Class 5 Prokop 1996

Currency Separation

Event Context

• Currency separation occurred in February 1993, following the dissolution of Czechoslovakia.

Key Legislation

• Involves constitutional act, government decrees, CNB instructions, and security measures for implementation.

Importance

• Vital for economic transformation and stability in separate Czech and Slovak economies.

Preparation Timeline

• July 1992: Preparations began, initially focused on technical and legal underpinnings, expecting rapid political changes.

• Nov 1992 - Jan 1993: Preparatory phases peaked, accelerating plans for currency separation.

Currency Overview Before Separation

Czechoslovak Currency in Circulation

• Total value: CSK 101 billion (approximately 350 million banknotes, 3.2 billion coins).

• Most valuable denominations were banknotes; coins constituted less than 3% of total value.

Currency Distribution Issues

• Unclear division of currency held domestically vs. abroad and between Czech and Slovak economies.

Currency Logistics and Planning

Volume and Transportation

• Need for separating over 3,000 tons of new banknotes and coins, and withdrawing and destroying an equivalent volume of old currency.

• Reserve estimates from CNB at the beginning of 1993:

  • 1000 banknotes: 15 million

  • 500 banknotes: 69 million

  • 100 banknotes: 54 million

Differentiating Currency Methods

Proposed Methods

• Equality-themed design banknotes for Czech and Slovak currencies with different texts.

• Stamping existing banknotes was ultimately the main method for distinguishing the new currency.

Stamps and Banknotes

• Printed 160 million stamps for CSK 72 billion value.

• Stamping commenced on January 4, 1993, performed by over 10,000 employees across various banks.

Timing and Execution of Currency Separation

• Key Dates: Preparations targeted completion by January 1993; currency separation officially set for February 8, 1993.

• Exchange Process: Points set up for public exchanges operated from February 4-7, 1993.

• Exchange allowances: Defined limits on amounts exchanged.

Involvement and Management Structure

• Three-tier Management: Central Committee established in November 1992, monitoring and coordinating execution during the exchange period.

• Regional and Local Committees were established to manage operations at local levels.

Results and Impact of Currency Separation

• Economic Outcomes: Successfully mitigated risks and inflation impacts in both economies; fostered independent monetary policies.

• International Recognition: Praised by international observers and recommended as a model for other nations.

• Costs: Total costs for stamping and exchange reached CZK 344.4 million, covered by future profits from unexchanged Federal banknotes.

Conclusion

• The separation established sustainable monetary systems, demonstrating efficiency and preparedness.

Clearing Payment System

• Context: Establishing payment frameworks post-dissolution to maintain economic integration while addressing different monetary policies.