Forex Trading in the Czech Republic and CNB Forex Brokers

CNB logoYou will find the same number of people recommending Forex trading as a great form of investment as you will  advising you to steer clear of such a risky way of making money. This isn’t an unusual situation, as you are always going to find advocates as well as dissenters. The attractiveness of Forex trading hasn’t been helped by the number of scams, frauds and unscrupulous behaviour that have tainted its reputation. In order to reduce the chance of falling victim to a scam, it is advisable to look for a regulated broker.

In countries where Forex trading is legal, there will be a local regulatory body responsible for overseeing the industry. In the USA there is the CFTC, in the UK there is the FCA, and in the Czech Republic there is the Czech National Bank (CNB).

An introduction to the roles of the Czech National Bank

The CNB is the central bank of the Czech Republic and the supervisor of the country’s financial markets, which of course includes Forex brokers in the Czech Republic. The Czech National Bank has quite an impressive history, but we’ll introduce you first to its regulatory powers.

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Maintaining the stability of prices and encouraging a low rate of inflation are the CNB’s main roles, and this is the way in which it contributes to the economic growth of the country. However, it does have a number of other important aims, including its support of financial stability and the sound operation of the financial system. The CNB also sets monetary policies, issues banknotes and coins,  and oversees their distribution. It also has responsibility for all businesses and organisations operating in the capital markets, banking sector, insurance industry, pension funds, credit unions, bureaux de change, electronic money institutions, and Forex brokers in the Czech Republic.

How does the CNB help those looking to start Forex trading in the Czech Republic? By setting the rules and regulations all those involved in the industry have to comply with. It acts as a watchdog for consumers in relation to financial institutions, including CNB-regulated brokers. If an organisation or business is found to be breaking the rules it runs the risk of a penalty, or even the suspension of its licence.

How the Czech National Bank came about

Czechoslovakia came into being in 1918 following the collapse of the Austro-Hungarian Empire after World War I. A new central bank and currency were also called for, which is why the first independent banking system was established. It wasn’t immediately known as the Czech National Bank, but was instead called The Banking Office of the Ministry of Finance. It controlled the government debt, and the circulation and issuance of the country’s currency.

The country suffered a bad economic downturn between the years 1921 and 1923, which led to the Finance Minister introducing deflationary policies in order to prevent further hyperinflation. Such changes were not taken very well and the Finance Minister was thought to be to blame, at least in part. Unfortunately, this led to his assassination in 1923.

The National Bank of Czechoslovakia was created in 1926, and during the following few years, Czechoslovakia enjoyed a period of economic prosperity. GNP reached an impressive high, manufacturing was successful, and the currency exchange was strong; so strong that there were more than 200 credit unions and more than 100 banks.

It all started to go wrong again in 1929 when the American stock market crashed, and was followed by the Czech economy entering a period of depression. The crisis was further impacted by the bank’s inability to convert currency into gold. Obviously this led to a great deal of unrest, and a number of different options were explored in order to redress the balance. Unfortunately, such indecision led to further imbalance, particularly politically, which only served to hinder the recovery of the country’s economy.

Czechoslovakia suffered more upheaval during World War II when it was annexed by Germany. As the country became part of Nazi Germany the National Bank was renamed the National Bank for Bohemia and Moravia. After the end of the war, it returned to its former name.

The Central Bank was nationalised in 1950 and became the State Bank of Czechoslovakia under the new communist regime, and became a commercial, investment, and central bank. It also had a number of different roles, including that of a supervisory agent of the government. As such it was in charge of economic planning and the issuance of credit to individuals as well as overseeing the operations of other state-owned banks and savings banks, and the Commercial Bank of Czechoslovakia, which at the time was responsible for foreign currency exchange.

The Czech and Slovak Republics split in 1993, and the State Bank became The National Bank of Slovakia and the Czech National Bank.

Does the Czech National Bank protect consumers?

In 2008, an act was passed that gave the National Bank further responsibility for consumer protection. It was able to accept suggestions, consumer notifications and complaints, inspect supervised financial service providers, answer inquiries, and publish its opinions.

It also took the financial literacy of the country’s residents seriously and promoted its work through free manuals, which were handed out in local schools and seminars held for teachers. It also more recently created an interactive exhibition, which highlights the work of the Central Bank and increased young people’s interest in finance and economics.

Needless to say, we have been very impressed with the work of the Czech National Bank, and would advise anyone looking for a Forex broker in the Czech Republic to consider those that are CNB regulated. By doing so you will ensure the best protection of your investment, and reduce the risk of losing everything should your broker go out of business.