Because the increasing inflow of foreign money was accompanied by a continuous demand for credits on the part of enterprises (financed partially also from foreign resources), this situation called for the sterilisation of excess funds, taking into account the goals of monetary policy. Paradoxically, due to the government’s sound fiscal policy, we were confronted with an insufficient amount of government securities, and therefore the CNB had to issue its own bills and sold them to commercial banks to weaken the impact on the volume of money stock. A certain turnaround has occurred since the end of 1995. Contrary to previous years, the foreign sector helped to weaken money supply growth due to an increasing balance of trade deficit and the slower growth of foreign capital inflows into the country. Exchange rate policy The above-mentioned development of the composition of the monetary aggregates has influenced attitudes vis-à-vis exchange rate policy. At the beginning of the transformation we were faced with the difficult choice of setting an appropriate exchange rate. On the eve of the programme of price and trade liberalisation the government took the decision to use the exchange rate as a nominal anchor because in a small, open economy the domestic price level is heavily affected by the exchange rate. Having taken into account various considerations in December 1990, we fixed the new exchange rate at 28 Czechoslovak crowns per US dollar, which then was about the middle ground between the parallel black market rate and the calculated cost of earning one dollar of foreign exchange.

Within its macroprudential mandate, the ECB will contribute to this end. Despite the potential for monetary policy to influence economic growth in the short term, strong, sustainable and balanced growth requires other policymakers to assume their responsibilities. From a global perspective, one of the key ingredients for raising potential growth and productivity is openness. Open trade, investment and sustainable financial flows play a key role in the crossborder diffusion of new technologies that drive forward efficiency improvements. Preserving openness is thus key to strengthening global growth potential. It should be underpinned by effective multilateral cooperation, including in the field of financial regulation and supervision. As regards the euro area, strengthening its long-term growth potential calls for decisive action to address the remaining structural issues. Reform implementation needs to be substantially stepped up, with further actions to improve the business and regulatory environment aimed at boosting investment and increasing productivity. Labour market rigidities need to be reduced further to enhance job creation and reduce unemployment, especially for young people. To foster reform implementation at country level, a full and consistent application of the EU’s policy framework is required, including the European Semester and the macroeconomic imbalance procedure. Likewise, full and consistent implementation of the Stability and Growth Pact remains crucial to ensure confidence in the EU’s fiscal framework and to safeguard public debt sustainability. In the current environment, a broadly neutral euro area fiscal stance strikes an appropriate balance between aggregate stabilisation and sustainability needs.