Not dealing with inflationary pressures in a timely manner, however, could result in economic overheating and rising inflation. Most emerging markets have enjoyed great success from trade openness and export-led growth, and hence their worries arising from exchange rate appreciation are well justified. However, it is important to distinguish between real appreciation – the relevant variable from  BIS central bankers’ speeches  1  the competitiveness standpoint – and nominal appreciation. Exchange rate actions that attempt to mitigate a real exchange rate appreciation will have only transitory effects, which could provide valuable time for the economy to adjust to a new global environment and might hence be relevant from the point of view of welfare, but cannot be thought of as a permanent tool to foster competitiveness. In order to sustain the real exchange rate, real actions need to be taken, such as increasing domestic savings. It is time to rebuild fiscal buffers in emerging market economies and accelerate the pace of reforms to achieve productivity gains that can sustain competitiveness. It is important to note that the economic strength of EMEs relative to advanced economies is the main reason why their real exchange rates are appreciating. In addition, the correction of global imbalances requires both an increase in consumption in surplus economies and a shift of this greater demand towards goods produced by advanced economies, especially since in the latter growth of domestic demand will be sluggish because of the post-crisis deleveraging process. Relative price adjustments around the world should help this process.

On the other hand, there were some disadvantages, especially if compared with Poland or Hungary. The system of a command economy was very pervasive in Czechoslovakia. There was practically no private sector; prices were centrally controlled; enterprise managers were operating within the limits of a rigid system of central planning, having little autonomy in decision-making. Market institutions were mostly lacking, particularly in the case of money, capital and labour markets. Czechoslovakia distinguished itself also as a country with an unfavourably biased size pattern of enterprises: big units, mostly administratively created, prevailed, while small enterprises were almost lacking. External economic ties were biased as well, being monopolised by the state: exports were predominantly aimed at Soviet and other communist countries’ markets. Especially high was the share of foreign trade with the Soviet Union (more than 40%). Connected with this was the fact that Czechoslovakia maintained a rather large proportion of heavy industries, an extensive but mostly obsolete stock of productive capital, along with underdeveloped services, neglected infrastructure and inadequate environmental protection. In coping with the challenge of a system substitution the contraints and even the counterproductiveness of the partial reform approach seemed to be recognised and accounted for in the Czechoslovak case. This was perhaps a lesson learned from the failures of reform attempts in the past. There appeared to be a widely shared consensus that a system replacement could hardly be achieved without a sufficient initial “shock”.