the latter tool.
However, I do admit that before the 2008 crisis, it would have been absolutely unconventional for a central bank actively intervening in a country’s exchange rate developments.

So, the Czech National Bank deliberately manipulates the market?
Typical journalist approach… Anything that a central bank does to realize the aims of monetary policies can be viewed as manipulation. Cannot we call changing the base interest rate, the most usual central bank intervention a manipulation?
The Czech Republic has lived through the longest deflationary period of the modern world between 2008 and 2013. We fell into depression, our economy was withering: from consumer prices to stock and property market prices everything became cheaper. In those five years, the Czech was the world champion at saving: economic operators held back or postponed their planned purchases, investments were zeroed out, and the government increased the budgetary rigour. And, in the meantime, the crown was getting stronger.

Then, in 2013, it changed thanks to the central bank?
The central bank’s intervention was extremely drastic – compared to its earlier actions: we devaluated the crown by 4.8 percent. On 7th October 2013, we said we would not allow the euro to be worth less than 27 crowns. Our message was clear to domestic and foreign market operators: for the population, enterprises, and foreign investors it was absolutely pointless to speculate any strengthening because the amount money we were willing to spend to prevent the appreciation of the crown had no limits.

Was your message to weaken the Czech crown, to devaluate the country’s currency, and to start creating money?
Your wording is of course far from being professional, but essentially it is right. The message we sent was if they forced us, then we would issue unlimited money. The point is, such an expansion of the tools of the monetary policy might have had a key role in the Czech Republic becoming Europe champions at economic growth…

I thought we were those…
I can refer to the official EU statistics only: the GDP of the Czech Republic widened by 4.1 percent compared to last year; none of the other member states could achieve the same.

Now, that credit rating agencies, too, believe that the Czech economic growth is going to be stable, are you planning to join the euro-zone?
It should not be me but the politicians to answer this question. The adoption of the euro is a purely political matter, since the creation of a single currency was a political decision as well.
However, I would not like to contradict my explicitness, and I am going to be honest. I do not think euro is a ‘good product’. From a professional point of view, I do not see how a single currency would contribute to the development of economic integration within Europe. Lately, we are starting to experience that a single currency does more harm than good. At its creation, people did not consider troubled economic-financial times.  They looked at growth cycles only.
The moral of the story is – in case of the Czech Republic and any other country – that market operators, including the public too, exchange their money to euro and take it abroad only if they no longer trust their own currency. However, if they keep their savings in – whether the euro exists or not – domestic currency, it means that the policy of the central bank is appropriate. So, if the population feels confident about the domestic currency, then the need for a new currency drops.
But it is not my or the National Bank’s responsibility but the Czech political elite’s to decide if they change their own central bank to another.

Original date of Hungarian publication: October 21, 2015