April 10 ,2010
There’s no telling if the two events are connected, but their timing is mighty interesting.
The Polish government and the National Bank of Poland, in a “rare moment of unity,” agree to weaken Poland’s currency, the zloty, in an act that would benefit Poland’s exporters at the expense of Poland’s trading partners—that is, the European Union, among others. Then, the next day, Poland’s president and the president of its national bank die in a plane crash.
From the Wall Street Journal in an item dated April 9, 2010:
In one of those rare moments of unity, the National Bank of Poland and the Polish government agreed on the need to weaken the Polish zloty, which over recent weeks has rebounded close to its pre-crisis strength. The currency’s strength is now seen a possible threat to economic recovery. After several verbal interventions over the past few days, the central bank intervened with real money Friday, for the first time in more than a decade.
The bank followed through on its Thursday warnings that it is “technologically and psychologically” prepared to enter the currency market to prevent “excessive strengthening of the zloty.” Government officials also said earlier this week that the “strong zloty” is damaging growth and, after Friday’s intervention, said they fully back the central bank’s move.
In moving to weaken the zloty, Poland’s leadership was placing the interests of the people of Poland ahead of the interests of the European collective known as the European Union.
Then, the next day, the president of Poland dies in a plane crash along with numerous other top leaders, including the president of the National Bank. From the Mail Online:
Polish president Lech Kaczynski and his wife Maria have been killed after their plane crashed on approach to Smolensk airport in western Russia.
Russian news agencies reported at least 87 people died in the crash near Smolensk airport in western Russia, citing the Russian Emergencies Ministry. They reported 132 people were aboard the Tupolev Tu-154.
The Army chief of staff, Gen. Franciszek Gagor, National Bank President Slawomir Skrzypekand Deputy Foreign Minister Andrzej Kremer were on the passenger list.
Poland has been dragging its feet in adopting the euro and joining the European Union, having pushed back its target date for doing so until 2015. Here in the U.S., we might say that Poland is not a “team player.” In the New World Order, bad things tend to happen to leaders who aren’t team players.
Poland Pulls Trigger to Weaken Zloty
By Marcin Sobczyk
In one of those rare moments of unity, the National Bank of Poland and the Polish government agreed on the need to weaken the Polish zloty, which over recent weeks has rebounded close to its precrisis strength. The currency’s strength is now seen a possible threat to economic recovery. After several verbal interventions over the past few days, the central bank intervened with real money Friday, for the first time in more than a decade.
- Dow Jones Newswires
- 50 eurocents and 2 Polish zlotys, roughly equivalent as of April 2010.
The bank followed through on its Thursday warnings that it is “technologically and psychologically” prepared to enter the currency market to prevent “excessive strengthening of the zloty.” Government officials also said earlier this week that the “strong zloty” is damaging growth and, after Friday’s intervention, said they fully back the central bank’s move.
Not too long ago economists said “the equilibrium rate,” which you could very roughly translate as “the fair value that’s acceptable for both exporters and importers,” of the zloty is around 3.80 zloty to the euro.
Considering that the zloty has only just approached that level, is it really too strong already? Or are Polish officials back in the mode of trying to improve Poland’s competitiveness by keeping the currency weak and exporters happy, disregarding how the average taxpayer, consumer and traveler feels about the strength of the Polish currency?
The zloty has been highly volatile over the past two years, reaching its strongest level ever at 3.20 zloty against the euro in July 2008 and weakening dramatically during the global financial crisis to near its all-time weakest level of 4.92 zloty in February 2009.
Over the past 14 months, the Polish currency has regained much of its precrisis strength. Late Friday it traded at roughly 3.88 zloty to the euro, down from 3.845 zloty before the intervention.
When the currency was at 3.20 zloty to the euro in 2008, exporters were complaining, but the economy was not contracting at all. That period of a super-strong currency showed that exporters have at least some ability to adjust or hedge — provided the zloty doesn’t fall or rise too quickly.
The real problem with the zloty is not strength or weakness, but its volatility. If the exchange rate was the real problem, as the central bank and the government are trying to make believe, why didn’t they react to the “weak zloty” last year when the rapidly falling currency was one of the most heavily discussed issues, especially given the popularity of foreign currency-denominated loans? Back then, many ordinary Poles found it hard to service their mortgages and yet the finance ministry only started selling its euros in early 2009 when the zloty neared an all-time low and threatened to break through 5.00.
According to some currency traders, the central bank managed to move the zloty down about 1%, buying just €9 million. Analysts put the figure at a more realistic €100 million or even €300 million.
Whatever the amount, the psychological effect was important for investors who were betting on further strengthening and now know the central bank really has its finger on the trigger. That may prevent volatility, but only if the market has reasons to believe the zloty is equally protected from excessive strengthening and weakening. Recent experience implies Polish authorities prefer an undervalued zloty.
Poland’s Leaders Move to Weaken Currency, Then Die in Plane Crash
There’s no telling if the two events are connected, but their timing is mighty interesting.
• Polish President’s Pilot ignored warning not to land
• Kaczynski Often a Source of Tension Within E.U.
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