CNB board member issues warning on common bank resolution

Common banking resolution is the "most worrying" element of European plans to establish a banking union, according to Lubomir Lízal, a member of the board of the Czech National Bank (CNB).

In an interview with CentralBanking.com at the National Asset Liability Management conference in London, Lízal says that under the current plans it is still unclear who will pay for what. "I don't think it is that practical an idea as it is proposed," he says.

Lízal says it is too early to pass judgement on banking union as a whole, but senses there will be trouble ahead. "By extending the rules to the non-euro members, it creates more problems and more tensions," he says.

Lízal is also concerned by plans for a financial transaction tax to be levied by some European nations, an idea he calls "more populist than practical". He says the attempts by countries to impose the tax beyond their borders was "alarming".

No RMB reserves yet

Lízal now oversees the CNB's cash and payments systems department, but until recently he was responsible for reserves. Asked whether he expects to see the renminbi become a reserve currency, he says for the time being it is unlikely.

"Apart from the liquidity and safety, you would also like to have the currency to not be influenced by political decisions," he says. "From this perspective, I think this currency still has a long way still ahead."

Lízal adds that he does not think central banks should consider emerging market currencies as an element of their reserves, as their high returns are offset by too much risk. "For the central bank, the return is just a tertiary view," he says.