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The crown - before and after

The Slovak crown used to be one of the world currencies whose flows were to a large extent liberalised by the central bank, though its movements were not determined by supply and demand forces on the maket.
Under the fixed exchange regime, abolished on October 1, the crown was pegged to a currency basket consisting of 60% German marks and 40% dollars. The central bank guaranteed that the crown would only move within a corridor of plus/minus 7.0% around a central parity of this basket.
This basket parity used to be calculated every day at exactly half past eleven in the morning, according to mark/dollar movements on world markets. The central bank then had around 10 to 15 minutes to move the crown's fixing rate somewhere around the parity within the fluctuation band.

The Slovak crown used to be one of the world currencies whose flows were to a large extent liberalised by the central bank, though its movements were not determined by supply and demand forces on the maket.

Under the fixed exchange regime, abolished on October 1, the crown was pegged to a currency basket consisting of 60% German marks and 40% dollars. The central bank guaranteed that the crown would only move within a corridor of plus/minus 7.0% around a central parity of this basket.

This basket parity used to be calculated every day at exactly half past eleven in the morning, according to mark/dollar movements on world markets. The central bank then had around 10 to 15 minutes to move the crown's fixing rate somewhere around the parity within the fluctuation band. Commercial banks could then trade with the central bank through its fixing.

The central bank guaranteed that it would buy or sell any amount of hard currencies at its fixing within the fluctuation corridor. However, as was the case in August and September, the absolute lack of investors willing to sell hard currencies and buy crowns on the one hand and the heavy corporate hard currency purchases on the other created strong pressures on official hard currency reserves, which fell to an equivalent of 2.4 months imports at the end of September. The safe level for the economy is around 3 months of imports.

The central bank could not risk further decreases in its official reserves, and thus decided to let the crown float, leaving the forces of supply and demand to determine the crown's future. However, the floating is not absolutely free - it is what is called managed floating, since the central bank is still following the crown's movements against German mark on the market, and may intervene to support the crown if it falls too low.

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