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National Bank lets loose the crown

With the Slovak crown more convertible since October 1, any Slovak can make purchases abroad using Slovak crowns from a Slovak bank account without asking the National Bank of Slovakia (NBS) for approval. After the Polish zloty moved towards full convertibility earlier this summer, both the Slovak and Czech crowns followed, seeking a new way to settle trade between the two countries. The ECU clearing account was abolished at the end of September, both sides agreeing it had fulfilled its purpose. Trade between the Slovak and Czech Republics will now be paid in Slovak or Czech crowns unless commercial banks have objections.

With the Slovak crown more convertible since October 1, any Slovak can make purchases abroad using Slovak crowns from a Slovak bank account without asking the National Bank of Slovakia (NBS) for approval.

After the Polish zloty moved towards full convertibility earlier this summer, both the Slovak and Czech crowns followed, seeking a new way to settle trade between the two countries. The ECU clearing account was abolished at the end of September, both sides agreeing it had fulfilled its purpose. Trade between the Slovak and Czech Republics will now be paid in Slovak or Czech crowns unless commercial banks have objections.

The Slovak government's determination to free the Slovak currency became clear in late September, when parliament passed a new foreign exchange law, making the crown convertible on the current account. That frees the crown for payments abroad for goods and services.

Restrictions were also abolished on transfers of returns (interests, dividends and profits) and on current transfers, such as pensions, alimonies, inheritances, dowries, subsidies, gifts, scholarships and contributions to international organizations.

Ján Onda, the NBS spokesman , explained what triggered the move. "The NBS introduced partial convertibility in response to favorable developments in both the banking sector's hard currency reserves and in the balance of payments," Onda said, citing the fact that Slovakia's hard currency reserves currently are $4.33 billion and could cover three and a half months of overall imports. The balance of payments is slightly positive, reaching surplus of $319 million in the first half of 1995.

The NBS did not loosen its grip further and make the crown convertible on the capital account, something the Czech Republic did. Noting that the Czech banking sector's hard currency reserves are several times Slovakia's, Onda said, "Present conditions don't allow us to introduce full convertibility. The point is not to overestimate our economy and to keep a pace we can sustain 100 percent."

A unique sense of accord could be felt in the Slovak parliament when the new law passed. Of 108 MPs present, 102 voted in favor and 6 abstained. Despite the apparent unity, MPs soon showed different motives for their support. Coalition members hailed the step as another great achievement of Slovakia's economy. But in a televised debate, Brigita Schmögnerová of the opposition Party of the Democratic Left (SDĽ) said she doubts the new law will positively affect most citizens' everyday life. She said that due to a low national average income, it makes little difference whether someone pays in Slovak crowns or first changes them to a hard currency.

Martin Borodovčák, a business consultant with The Entrepreneurship Center in Bratislava, said conditions for entrepreneurs haven't changed. For instance, Slovak businessmen still don't have free access to loans from abroad. Neither can they open an account in a foreign bank, nor buy real estate abroad without NBS approval. On the other hand, they still have to offer banks any hard currency they receive for exported goods. Although it is called a "duty to offer," it is more like a duty to sell.

Marián Jusko, the NBS vice-governor, told the daily Pravda, "There is little that has changed for enterprises. For them, October 1 means only the perspective possibilities of further liberalization," Jusko said.

According to Onda, the new law makes further liberalization possible without another foreign exchange law. "It is very real to expect that Slovak businessmen will gradually be able to acquire loans from abroad freely. Similarly, other restrictions on the capital account will be lifted gradually," Onda said. Refusing to give a precise timeline for this, he said only, "It is planned for."

By loosening its austere grip on the crown, the NBS enabled crowns to flow abroad if accepted by foreign banks. The crown has reportedly already been accepted in Germany and elsewhere. "I have even heard that it was accepted in the Vatican," Onda said.

The question remains as to whether the NBS' control over the amount of Slovak crowns abroad will be preserved. "The only way I can see Slovak crowns flowing out without the NBS able to watch it, is through small scale trading in border areas with Poland for example," Onda said, referring to Slovaks shopping across the border with crowns. "But on the other hand, Polish merchants will probably return to Slovakia and spend their crowns here again," Onda said.

In the new law, the NBS has committed to buy Slovak crowns from other central banks for hard currency. But Onda said the total amount of crowns abroad should not be high enough to threaten Slovakia's hard currency reserves. "We don't expect an enormous demand for Slovak crowns," Onda said.

Prime Minister Vladimír Mečiar has stated several times that the crown has the potential to become a sort of Central European dollar. "I wouldn't like to react to Prime Minister Mečiar's statements," Onda said. "But the crown has the potential to flow freely in neighboring countries."

Vice-governor Jusko addressed Mečiar's vision more directly in his Pravda interview. "Taking the size of the Slovak economy into account, the crown cannot reach parameters of an international paying unit. We expect the crown to be used only in a limited number of countries - the Czech Republic and other neighbors."

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