Sunday, March 26, 2017
   
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Reflections about the Past and Present of Polish Currency

One of the results of joining the European Union was the strengthening of Polish currency. At the beginning of 2004, Polish currency (zloty) was losing value, reaching 5 zloty per 1 euro. Investors were selling Polish zloty since they were concerned about the crisis of the public finances and fast growing national debt. The government began selling treasury bonds to attract foreign investors. Then Poland became a member of EU and Polish currency value kept growing since Polish economy got a boost from joining the Union. Increasing food exports as well as the influx of Euro money and investments strengthened Polish economy and Polish currency again.

The high value of Polish zloty caused the decrease of the national debt by about 2.5%, especially since the debt is counted with respect to foreign currencies rather than zloty. Polish zloty became stronger against EU by about 11.1 % and against the US dollar by over 17%.

The high value of Polish currency is one of the aspects of Polish life that is a complete novelty for people like me who lived their whole life in the times when our currency was weak and used only domestically. For the forty years after World War II, the zloty was weak and became even weaker when hyperinflation struck in the late 1980s. Zloty was only our "local" currency and was used to purchase only the most necessary or rationed products. There were two exchange rates for zloty - one was the official one and one unofficial, so-called black market rate. The official exchange worked only in one direction: all foreign visitors from outside the Soviet-block countries were forced to exchange a certain fixed amount of their money into Polish money per every day of their stay in Poland according to official rates. The unofficial rate of zloty versus dollar was much less favorable for zloty but worked both ways. What is interesting is that the unofficial, black market exchange rate of zloty was regulated to a big extent by the price of Polish vodka, since Polish vodka was available in the regular stores but also in so called Pewex stores where one could buy everything for hard currency. Although the fixed prices for Polish food products were kept low, the price of alcohol was relatively high due to the policy of the government, which wanted to prevent alcoholism, therefore its dollar price attracted not only the foreigners but also Poles and its sales in dollar stores were significant.

The unofficial course of zloty became so low that the average monthly salary was about 20-30 dollars. You can imagine what our stores looked like, they were almost completely empty, the food and some other products, first sugar, then meat, even cigarettes, soap, shoes, chocolate and even diapers were rationed. People spent many hours in stores waiting in lines to be able to buy food at the fixed low price, you can imagine how this affected our lives. In the 1980s, the supply became so poor that different companies were exchanging goods without even using money - for instance, soap for chickens. Any exported goods like lemons, bananas or oranges were either unavailable or ridiculously expensive. Long lines of people waiting to buy meat, lack of butter and toilet paper - these are the memories from my childhood in the 1960s. But it was getting progressively worse. The1980s brought empty shelves to almost all stores. The only food products remaining on the grocery store shelves in Krakow that I remember were pickles, tea and vinegar, for everything else one had to wait in the long lines.

The stabilization of Polish currency began with the last communist administration when the government finally stopped regulating the prices for basic food products. The food prices suddenly increased and then became stable when the market reached a balance between the demand and supply. The prices stopped at a level that was still attainable for the majority of people since the private and farmer markets were already supplementing the state distribution with the black market prices. The very important reform initiated by the first Polish free non-communist government and its finance minister, Balcerowicz, followed. He had to take surplus money out of the market and people's pockets to stop the inflation. The reform was drastic but it was carried out at a time when people had enough trust in the government to endure it. Balcerowicz was very successful, but he is loved by some and hated by others for what he did. Poland's currency was finally stable and exchangeable like never before as far as my memories reach. The better-than-expected state of Polish economy now and strong currency killed another Balcerowicz-like reform to restrain the state budget, the so-called Hausner plan.

The current exchange rate of zloty to dollars is about 3.2 zlotys per $1 - the lowest in at least 10 years - it is truly amazing! The value of zloty is so high that it can jeopardize Polish exports. In effect, it can lower the rate of economic growth, which in the first three quarters after joining EU was higher than 5%. Lets hope that this will be the only worry of the Polish government in the future!

Recommended reading(s):

EuropeEurope : A History, by famous British historian Norman Davies

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