countries. as a result, this goal was abandoned in less than two months and an independent czech crown – or koruna – was introduced. i should add that the cnb had its plan b and had been running preparations for the currency split since the second half of 1992. consequently, after it had decided to act, it was able to act fast. so, what lessons can we learn from this event? the lack of political will to preserve the federal czechoslovak state had quickly recognisable consequences for the common currency. as a result, the costs of the event were relatively low and order was quickly restored in both new currency markets. despite the u - turn in decision - makers ’ communication, the situation had been easy to read by markets, citizens and economic agents in general. a few years later, the czech economy was hit by a severe currency and financial crisis. until 1996, the czech republic maintained a fixed exchange rate regime and generally stabilisation - oriented ( restrictive ) macroeconomic policies. however, entry to the oecd and related capital flow liberalisation created an impossible triangle. this led to twin deficits and attempts to “ half - free ” the exchange rate regime similar to those made in the bretton woods case. additional factors such as data errors and an insufficiently credible first reform package only exacerbated the problems. serious worries of the czech national bank about its credibility and reputation contributed to its mistakes. a change of government made acts of government less predictable. the defence of the exchange rate was ended by the central bank without the knowledge of the government. this caused a wide rift to open up between these two authorities. a general lack of coordination of macroeconomic policies, and possibly too restrictive monetary policies, culminated in a severe financial crisis. the outcome was a very costly event that could, with the benefit of hindsight, be judged as avoidable to a significant extent. general u - turns made by policy authorities contributed to these high costs. even for the majority of market players, many of the decisions taken at the time were difficult to predict, read and adjust to. the chief conclusion from these two czech - made episodes of turmoil is that predictable actions produce lower - cost outcomes than unpredictable ones. this time the cnb had no plan b, so after the fixed regime was abandoned, it took several months to prepare the first coherent monetary policy framework after the end of the fixed exchange regime. all of which brings me to the current parlous situation of the euro

is consistent with maintaining our currency ’ s peg to the us dollar, which is key to maintaining confidence in the economy more broadly. the issues that i have been discussing so far have mainly affected the financial system. however, as liquidity has dried up and international bank lending has been sharply reduced, this has affected the financial system ’ s ability to provide credit to the real economy, the producers of goods and services. one result has been that the economic forecasts for the global economy have been sharply downgraded in recent months. for example, the imf predicts that the advanced economies will shrink by two percent this year, while the emerging economies will enjoy their slowest growth in the last 10 years. overall, the imf expects the global economy to grow by only half a percent, effectively at a standstill. although the bahraini economy will continue to grow, the rate of growth will slow down, in line with the rest of the gcc. it seems reasonable to assume that the impact will be similar to those of previous economic slowdowns. in particular, we anticipate declines in bank profitability as business opportunity shrinks. the supply of credit is also likely to remain constrained at least until advanced country banking systems are able to resume their role as suppliers of credit to the rest of the world. i would like to end by stressing that the government and central bank remain committed to doing all in our power to maintain economic and financial stability in bahrain. it may sometimes appear to an outsider that little is actually happening. let me assure that this is far from the case. the central bank has monitored and will continue to monitor the financial situation in bahrain very closely. we have already taken a number of measures to protect the stability of the financial system. our initiatives may not have received a great deal of publicity, but they have nonetheless been effective. thank you for your attention.