CNB's Frait: the fiscal dominance consensus is as unconvincing as low for long was

Serguey Asael Shinder13 October 2026, 06:542 min read

Jan Frait, Deputy Governor of the Czech National Bank, opened the bank's "New challenges in central banking" conference in Prague on 6 October 2026, marking 100 years since the National Bank of Czechoslovakia began operating. The remarks were published by the BIS.

Fifty years of floating. Frait recalls that the Jamaica Accords of January 1976 formally confirmed the end of the Bretton Woods system and "legalised" floating exchange rates — an anniversary, he says, that "few people remembered and probably nobody celebrated". Because the post-Bretton Woods order is young, central banks have lived through only a small number of economic and financial cycles under it, which limits what they can know about how it works.

Feedback loops. He argues that interest rates are pushed by how markets, the media, central banks and academics react to one another, and that these mechanisms can act as powerful amplifiers. The feedback runs not only between central bankers and markets — the "hall of mirrors" debate around Federal Reserve policy — but also between central bankers and academic economists, and among central banks themselves.

"High for long". Frait notes that markets have moved from "low for long" to "high for long", with demographics now cited as a reason for higher long-term rates when a few years ago they were cited for secular stagnation. What he sees is a fairly strong credit expansion in private and public debt, and he recalls Friedman's point that ever-faster monetary expansion to boost activity is ultimately futile — the same logic, he says, applies to fiscal and private credit expansion, which can end not only in inflation but also in sharp disinflation.

Bank regulation. He warns of "a coordinated effort" in Europe to relax bank regulation and supervision in the name of unlocking "trapped" capital, even at the cost of a more lenient approach to liquidity risk and sovereign risk — both, he says, at the heart of recent crises — and calls the nostalgia for banks with assets 33 times their capital "genuinely striking".

Fiscal dominance. Frait finds the near-consensus that large public debt will lead to fiscal dominance and constrain central banks "just as unconvincing" as the earlier one that required prolonged ultra-loose policy. Conceding in advance that the commitment to sound money might waver, he says, would create moral hazard and amount to granting a put option on the monetary financing of over-indebted sectors.

Source: Czech National Bank, opening remarks by Jan Frait, published by the BIS — https://www.bis.org/speeches/20261007-czech-koruna-50-years-after-beginning-post-bretton-woods-system-and-czech-national-bank-100-years-after-establishment