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Exchange interventions in Czech Republic

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9/6/2015 11:34:15 AM
Posted: 2 years ago

I am not economist and I have a few questions I would like to ask before forming a definite opinion on certain matter. The matter at hand are exchange interventions of central bank.
I am from czech republic (CZ). Its currency is czech crown (CZK). In the past CZK was steadily growing stronger and stronger, a few years ago 1 EURO was app 24 CZK. Czech republic is however mainly export oriented country. Our central bank was worried that deflation would start so they started interventions on exchange market to weaken CZK and since then they hold it on 27 CZK per EUR. Their justification is that they want to support czech export and they want to hold inflation rate at about 2 percent so people would spend their money. Here is where my questions come in.

1) While they certainly support export, majority of people in CZ doesn"t benefit from success of czech export companies. It seems to me that they basicaly took money from everyone in CZ (they inflated their money) and they gave that money to owners and shareholders of companies that profit from export. What is wrong with this argumentation?

2) They said they want to push people to spend their money to keep economy going yet when you basically lower people money by 10 percent from day to day how is that pushing them to spend? Doesn"t it influence them to save up their money as they are not as wealthy anymore and can"t spend so much? Maybe they would save their money in different currency.

3) They say that people are unaffected by interventions as only like 3 percent of average citizens money are spend abroad and that prices in CZK stayed the same (which is true). BUT since as of now the prices of living, houses, cars, food are the same as for example Germany, wouldn"t a mild deflation mean that prices in CZK go down? It would be then cheaper to just buy stuff in Germany so tradesmen would have to lower prices in CZK while real value of comodities would stay the same. People would just have larger wages (real value) therefore would be able to spend more.

Again I am not economist. I was pretty upset when this happened but majority of economist were saying it is a good move and I would like to get proper explanation from someone better educated before I make harsh judgements. I hope this is understandable.