Largely seen as a regional currency, the Polish złoty has been the center of an ongoing debate concerning whether or not Poland will adopt the euro as its national currency in place of the złoty. As of 2016, the Polish złoty remains. The currency code for the złoty is PLN and it is symbolised by zł.
The złoty is a decimal-based currency, meaning that each złoty is made up of 100 minor units. Each of these minor units is called a grosz. Although valuations of the złoty fluctuate with global currency markets, one Polish złoty is worth roughly one United States quarter (or 25 cents).
Each banknote has a portrait of a historical figure from one of Poland's royal families on its face; the reverse contains symbols from the time in which that figure lived. For instance, the zł100 note has a portrait of King Ladislas II on the face, with symbols that reference his 1410 victory at the battle of Grunwald on the reverse.
Since its inception, the Polish złoty has taken many different shapes and forms. The term "złoty" is derived from the Polish word "zloto," and literally translates into "golden." This meaning is very instructive, as for a large part of its history, the złoty functioned as coinage or specie. Dating back to the Middle Ages, the złoty existed as a coin crafted from either silver or gold and has been an instrument for exchange in the Polish region.
Over the course of its history, Poland has modified its currency in many different fashions in order to address inflationary concerns and establish pricing stability.
Due to its geographical location, Poland was under heavy influence from neighboring countries. Until 1795, the złoty was used in concert with Russian rubles, Prussian thalers and Austrian guldens depending on which region of Poland the trade took place. This system remained functional in various forms until the World War I era and the suspension of the gold standard in 1914. At the end of WWI in November 1918, Poland was left war torn and without definite borders. In 1923, Poland established borders, and under government direction, set the new złoty at parity with the Swiss franc.
The 20th century presented many challenges to the national sovereignty of Poland, most of which resulted in chaotic valuations of the złoty. Periods of hyperinflation were commonplace during war times, and Poland suffered these effects during both World War I and World War II. It wasn't until the early 1950s that there was any significant industry or global investment in Poland.
The period of 1950 to the present is best defined as the Polish złoty's persistent struggle against inflation. Each decade has presented a period of prosperity interrupted by chronic inflation and subsequent currency devaluation. In 2004, Poland joined the European Union. Since then, the debate concerning the adoption of the euro as Poland's national currency has been a prominent issue facing domestic monetary policy.
The post-World War II era was a challenging time for the world monetary system. The countries of Western and Eastern Europe shared in the devastation brought by World War II, with few countries suffering on par with Poland. Global currency valuations underwent massive fluctuations as war-torn countries attempted to rebuild and avoid hyperinflation of their currencies.
In July 1944, the United Nation's Monetary and Financial Conference was held at Bretton Woods in New Hampshire. The objective was to provide stability to the global monetary system. In an effort to address the need for financial aid in post-WWII reconstruction, the International Monetary Fund (IMF) and the World Bank were created. Many opposing viewpoints were considered in crafting the new global monetary system, but upon completion of the conference, the United States dollar was designated as the world's "reserve currency" and the benchmark for the world's currency valuations.
Poland was one of 44 countries that participated in the conference, which later became known simply as "Bretton Woods." In December 1945, the Polish government approved the decision to join both the International Monetary Fund and the World Bank. It was deemed by Polish leadership that Poland would never be able to rebuild the devastation suffered in WWII without help from the highly developed countries of the world.
Poland has experienced many periods of enhanced volatility concerning the złoty's valuation stemming from prolonged inflation. In order to manage ongoing inflationary concerns, the Polish government employs a central bank that is commissioned with the task of managing the złoty.
The Narodowy Bank Polski (NBP) is the central bank of Poland, and it implements monetary policy with the primary goal of maintaining price stability. Since 1998, the institution has directly targeted inflation through the establishment of an acceptable inflation target. Dating back to 2004, the target has been 2.5% with an acceptable variance of 1%. Aside from managing inflation of the złoty, the NBP has the sole right to issue currency and acts as a regulatory body for domestic banks.
In terms of gross domestic product (GDP), the Polish economy is ranked eighth-largest in the European Union. However, GDP per capita remains under the EU average, with 17% of the country living below the poverty line. Poland's GDP largely consists of the service and industrial sectors, which make up 96% of total GDP.
Nearly 55% of the labor force works within the service sector of the economy, followed by the industrial sector at 30%. 12.6% of the workforce can be attributed to the agricultural sector, only generating about 3% of Poland's total GDP. Key industries in Poland are coal mining, iron and steel production, shipbuilding and chemical fertilizer production. Poland's largest trade partner is Germany, followed by Russia and the individual countries of the EU.
The Warsaw Stock Exchange is the largest financial marketplace in Poland, and it is a leading exchange in Emerging Markets Europe (EME). With focus on equities and derivatives, the Warsaw Stock Exchange is one of the fastest-growing exchanges in the central and eastern regions of Europe.
The governing body of the financial markets in Poland is the Polish Financial Supervision Authority (KNF). In addition to monitoring trading operations conducted at the Warsaw Stock Exchange, the KNF supervises banking practices, insurance markets, and savings and credit unions. The Polish Financial Supervision Authority operates at the direction of the Polish government.
Although the Polish złoty is a regional currency used exclusively in a domestic capacity, it is commonly traded in several different pairings on the forex market. The złoty is commonly traded with the Swiss franc (CHF/PLN), the British pound (GBP/PLN) and the Australian dollar (AUD/PLN). The złoty is traded in larger volumes with the United States dollar (USD/PLN), as well as with the euro (EUR/PLN), its most commonly traded pair.
Bills And Coins
The banknotes of the Polish złoty are denominated in 10, 20, 50, 100 and 200 złotys. The banknotes themselves are multicolored, and intricate in design. Extensive security measures are present on each banknote. Watermarks, security thread, holographic imagery, and graphics illuminated by UV light are some of the features that ensure authenticity.
Coinage consists of one, two, five, 10, 20 and 50 grosz denominations, as well as one, two and five złoty denominations. The one, two and five grosz coins are made of brass-plated steel; the 10, 20 and 50 grosz coins are crafted from cupronickel. The zł2 and zł5 coins are a combination of cupronickel and bronze, while the zł1 coin is solely made of cupronickel. Aside from the bronze and silver appearance, the discerning characteristic of each coin is its size. The groszy ascend in size as the denomination increases.
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Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…