BIS Papers No 24 255 Exchange rate policy and foreign exchange interventions in Poland

Since 1990, Poland has adopted nearly all possible exchange rate regimes, moving smoothly from fixed peg to pure floating. At the beginning of the transition period exchange rate policy was aimed mainly at stabilising the economy. It supported monetary policy in its fight against inflation, playing the role of a nominal anchor. Under the stabilisation plan, the Polish authorities decided to fix the zloty to the US dollar at the level of 9,500 zlotys to one US $ in January 1990. In that way the government and the central bank delivered a strong nominal anchor for an economy facing dramatic and abrupt adjustments in the real sector and in relative prices. At the same time, the zloty became an internally convertible currency. The stabilisation plan assumed that the rate of 9,500 zlotys per US dollar would be valid for the first quarter of 1990 only. However, due to a positive current account balance in 1990 it was maintained much longer. Finally, in the environment of a very high inflation, the fixed peg resulted in excessive real appreciation and a loss of price competitiveness for Polish exports. In 1991, Poland faced significant deterioration in its trade balance and current account. As a policy response the zloty was devalued by nearly 17 % in May 1991. In addition, the peg to the dollar was abandoned and the zloty was tied to a basket consisting of five currencies: the US dollar (45%), the German mark (35%), th