Final Word from Wednesday, February 7, 2018

Until the Czech National Bank turned on the digital printing presses and devalued the crown on Nov. 7, 2013, it kept a distance from the trendy practice of engaging in quantitative easing. CNB Board Member Lubomír Lízal said as late as May 2013 that debt monetization had been tried several times in history but had led to excessive inflation. Half a year later he and his colleagues became true believers and launched a form of quantitative easing that would last 41 months and cost Kč 2 trillion. It was a long period of easy money and a predictable exchange rate of Kč 27/euro. Jiří Rusnok took over as governor in May 2016, and the CNB lifted the cap on the crown on April 6, 2017. It seemed like a big break in policy, but few people noticed that the very next day Rusnok signaled where he expected the crown to go. He told Czech Radio (at the 31:30) mark that the CNB didn't care if the crown went to Kč 24 or to Kč 30. Last week the CNB released an official forecast of Kč 24.90 for this year and Kč 24.50 for next year. For those who knew how to listen, the easy-money effects of quantitative easing never ended. [Czech Republic bonds devaluation]

Glossary of difficult words

quantitative easing - the introduction of new money into the money supply by a central bank;

debt monetization - a two-step process whereby a government issues debt to cover its spending and the central bank purchases the debt, holding it until it comes due, leaving the system with an increased supply of money;

break - an act of separating oneself from a pre-existing state of affairs.

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