How the koruna exchange-rate regime works: floating, with one big exception

For most of its modern life the Czech koruna has moved with the market, up and down against the euro in ways that reward exporters one year and importers the next. For roughly three and a half years it did something else: it sat firmly on one side of a line drawn by the central bank. That episode, and the quiet way it ended, tells you more about the regime than any textbook definition. It is also the reason Czech economists still speak of the exchange rate as a tool of monetary policy, not just a price.

This piece describes the framework. It does not forecast the koruna or give a view on where it should be.

Floating, by default

A floating regime means the exchange rate is set by supply and demand in the foreign exchange market. Exporters selling euros, investors buying Czech bonds, tourists changing money and banks hedging risk all push the price. The central bank does not announce a level, and it does not regularly buy or sell to defend one.

Czechia moved to this regime in May 1997 after a currency crisis. Before that, the koruna was tied to a basket of currencies, first within a very narrow band and from 1996 within a wide one. Heavy speculative pressure in spring 1997 forced the CNB to give up the band, and the koruna floated. The bank then built a new framework around inflation targeting, introduced in 1998, which is the subject of a companion piece on inflation targeting.

Floating does not mean the CNB ignores the rate. The exchange rate affects import prices and therefore inflation, so it is an input into every forecast. The bank has always reserved the right to intervene in exceptional circumstances, for instance to counter disorderly moves.

The 2013 to 2017 episode

By late 2013 the Czech economy was weak and inflation was well below the 2% target. The CNB had already cut its key interest rate close to zero, so it could not stimulate demand by cutting further. On 7 November 2013 it announced a different tool: it would weaken the koruna by intervening in the foreign exchange market, and it would hold the koruna at a level of around 27 per euro, selling koruna and buying foreign currency in unlimited amounts if necessary to stop it rising beyond that.

The commitment was one-sided. The koruna could weaken, but the CNB stopped it from strengthening past the floor. This gave the exchange-rate commitment its credibility: speculators could not win by betting on appreciation, because the central bank could create any amount of koruna.

The policy worked as designed. Inflation returned toward the target, and the economy recovered. In the process the CNB accumulated a large amount of foreign exchange reserves, because every koruna it created bought a foreign asset. The exit was announced for 6 April 2017, when the bank said that the commitment was ended and returned to a floating regime. The currency moved only modestly in the days after, partly because the exit had been well signalled, and the bank held a large stock of reserves to manage the tail.

Why it matters that the CNB did this

The episode challenged the idea that a small open economy must either fix its exchange rate or float it entirely. The CNB did both at different times. It also showed what a central bank can do when rates are stuck near zero. Other countries, including Switzerland, used similar tools around the same period, and each case ended differently. Czech observers note that the exit was orderly, which is part of the bank's reputation for predictability.

For businesses and individuals, the main lesson is that the exchange rate regime can change. A firm that priced contracts on the assumption of a 27 floor was relying on a policy, not a law of nature. It is worth remembering when a tidy chart of a calm exchange rate seems to promise a calm future.

Reading the rate

The CNB publishes the exchange rates of the koruna against the main currencies each working day, fixed in the early afternoon and available on its website. This is the reference rate. Czech tax and accounting rules often refer to it, or to an annual average rate that the Ministry of Finance publishes, when converting foreign income and expenses. Banks and exchange offices quote their own buy and sell rates around the reference. The difference between those is their spread.

For tax purposes, income in foreign currency is converted to korunas using rules set out in the Income Tax Act and guidance from the Financial Administration: typically the rate on the day of the transaction or a unified annual rate published by the Ministry of Finance (as of 2026; check the official source). Our guide to the personal tax return mentions the practical side.

What drives the koruna

Several things move it. Interest-rate differences with the euro area: higher Czech rates attract capital. The state of Czech and global growth. The balance of trade: Czechia is an export-heavy economy, Germany is its largest trading partner, and firms that sell abroad and pay costs at home create demand for koruna. Investors' appetite for risk: in global stress, money tends to leave smaller currencies. And expectations about CNB decisions, described in our piece on how the Board decides.

None of these gives a reliable forecast. The advice that applies to any currency is to avoid betting on a rate you cannot afford to be wrong about, and to spread conversions over time if you have a large sum to move.

What a firm can do about it

Businesses with income in one currency and costs in another have standard tools. They can invoice in korunas and push the risk to the customer. They can match revenues and costs in the same currency, for instance by borrowing in euros against euro sales. Or they can hedge with forward contracts that fix a rate for a future date, which the Czech banks offer to business clients. None of these is free, and a hedge that locks in the current rate also locks out any favourable move. The 2013 to 2017 episode showed that a regime can change in either direction, so hedging policies are better set by the firm's risk tolerance than by a view on the CNB.

Individuals in a similar position, for example someone paid in euros who pays rent in korunas, face the same question on a smaller scale. The simplest practice is to keep a few months' costs in korunas and convert the rest in regular tranches, not in one move.

Intervention today

Under the current regime, the CNB says it can intervene if the exchange rate threatens price stability or financial stability, for instance in a market panic. It no longer commits to any level. When it does use the market, it announces what it did in its regular reports. The foreign exchange reserves built up in the earlier period remain as a buffer, and the bank has said that it manages them with a view to returns and safety.

Frequently asked questions

Does the CNB fix the koruna's value?

No. The koruna floats. The bank can intervene in exceptional circumstances but has no standing target.

What was the exchange-rate commitment?

From November 2013 to April 2017 the CNB held the koruna from strengthening beyond about 27 per euro, to ease monetary conditions when interest rates were already near zero.

Which exchange rate do tax rules use?

Usually the CNB rate on the day or a unified annual rate set by the Ministry of Finance, depending on the case (as of 2026; check the official source).