have seen in the quarter century since the mpc was created in 1997. that emphatically does not mean the regime has failed. far from it. the regime was set up for times exactly like these. the regime, founded on central bank independence, is now more important than ever. the worth of any regime is tested in the difficult, not the nice, times. to illustrate that, let me quote part of the then governor eddie george ’ s speech given at mansion house in 1997, a month after the mpc came into being : “ the technical implementation of monetary policy is not at all an exact science. it operates with long and unpredictable time lags so that we are necessarily continuously straining to peer into the future, relying substantially upon uncertain economic forecasts and carefully considered, but ultimately subjective judgements about the probabilities – and of risks – surrounding them. so i welcome the chancellor ’ s detailed reformulation of our marching orders, which acknowledges the volatility of the real world. ” wise words, which are more relevant than ever today. in the same spirit, i want to spend the rest of my time tonight setting out the judgements we are having to make now, in a real world which is certainly volatile. but i will start with one statement that doesn ’ t change whatever the circumstances : our job is to hit the inflation target, and in the current circumstances to return inflation to target, always remembering the importance of understanding time lags in policy, and lags in the impact of economic shocks. let me be quite clear, there are no ifs or buts in our commitment to the 2 % inflation target. that ’ s our job, and that ’ s what we will do. when it comes to judgements we have to make, it is important to understand the disturbances hitting the economy and their significance for monetary policy. we have seen an almost unprecedented series of such disturbances – unprecedented certainly in modern times. i am going to pick out four which have been at work in the last two and a half years and discuss them in broadly chronological order. i will start with the onset of covid over two years ago now and its subsequent waves. it is worth briefly recalling the precipitous drop in economic activity at that time, and the speculation that it would be the largest drop in three hundred years. in the end it was very big, but not quite that big. it required a very large response from macroeconomic policy. monetary and fiscal policy

financial firm in the latest turmoil. finally, and a good deal less shockingly i ’ m pleased to say, the czech national bank has been not only the central bank, but also the integrated supervisor of the czech financial industry since 2006. this set - up gives us many advantages in terms of dealing with the financial crisis and maintaining financial stability at national level, and it hopefully also enhances our understanding of the current events in the eurozone. i ’ d now like to remind you of some important events which, i feel, provide us with important lessons and guidance for dealing with the current crisis. the first of these was the collapse of the bretton woods system at the beginning of the 1970s. the key lesson from this event was the so - called impossible trinity, namely that it is impossible to have a fixed exchange rate, free capital flows and independent monetary policy all at the same time. cracks started to appear in the bretton woods system in the 1960s as a result of globalisation of the financial system and enormous growth in cross - border capital flows. this process was accelerated by the expansive fiscal policy of the usa, which fostered monetary expansion, a loss of competitiveness of us producers and growth in the us trade deficit. as bis central bankers ’ speeches soon as the rising demand for dollars exchangeable for gold encountered the limited stock of us gold reserves, the credibility of the us dollar foundered. this loss of credibility undermined the very foundations on which the global monetary system was built. the fall of the bretton woods system teaches us that a fixed exchange rate requires a consistent macroeconomic framework and corresponding coordination of all aspects of monetary policy. various adjustments to this set - up might reduce some partial imbalances, but if the cause of the problem is not tackled head on, the effects of such adjustments will be short - lived and it will only be a matter of time before the whole system comes crashing down. now let ’ s move forward in time some 20 years, to the split of the czechoslovak currency following the dissolution of czechoslovakia in 1993. for many years, fiscal transfers had masked the significantly inferior performance of slovak economy relative to its czech neighbour to the west. this performance gap was further widened by the closing - off of the slovak armament industry from the federal centre at the beginning of the 1990s. after the country split in two, the stated goal of keeping a common currency came under market pressures as czech and slovak entities transferred their deposits to czech banks and capital flowed out of both