Poland: Exchange Management Systems

Poland Foreign Exchange Management System

            Poland currently has a floating exchange rate regime.[1]   Once Poland converts to the Euro it will be a part of a monetary union, a type of dollarization.  As a part of the change to Euros, Poland will participate in the European Union Exchange Rate Mechanism II (ERM II).   This mechanism is designed to help new European Union member states achieve a relatively smooth transition to the Euro.   This mechanism establishes a particular exchange rate for the new member countries currencies to the Euro and a currency band which allows for fluctuation of plus or minus 15% around the targeted rate.[2] Some reports estimate that Poland will join the Euro Zone by 2012.[3]

 

 

History of Polish Currency Arrangements Since 1900

           Poland began the 20^th century using the Russian Rubel.[4]  In 1917, after the German invasion of Poland,  Poland used the Polish Marka.  By 1923, this currency had experienced a great amount of inflation and Poland introduced the Zloty in 1923.  The Zloty was pegged to gold, and this arrangement lasted until World War Two.[5] After the German invasion, the Zloty was pegged to the Reichsmark at a rate of 2 Zloty per Reichsmark.  In 1945, the National Bank of Poland was established and Poland fell under the control of the Soviet Union until the end of the Cold War.  Between 1950 and 1991, the Polish currency was not convertible and was valid only within Poland.[6]   In 1950, and again in 1994, new Zloty were issued which redenominated the Polish currency. 

            In 1990, the Zloty became convertible with Western currencies.  Beginning in 1991, Poland pegged its currency (using a crawling peg) to a basket of currencies including the U.S. dollar and the German Deutsche mark.[7]  The U.S. dollar was worth 45% of the basket, the Deutschemark was worth 35%, the British Pound was 10%, and the Swiss and French francs were each worth 5% of the basket.[8]   In 1995, Poland switched from a crawling peg to a crawling band, which allowed the currency to fluctuate + or - 7%.   However, in the late 1990s, Poland moved towards a floating, market-determined, exchange rate.   In the early 2000s, Poland joined the European Union and within the next decade, Poland will convert to the Euro. 

---

[1] http://129.3.20.41/eps/mac/papers/0302/0302002.pdf

[2] http://www.ecb.int/home/glossary/html/glosse.en.html

[3] http://news.xinhuanet.com/english/2007-09/06/content_6668634.htm

[4] http://www.zloty.net/2007/10/16/history-of-the-zloty/

[5] http://www.globalfinancialdata.com/index.php3?action=detailedinfo&id=5190

[6] http://converter-currency.com/currency/polish-zloty.cfm

[7] http://mpra.ub.uni-muenchen.de/1967/1/MPRA_paper_1967.pdf

[8] Kokoszczynski, Ryszard, “Poland Before the Euro” Journal of Public Policy, 22, 2, 199-215.