Boris Vuji: Stay the course in turbulent times - old and new
challenges for central banks
Speech by Mr Boris Vuji, Governor of the Croatian National Bank, at the 8th Annual
Conference of Mediterranean Central Banks, Split, 14 February 2024.
* * *
Dear Governors, Excellencies, distinguished guests, ladies and gentlemen, good
morning to everyone.
After a nice evening yesterday, it is my great pleasure to welcome you to the official
part of our conference. I am delighted that you could join us on this year's
Mediterranean Central Banks' conference that Croatia is hosting for the first time in our
beautiful city of Split.
First, let me welcome Mr. Luis de Guindos, Vice-President of the European Central
Bank, who kindly accepted our invitation to give a keynote speech at our conference
today.
I am also happy to welcome my colleague governors - Pablo, Mario, Edward and
Boštjan. This conference gives us an excellent opportunity to discuss common issues
from a broader perspective and from different viewpoints.
Let me also thank all the panellists and other participants for coming here to enrich the
conference by sharing your great knowledge and experience with us.
Finally, I would like to express my sincere gratitude to our co-organizers from the Banco
de España, the OECD, the European Institute of the Mediterranean and the Union for
the Mediterranean, for all their good work, excellent cooperation and help in organizing
this conference. In this regard, I sincerely thank his Excellency Nasser Kamel,
Secretary General of the UfM, Mr. Senén Florensa, Executive President of the IEMed,
and Mr. Luiz de Mello, director of the OECD's Economics Department for joining us
today and Pablo Hernandez de Cos, governor of the Banco de España.
The objective of this conference is to discuss some of the key common challenges we
as policymakers face today, from those immediate ones, such as central bank credibility
considerations in high inflation environment, to the ones of more structural and
longerterm nature, such as inclusion and financial sector risks stemming from climate change.
With that agenda in mind, I would like to take a step back and put the current
environment in a historical perspective by diving more deeply into the past.
As I have said yesterday evening, the city in which we have gathered today - Split - was
established by the Roman emperor Diocletian. He built his retirement palace here more
than 1700 years ago. Textbooks usually mention the ruling of Diocletian in a rather
negative context because of his brutal persecution of Christians. However, when it
comes to governance, he was known as a great reformer. His political, administrative
and economic policies helped Rome recover from the crisis the empire was going
through in the third century.
One of his key structural reforms, and a successful one, was the reorganization of the
Roman provinces.
And since quite a lot of money was needed to fund this reorganization, he also
introduced a new tax that was a combination of the tax on agricultural land and the tax
on individuals. The tax base was determined on the basis of a gigantic land register of
the wealth of the entire Empire, and the tax was introduced throughout the Empire,
including Italy which was until then free of land taxation1 . So, 17 centuries ago
Diocletian understood the importance of maintaining a sustainable fiscal position while
financing reforms, and that it required boosting tax revenues through widening the tax
base while making the tax system simpler and more equitable.
One of the toughest struggles Diocletian faced during his reign was
hyperinflation. His predecessors, like many other rulers in history, had a bright idea for
having more money by minting more coins. They were doing it by adding more
worthless metals to the silver coins. As a result, the Roman currency was losing its
value, and what followed was a period of hyperinflation . By the time Diocletian came to
the throne, a barter economy had become the norm in many places. So, to combat
inflation, Diocletian reintroduced new gold and silver coins of fixed design.
However, another one of Diocletian's ideas to curb inflation was to set a cap on prices
and wages. In year 301, he introduced his famous "Edict of maximum prices". This was
a document that attempted to list every item people bought regularly and its maximum
price. The Edict covered all types of commodities, as well as occupations - in total
about one thousand items. Here are some examples: crushed beans costed 100
denarii; uncrushed beans, 60 denarii; writing was 25 denarii for 100 lines of best quality
2
writing and 20 denarii for second quality writing. But although the violation was
3
punishable by death , this measure was widely resisted, and goods disappeared from
the markets creating an even larger black market, so the Edict was eventually revoked.
The Edict clearly ignored the economic law of supply and demand and ultimately
proved to be unenforceable in the long run. Despite this, there were many similar
attempts to control prices later through history. The lesson here is that price controls
may be effective on a very narrow set of products and services and on a short-term
basis, as price controls over a longer run distort market signals and lead to inefficient
allocation of goods and services. Interestingly enough, this lesson continues to be
relevant even nowadays. Only a year or two ago, quite some countries introduced
various forms of price controls in response to the global energy and food price shocks.
That was probably the most pragmatic and feasible short-run policy measure at that
moment. There are still some leftovers of price controls around, but we have to make
sure not to overuse them. In addition, we used monetary policy, which did its part of the
job, and it is still delivering. All in all, inflationary pressures have been abating, and in
case we do not face some new shocks, inflation should gradually come down, and
hopefully in a sustainable manner, to our medium-term target.
We know how important it is that monetary and fiscal policies play hand in hand in order
to achieve that objective. We also know how important role monetary authority's
credibility plays in this regard. And we should never ever forget that credibility built over
many decades can be wiped-out literally overnight. This is just one of the topics we will
touch upon later today in our first panel.
But before that, let me pass the floor to our co-organizers, or may I say, co-hosts, for
their introductory remarks - first, my dear colleague Mr. Pablo Hernandez de Cos,
governor of Banco de Espana.
Thank you, and I wish you a pleasant stay in Split and fruitful discussions today.
1
https://www.britannica.com/biography/Diocletian/Domestic-reforms
2
https://mises.org/library/edict-diocletian-case-study-price-controls-and-inflation
3
https://www.britannica.com/biography/Diocletian/Domestic-reforms