11.

• National Bank of Slovakia

  Established in 1993
• Responsibilities of the National Bank of Slovakia (1993-2008)

  • Monetary Policy
  • Money emission-circulation in economy cash - or non-cash money
  • Financial market supervision
  • Operator of Payment systems
  • Statistics
  • Legislations- a law or set of laws suggested by a government and made official by a parliament
• Responsibilities of the National Bank of Slovakia (2009-)


  • Participates in the common monetary policy of the ECB
  • Manages the cash circulation in Slovakia
• National Bank of Slovakia

  • Established in 1993
  • Member of Eurosystem
  • Member of ESCB (European System of Central Banks)
• Responsibilities of the Eurosystem

  • Monetary policy
  • Foreign exchange interventions
  • International reserves
  • Amount of currency in circulation
• Role of the National Bank of Slovakia in the Eurosystem

  Participate in the common monetary policy in the euro area that is determined by the European Central Bank (ECB)
• Governor of the National Bank of Slovakia

  • Member of the Governing Council
  • The ECB's decision-making body
  • Responsible for formulating monetary policy for the euro area as a whole
• Primary objective of the single monetary policy

  Maintain price stability
• Price stability

  The annual growth rate of the harmonized index of consumer prices (HICP) in the euro area of 2% over the medium term
• Legal tender


  Money that must expected by all financial institutions in the country
• Commemorative coin


  Legal tender issued on some special occasion, event
• Collector coin


  5 euro, 10 euro, silver/gold
• Factors determining banknote allocation

  • Population
  • Economic performance
• Financial crisis (FC)


  Decline in the values of financial assets (bond, stocks)
• Economic crises (EC)


  Covers financial crisis, economy slumps
• Types of financial crises

  • Currency crisis
  • Sudden stop crisis
  • Foreign debt crisis
  • Bank crisis
• Indicators of financial crises


  • Financial liberalization or innovation with weak bank regulatory systems
  • Imbalances in macroeconomic fundamentals
  • Internal (households are getting more debt) and external shocks (political, global situations)
  • Changes in credit volumes
  • Disruptions on the financial market (disturbance in financial intermediation)
  • Large-scale government support
• Currency crisis


  Occurs because of the diminution of the foreign currency reserves of the CB (sudden shift of the demands of the market stakeholders from local currency assets to assets in foreign currency)
• Speculative attack in the foreign market

  Enormous and unanticipated selling of a nation's currency by investors (targets currencies of countries that have fixed exchange rate-pegged exchange rate)
• Devaluation


  Decrease in the official price of a nation's currency, as expressed in the currencies of other nations or in terms of gold (fixed exchange rate system)
• Depreciation


  Fall in market price of a currency (floating rate system)
• Pegged exchange rate


  Country pegs its currency at a given exchange rate and stands ready to defend that rate (pegging the exchange rate to a strong anchor currency-often the dollar)
• Flexible exchange rate/floating


  Is predominantly determined by market forces (supply and demand) when the CB is forced to protect the currency by selling large amounts of reserves or raising interest rates significantly
• Sudden stop crises (balance-of-payments crisis)

  Large reduction in the flow of international capital inflows (big drops in external financing), country's official foreign exchange reserves may be the only ready means for paying off foreign short debts
• Debt crisis


  Country is unable to pay its public and/or private external debts, occur when borrowers fail to pay their debts, or when lenders try to repay existing loans and fail to make new loans (due to possibility of default)
• Banking crisis


  Commercial banks fall into liquidity problems and subsequently go bankrupt (the maturity of their debts cannot be extended), commercial banks cannot meet a sudden demand for money withdrawal
• Mexico crisis (1994)


  Joined the North American Free Trade Agreement (NAFTA) on January 1994, foreign inflows increased substantially and the debt of Mexican banks to foreign banks was increasing, crawling peg system (November 11, 1991-December 21, 1994), in March 1994 political instability sparked investors concerns that the peso might be devalued, December 20, 1994-devaluation of peso (15%), December 22, 1994-implementation of floating exchange rate, after which peso depreciated by 15%, devaluation was followed by a loss of investor confidence, currency devaluation caused other currencies in Latin America to decline, Tequila Effect/Shock/Crisis, in early 1995 Mexico received financial support from the US, IMF, and Bank for International Settlement
• Asian Crisis


  Before crisis: models for many other countries, business-friendly policy, cautious fiscal and monetary management, high rates of savings and investment supporting GDP growth (5%-10%), several exchange rates in East Asia were pegged to the US dollar, Losses of competitiveness in countries with dollar-pegged currencies contributed to their export slowdowns in 1996-1997 and wider external imbalances. The crisis: started on July 2, 1997 with the devaluation of Thai baht relative to the US dollar, Thailand had been showing signs of financial strain for more than a year (nation's real estate market and stock market declined), in the first half of 1997 speculation about possible devaluation of the baht led to an accelerating loss of foreign exchange reserves, the sharp drop in the Thai currency was followed by speculation against the currencies of Malaysia, Indonesia, South Korea, the down turn in East Asia was V-shaped, after the sharp output contraction in 1998 growth returned in 1999 as depreciated currencies spurred higher exports.