to 1991 - croatia at that time being part of former yugoslavia ), average inflation was 69 % per annum. in 1992 and 1993 the average yearly inflation was more than 1000 %. similar trends remained until october 1993, when the stabilisation program was launched. from my personal experience i can assure you that in a highly inflationary environment a household ’ s objective is to avoid the inflation tax. currency substitution and “ shopping around to find old prices ” are the main behavioral patterns, not long - term planning. the same can be said for production. what is the purpose of getting a monthly 2 % efficiency gain in some production process if monthly prices change more than 20 %? the same principle applies if monthly inflation is more than 4 % as it was in croatia ( on average ) in the two decades preceding independence. throughout that period gdp was either stagnant or falling. 3 gdp started to increase only in 1994, after prices were successfully stabilized. the costs of inflation are relatively well analysed in the literature, so there is no need to analyse them any further, but let me reiterate that it is important that the incentives in a country help people produce new wealth and not put their efforts into redistributing it. inflation favors predation over production. the second important function of the central bank is a stable financial or, more narrowly, banking system. but, banking crises have affected a large number of countries and almost none of the transition economies escaped them ( frydl, 1999 ). a lot of transition economies passed through two banking the dramatic fall in gdp in croatia in the early nineties cannot be attributed to inflation alone. it was not even the main contributor. the disintegration of former yugoslavia, war and transition were taking place at the same time. crises : the first was the crisis of the old banks with their legacy ( dubious assets ) from the previous economic system. the second crisis occurred in banks founded after changes in the economic system that were not able to remain viable, because of either weak management and / or increased competition in the market as the transition period progressed. croatia followed that pattern. the first banking crisis, the crisis of the old banks, as they were called, started with the beginning of the transition process ( and even before it ), and is even now ending with the sale of the rehabilitated state banks to foreign strategic investors. the costs of this crisis, brought about by the legacy of the past and as is too often

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 bostjan. 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 espana, 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. senen 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 espana. 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