Monday, December 20, 2010
Poland Parts With “Old Zloty” for Good.
The Wall Street Journel
December 20, 2010, 8:32 AM ET
If you happen to have a pre-1995 one million zloty note in the back of a desk drawer, it doesn’t mean your rich—but it’s your last chance to trade it in for money you can actually use in a store. When the New Year arrives, a sizeable chapter in the history of Poland’s jump to a market economy will draw to a close and the old banknotes will turn into souvenirs.
Fifteen years ago Poland passed a very important logistic test—its brand new democratic government and central bank had gotten the hyperinflation fire under control, but still had the task of cleaning up the money situation.
The collapsed communism left huge dislocations in the supply and demand of goods and services and after price controls were lifted and a million businesses bloomed on folding card tables and cots, the animal spirits of Polish consumers had unleashed annualized inflation rate of 600%.
Once prices stabilized, Poland’s money needed denomination. The central bank decided the national currency had four zeros to spare. The reasons behind denomination were straightforward. Shopping required the extra step of carefully counting zeros. A used car sold for a grocery bag of bills—all of which had to be diligently counted by the buyer and seller.
As million and two million zloty notes appeared in circulation, Poles reacted as they had done under communism, they made jokes.
“We can be proud of our country. We have managed to invent an exchange rate transaction involving three currencies—one pound of zlotys is worth one dollar.”
The currency was getting no respect and Polish officials hoped to restore it by denomination, but the complicated operation carried huge risks. Older Poles remembered losing their life savings in the 1950s when the communists had exchanged old money for new. So the central bank, then headed by Hanna Gronkiewicz-Waltz, Warsaw’s current mayor, had to be very careful in how it communicated the change with society.
On January 1, 1995, the Polish zloty got a new official code, PLN (the “N” stands for new) instead of PLZ, and dropped four zeros. Unlike many other denominations and currency switches, both currencies were allowed in circulation for a full two years, until the end of 1996. But most people decided to get rid of the old money quickly—by the end of 1995 Poles exchanged half of the old notes.
Today, the National Bank of Poland estimates there are still about 8,300 pieces of old notes and coins out there, valued at about 175 million (new!) zlotys ($57.8 million).