6.1 National Bank of Slovakia

The bank sector of SR is a two-stage system. The first stage consists of the central bank (NBS), the second stage of all other banks. The National bank of Slovakia (NBS) maintains price stability, security, credibility and effectiveness of the bank system en block. Other banks provide system of payments of entities in economics, accept deposits and provide loans.

The main target of NBS is to maintain the price stability. For this purpose, NBS :

determines monetary policy (determines the amount of money in circulation) ,

issues banknotes and coins ,

controls, coordinates and ensure the circulation of money, payment system and settlement of payment data and cares of its continuousness and efficiency ,

supervises safe operation of the banking system and performance of banking activities ,

performs other activities pursuant to the Act on NBS

In addition to the above stated main tasks, NBS also :

conducts operations :

a) with banks - regulates their activity, trades with them and provides loans ,
b) with SR - ensures financial operations of the country ,
c) other operations - issues short-term securities ,

has a jurisdiction in respect to the foreign exchange management – announces the exchange rate, holds and manages the monetary reserves in gold and the foreign exchange assets ,

coordinates the development of the banking information system ,

keeps a list of banks ,

enters into payment and other agreements with foreign banks and international financial institutions within the limits of its jurisdiction ,

NBS ensures cooperation with foreign rating agencies in determining the rating of SR, which means the review and assessment of the ability and readiness of SR

to discharge its financial obligations

The monetary policy is the process by which the central bank regulates the amount of money in circulation. In the scope of the monetary policy the central bank determines instruments and methods by which the concrete performance of the monetary policy is realized. I.e. economic (not directive) instruments by which the central bank regulates the commercial policy of banks and branches of foreign banks in SR.

These instruments include :

interest rate ,

minimal reserves ,

open-market operations

The central bank realizes its monetary policy by means of commercial banks. By means of them it affects the monetary environment by managing of liquidity volume in the bank sector and by determining the price for which the banks can borrow liquidity or save excess liquidity. In a simple way, we can display this relation as a money movement from the central bank through the commercial banks to the enterpriser or the citizen.

If NBS wants to reduce an extreme rate fluctuation, it may enter the exchange market and intervene either in favour of the currency if the currency baselessly decreases (NBS buys Slovak crowns for foreign exchanges), or against the currency if the currency excessively strengthens (NBS sells Slovak crowns and buys foreign exchanges).

The floating rate of the crown was cancelled after seven years. Slovakia entered the European Exchange Rate Mechanism (ERM II) since November 26. In this system, the national currencies are fastened together with the Euro by means of central parity – an administratively determined rate. The national currencies can fluctuate only in the zone between plus 15 percent and minus 15 percent of the determined parity (relation between various money units). The official exchange rate of our currency and the European currency (central parity) was determined as 38.455 crowns for one Euro. The central parity was suggested by NBS. The crown may fluctuate (weaken or strengthen) maximally by 15 percent in relation to the determined parity. I.e. the Euro may cost between 32.69 and 44.20 crowns. If the development of the exchange rate approaches the limits of the zone the European central bank and the central banks of the Euro zone may help NBS to upkeep the currency in the determined zone by means of interventions.