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Koruna vs. Dollar and Euro: What History Says and What to Expect Over the Long Term
Key takeaways
- The Czech koruna has gently appreciated against the euro over the long term due to economic convergence.
- Against the dollar the relationship is less stable — it depends on US monetary policy cycles.
- Sharp short-term fluctuations can occur, for example during crisis periods.
- The CNB exchange rate floor (2013–2017) artificially weakened the koruna; its abandonment brought appreciation.
- For the long-term investor, currency risk is an acceptable part of the portfolio.
The Czech koruna is one of the most stable currencies in Central Europe, but its exchange rate against the dollar and euro changes over time, and that change directly affects the returns of Czech investors in foreign assets.
The Koruna and the Euro: A Convergence Story
The Czech economy is undergoing a long-term process of economic convergence — gradually approaching the average productivity of eurozone countries. Theory holds that a more productive economy tends to have a stronger currency (the Balassa-Samuelson effect). In practice, this means the koruna has a structural tendency to gently appreciate against the euro. The trend is slow — on the order of tenths of a percent per year — but cumulatively measurable. For an investor in EUR-denominated assets, this represents a mild headwind.
The Koruna and the Dollar: A Less Stable Relationship
The dollar behaves differently against the koruna. The US currency is the world's reserve currency and its exchange rate depends heavily on cycles of US monetary policy. During tightening (high rates) the dollar strengthens; during easing it weakens. These cycles repeat over horizons of 5–10 years, causing significant fluctuations in the CZK/USD rate. Historically the dollar against the koruna shows no clear long-term trend — it is more of cycles around a long-term average.
Key Historical Moments
- Currency crisis 1997 — the koruna devalued following a speculative attack; transition to floating
- Global financial crisis 2008–2009 — the koruna temporarily weakened, then recovered
- CNB exchange rate floor 2013–2017 — the CNB artificially kept the koruna above 27 CZK/EUR
- After the floor was abandoned in 2017 — the koruna strengthened to 25–26 CZK/EUR
- Energy crisis 2022 — volatility; the CNB raised rates to defend the koruna
What This Means for Czech Investors
An investor who regularly cost-averages (DCA) automatically buys at different exchange rate levels, averaging out currency risk. A globally diversified ETF spreads exposure across dozens of currencies, so no single exchange rate movement dominates the overall result.
FAQ
Does the Czech koruna appreciate or depreciate over the long term?
Against the euro the koruna has historically gently appreciated due to economic convergence. Against the dollar the relationship is more cyclical, without a clear long-term trend — it depends on the phase of US monetary policy.
How did the CNB exchange rate floor affect investors?
Between 2013 and 2017 the CNB kept the koruna artificially weak above 27 CZK/EUR. Investors buying EUR-denominated assets during this period benefited from the koruna's appreciation after the floor was abandoned in 2017.
Should I fear a weakening of the koruna?
It depends on the situation. A weaker koruna increases the CZK returns on EUR and USD assets. For an investor in foreign assets this is therefore a favorable, not a negative, development — unless you have expenses in a foreign currency.
How does cost averaging help with currency risk?
Regular investments (DCA) buy at different exchange rates — sometimes more expensive, sometimes cheaper. The average purchase price is more stable than a one-time investment made at an unfavorable exchange rate moment.