Currencies from a Central European’s Perspective (1917-2017)

Who is a Central European? It’s someone who’s got a German name, Hungarian heritage, was born in Czechoslovakia (dissolved in 1993), lives in Bratislava (Slovakia), but loves to spend time in Vienna (Austria). It’s a person who appreciates the constant flux of political and economic events happening in this part of the world.

I wrote up this article for the SRSrocco Report to document three things. 1 – People all over the planet should never trust their governments with their money. 2 – Given the history of currency changes, it’s no surprise that people in Central Europe are, generally speaking, much poorer than people in Western Europe or North America. 3 – Protecting one’s wealth in an environment of constantly changing currencies is extremely hard. Thus, people should make the right choices when times are quite OK, because when the really hard times hit, all of one’s wealth can be lost very quickly and easily.

Never Trust a Government
The name of the game in relation to government controlled currencies is always wealth protection. US Dollar holders are used to something that is the exception, not the rule – namely, that the US Dollar hasn’t been cancelled, converted, or re-denominated in a very long time.
People in other parts of the world who have a much more intimate and frequent experience with currency changes, know that they cannot rely on their domestic currencies. Therefore, they seek refuge in alternatives.
While the US Dollar might be a good choice for some time, when the bill for government over-expansion comes due in the United States, not even the mighty US Dollar will survive as we know it today.

Central Europe of the Past: The Austro-Hungarian Empire
By the 19th century, the Austro-Hungarian Empire was one of the leading empires in Europe and the world. Its area covered more than 250,000 square miles. That’s roughly the land area of today’s France.

Currency Conversions in Central Europe Before World War I
The Habsburg-built Austro-Hungarian Empire used the Gulden (meaning golden) as its currency from 1754 to 1892. By weight measurement, the Gulden was equivalent to  1⁄20th of a Cologne Mark. The Cologne Mark was the weight equivalent of half a pound or 8 ounces. So, in effect, the Austro-Hungarian Gulden equaled to 0.4 ounces (about 11.34 grams) of silver. It was then subdivided into 60 Kreuzer.

The term Gulden was used in the German-speaking parts of the Empire, while the term Forint was used in the Hungarian-speaking parts.

Interestingly, the Hungarian currency of today is also called Forint – a term derived from the word Florin, which refers to the gold coins that were struck in the city-state of Florence from 1252. The Florin signified Florence’s independence and greatly supported a new wave of international trade.

nder the influence of the soon to be unified German Empire (1871), the Austro-Hungarian Empire introduced the Vereinsthaler in 1857. This, together with the introduction of the decimal system, led to a currency conversion which resulted in a slight debasement of the currency of about 5%. In the new system, 1 Vereinsthaler equaled 1.5 Gulden. And 1 Gulden equaled 100 Kreuzer.

In the Czech lands and Slovakia, the Empire’s coinage was called Zlatý (meaning golden).
The next currency conversion came in 1892. The Gulden was replaced by the gold Krone at a rate of 1 to 2. This was part of the up and coming gold exchange standard. The gold exchange standard lets the central bank keep a part of its reserves not in gold but in foreign central bank balances which are then redeemable in gold.
The Austro-Hungarian Krone functioned until the end of World War I (1918), when the Austro-Hungarian Empire dissolved into its many nation-states. The dissolution took place in no small part because it was one of the peace negotiation terms of the Woodrow Wilson led victorious Allies.
The fate of the Austro-Hungarian Empire was officially sealed in the Treaty of Trianon and the Treaty of Saint Germain. Hungary, in particular, lost almost everything – from one day to the next it was reduced from a great empire to a small nation-state, losing more than 2/3rds of its territories. Even after a century, the perceived injustice of the Treaty of Trianon remains a deep scar in the hearts of many Hungarians. To this day I see stickers on their cars saying Soha többé Trianon! meaning Never again Trianon! with a map of the pre-Trianon era Hungarian Empire.

Flyer demonstrating how much land area Hungary lost by Trianon —
The Austrians lost large territories as well. Areas with German majorities were awarded to other countries by the Allies. The foundations of many crises that came 20 years later were laid by these decisions. Vienna, the imperial capital city with a population of 2 million people, was now the capital of a small mountainous country of 6.5 million. Austria wasn’t allowed to unify with Germany as per the Treaty of Saint Germain.
It’s an interesting fact that in April 1919, the people of Vorarlberg, the westernmost province of Austria, voted to join Switzerland, but even this democratic decision was overruled by the Allies.
Peace and the Aftermath

The many successor states of the Austro-Hungarian Empire started issuing paper currencies in vast quantities. The populations of these states were decimated by the horrors of war and the remaining peoples were expected to be extra productive to pay for war reparations in the much richer Allied countries.
It’s no surprise that due to these crazy decisions almost all of the successor states ended up experiencing hyperinflation within a decade of the empire’s dissolution. Most people are aware of the German hyperinflation, but hyperinflations occurred in Austria, Hungary, or Poland as well. The only successor state to quickly achieve currency stability was Czechoslovakia.

The disasters of hyperinflation led to social upheavals in these countries. Some started leaning toward fascism, some toward bolshevik communism.

Currencies of the Successor States in the Interwar Period (1919-1939)
Some hoped that the many successor states would continue using the Austro-Hungarian Krone, but the new governments quickly started overstamping the old notes. That way the overstamped notes were limited to the territory of the new state.

In Czechoslovakia, the Austro-Hungarian Krone was succeeded by the Czechoslovak Koruna at par. After the provisional overstamping period, new notes were introduced in 1919. The new Koruna was based on the gold standard – the newly established National Bank had a capital of 4 million Koruna in gold.
In March 1939 German troops invaded the Czech lands and the German Reichsbank took over the country’s monetary policy. The National Bank had to hand over 45.5 tons (1.6 Moz) of monetary gold kept in Prague and Switzerland. The new official exchange rate was set to 1 Reichsmark = 10 Koruna, which was a rate intentionally overvaluing the German currency by about 20-40%.

At the same time, Slovakia gained questionable independence as a client state of Nazi Germany. The new Slovak Koruna was introduced at par with the previous Czechoslovak Koruna. Similarly, in Bohemia and Moravia the Czechoslovak Koruna was replaced at par by the new Bohemian and Moravian Koruna.

In Austria, a swift hyperinflation destroyed the Austrian Krone within just three years. The money supply increased by a factor of 12 between 1920 and 1921. By late 1922, prices were 14,000 times higher than before World War I.
The Austrian Schilling was introduced before Christmas 1924 as a replacement for the worthless Krone. The exchange rate was set at 1 Schilling to 10,000 Krone. The Schilling existed for only 13 years, when in the wake of the Anschluss, it was replaced by the German Reichsmark at a rate of 2 Reichsmarks for 3 Schillings.
In Hungary, hyperinflation stroke as well. The Hungarian Korona survived just five years before it was replaced in 1925 by the Pengő at a rate of 12,500 Korona for 1 Pengő (meaning twanging).

Overstamped Austro-Hungarian Krone for use in Hungary
In Poland, there was a hyperinflationary period, too. The Polish Marka, which replaced the Austro-Hungarian Krone, was destroyed by 1924. The money supply increased by a factor of 40 between 1922 and 1923. The largest denomination note circulating was the 10 million Markas. The Marka was replaced in 1924 by the Polish Złoty at an exchange rate of 1.8 million Markas to 1 Złoty. The Złoty (meaning golden) was based on the gold standard – 1 Złoty was worth 0.2903 grams of gold.

The former southern territories of the Austro-Hungarian Empire (Croatia, Slovenia, and Bosnia and Herzegovina) formed the short-lived State of Slovenes, Croats and Serbs in 1918. After just a few months this state merged into the newly formed Kingdom of Serbs, Croats and Slovenes. The official name was changed to the Kingdom of Yugoslavia in 1929.
In these lands, the Austro-Hungarian Krone notes were overstamped and became the Serb, Croat and Slovene Krone. It circulated, together with the Montenegrin Perper, alongside the Serbian Dinar. By 1922 it was replaced by the Dinar at a rate of 1 Dinar for 4 Krone.

In Romania, as in other places, the Austro-Hungarian Krone was overstamped by provisional Korona denominations. After this period, the Romanian Leu was pegged to the US Dollar after it left the gold standard at the beginning of World War I in 1914. It was re-pegged several times leading up to World War II, as the currency was being continuously debased.

In Ukraine, the situation was different. Western Ukraine gained a short-lived independence from the monarchy, just to become part of the Ukrainian People’s Republic as early as in January 1919. The Ukrainian People’s Republic was then gobbled up by the newly formed Soviet Union in 1922, following the Ukrainian–Soviet War. Ukraine would remain part of the Soviet Union until the second half of 1991. Going into details about the Soviet Ruble is outside the scope of this article. Let it suffice to say that the Soviets went through seven iterations of their currency between 1922 and 1992.

The city of Fiume had a semi-autonomous status within the Habsburg Monarchy between 1779 and 1918. It allowed access to the sea for the Hungarian part of the Empire. After World War I, both the Kingdom of Yugoslavia and the Kingdom of Italy laid claims on it. After several years of lawlessness, Fiume was finally annexed by Italy in 1924.
The Fiume Krone was introduced in 1919 by overstamping the Austro-Hungarian Krone notes. In September 1920 the Italian Lira was introduced as the official currency. The exchange rate was set to 2.5 Fiume Krone to 1 Lira.

World War II
Hungary‘s agriculture-based economy was hit hard by the effects of the Great Depression. The government started to debase the Pengő by increasing the money supply. Then, throughout the war the central bank printed as much currency as was required by the government.

When the war ended, the government introduced the Adópengő (meaning tax pengő), which was supposed to retain its value as the value of the Pengő fell. However, both currencies suffered from dramatic inflation. In fact, the hyperinflation of the Pengő tops all charts of the worst hyperinflations ever recorded.

I remember that when I was a kid, my great grandmother had stashes of the hyperinflated Pengő laying around the house. I used to play with them fascinated by how large the notes were because of the long numbers. The Hungarians even invented shorthands such as Milpengő which meant a million Pengő or B.-pengő meaning billion Pengő, so that they can write 100 Milpengő instead of 100,000,000 Pengő.
On 1 August, 1946, the Forint was reintroduced at an unbelievable rate of 400 octillion (4 with 29 zeros following it) Pengő for 1 Forint. So, in effect, all the circulating Pengős weren’t worth even 1 new Forint. The Adópengő was also converted to Forint at a rate of 200 million Adópengő for 1 Forint.

10 million Milpengő note 1946
Czechoslovakia broke up in 1939. Slovakia became independent on March 14 and the German troops invaded the Czech lands the next day. On March 16 they were declared the Protectorate of Bohemia and Moravia.
The new currency in Bohemia and Moravia was called the Protektorat Krone, which was seriously undervalued against the German Reichsmark. This led to an extreme outflow of products from Bohemia and Moravia to Germany.

Protektorat Eine Krone
The new Slovak currency was called Koruna slovenská. Both new currencies first existed as the overstamped versions of the previous Czechoslovak Koruna. They were exchanged at par.
When Germany invaded Poland in September 1939, large denomination notes were immediately withdrawn from circulation and were overstamped by the text General Government. This was, however, easily counterfeited. Later, the Złoty was exchanged for the Reichsmark at a rate of 2 for 1. But, there were strict limits on the amount of currency one was allowed to exchange, depending on who the person was.

Yugoslavia was invaded in 1941. The Serbian Dinar was replaced by the Kuna at par in the newly formed Independent State of Croatia and in Bosnia and Herzegovina. In the areas occupied by foreign forces, several other currencies circulated, such as the Bulgarian Lev, Italian Lira, and German Reichsmark. The Kuna was pegged to the Reichsmark, but had to be re-pegged several times during the war, as its value was falling constantly.
In Ukraine, during its Nazi occupation (1942-1945), the Soviet Ruble was replaced by the Karbovanets at par. It was then pegged to the German Reichsmark at a rate of 10 Karbovantsiv to 1 Reichsmark.

Since Romania was an ally of Germany, its Leu hasn’t changed during the war. But it was pegged to the Reichsmark at a rate of 49.50 to 1.

In Austria, the Schilling was abolished during World War II.
The Communist Era
In Austria, the Schilling was re-introduced after the war. It was exchanged at par for the Reichsmark. However, beginning in 1947 a new Schilling was created and people could only exchange 150 old Schillings at par. Above that limit, the exchange rate was set at 3 old Schillings for 1 new Schilling.

While the Austrian Schilling remained stable thereafter, the remaining successor states of the Austro-Hungarian Empire stumbled a couple more times under communist management of their currencies.

In Czechoslovakia, the Czechoslovak Koruna was re-established in 1945, replacing the two wartime Koruna currencies at par. Although, that was not entirely true, as it happens to be with government managed currencies. People were allowed to exchange 500 Korunas in cash, anything above that limit was put into blocked bank accounts. However, people could never access those accounts. And here is why.

In February 1948, the communist party took control of the government by way of a coup d’etat. Of course, the communists were well-supported by Stalin’s Soviet government and army. After murdering all their political opponents, the communists went through with a particularly drastic monetary reform in 1953. It’s notable that the president of Czechoslovakia assured the nation in his radio speech that there won’t be a monetary reform the night before the reform actually took place.

The blocked bank accounts were cancelled without any compensation. All cash and savings were exchanged for new Korunas at an average rate of 35 to 1. The rating system was complex and heavily favored communist functionaries and workers with an exchange rate of 5 to 1 or 10 to 1. The communist elites who knew about the plan ahead, emptied all the jewelry stores to retain the purchasing power of their wealth. The rest of the population was completely screwed by an exchange rate of 50 to 1. Public riots related to the monetary reform were put down by military force.

Lines in front of a grocery store 1953
In Hungary, the Forint replaced the Pengő in 1946. The US Army brought back 28.8 tons of gold previously stolen by the fascist Hungarian government. This allowed the Forint to be backed by gold – one kilo of gold was worth 13,210 Forints. Of course, the money supply wasn’t fixed, so the Forint was gradually debased. Today, one kilo of gold is worth about 11.32 million Forints. With a debasement factor of almost 1,000 in 70 years, the Hungarian government didn’t have to reform the currency in any major way after World War II.

In Poland, currency conversions began as early as 1944 because of the advances of the Red Army. The General Government notes were exchanged for the new Złoty at par. But there was a per individual cash limit of 500 Złotych. Cash above that limit was placed to a blocked bank account, which was inaccessible for the person.
As was usual for the postwar era, the Złoty was re-denominated in 1950 for a new Złoty at a rate of 100 to 1 for cash and 100 to 3 for bank assets. This Złoty lasted until the fall of communism.

In Romania, the wartime Leu was replaced by the new Leu in 1947 at a rate of 20,000 old Lei for 1 new Leu. It was a swift change without any information campaign beforehand. There were personal limits placed on the currency that could be exchanged – 250 Lei for farmers and 150 Lei for workers and pensioners.

In 1952, another Leu redenomination took place. The exchange rates varied (similarly to the Czechoslovak experience of 1953) from 20 to 1 all the way up to 400 to 1 depending on the social status of the person.
In Yugoslavia, near the end of World War II, in 1944, the new Yugoslav Dinar was introduced. The Serbian Dinar was exchanged at a rate of 20 to 1. And the Kuna was exchanged at a rate of 40 to 1. The Yugoslav Dinar was then pegged to the US Dollar at a rate of 50 Dinars to 1 US Dollar.
In 1966, the Dinar was revalued at a rate of 100 to 1. Throughout the following quarter century, the average inflation rate in Yugoslavia was around 20% per annum.

Ukraine was absolutely devastated after the war. Hitler declared it an annihilation zone in 1943 and the Red Army used its scorched earth policy in this area. Ukraine has lost almost 20% of its population in the war. Dues to these facts, famine struck in 1946-1947.
After the war, Ukraine returned to the Soviet Ruble. Just to be served with a confiscatory redenomination of the currency before Christmas 1947. There was a personal allowance limit of 3,000 Rubles. Above that limit, the revaluation rate was 10 to 1.

The Soviets then repeated the very same redenomination model in 1961.
The New Democratic Era

Beginning in the 1950s, the Austrian Schilling was pegged to the US Dollar at a rate of 26 to 1. After the breakdown of the Bretton Woods system, it was pegged to the German Mark all the way till 2002. At that point Austria adopted the Euro and replaced the Schilling at a fixed rate of 13.7603 Schillings for 1 Euro.
In 1990, the remaining successor states of the Austro-Hungarian Empire were post-communist countries and had to undergo painful reforms.

Czechoslovakia entered on its path of dissolution right after the collapse of communism. The dissolution was complete at midnight December 31, 1992 creating two independent countries – the Czech Republic and the Slovak Republic (Slovakia). Both countries retained the name Koruna for their successor currencies. At first, the overstamped version of the old Czechoslovak Koruna remained in circulation in both countries.
The Slovak Koruna experienced dramatic inflation rates of around 25-30% per annum. To combat the inflation, the Koruna was pegged to a basket of two currencies (60% German Mark and 40% US Dollar) between July and October 1994. Then, the Koruna’s exchange rate started floating freely based on supply and demand on the forex market.
In 2005, the Slovak Koruna was pegged to the Euro in a wide fluctuation band. Slovakia then adopted the Euro in 2009 at an exchange rate of 30.126 Korún to 1 Euro.

The Czech Koruna fared much better because the Czech economy was much better developed at the time of the dissolution of Czechoslovakia. It didn’t experience any inflationary shocks and had a much smoother ride. The Czechs are also quite opposed to introducing the Euro as a replacement for the Czech Koruna.
Hungary experienced very high inflation throughout the 1990s. In 1991, the Hungarian central bank had to devalue the Forint twice by 15% in January and by a further 5.8% in November. In August 1994 there was another 8% devaluation. And in March 1995 a further 9% devaluation. There were many more 1-4.5% devaluations in between.

Inflation rates in Hungary 1991-2014
Poland went through yet another hyperinflationary period in the early 1990s. In 1995, the Złoty was re-denominated at a rate of 10,000 old Złotych for 1 new Złoty. We will see whether the Polish government adopts the Euro in 2019. An overwhelming majority of the people are against the move – but that never stopped a government to do whatever they want to do.

Yugoslavia was running a very high inflation rate for years. But in the late 1980s the inflation rate can be easily described as hyperinflationary. Finally, on January 1, 1990, the Dinar was revalued at a rate of 10,000 to 1.

To make matters worse, the nations making up Yugoslavia went into a series of brutal wars in the early 1990s. Ethnic cleansing was happening in many areas of the former federation. Every time someone scored a victory, they declared their lands as an independent state and started issuing currency. It is outside the scope of this article to list in detail the multitude of currencies that were introduced and destroyed in that relatively short span of time.

The Dinar itself was re-denominated five times in the course of the 1990s. Several times it was because of hyperinflation of the money supply. For example, on January 1, 1994, the Dinar was revalued at a rate of 1 billion to 1. Yet, on January 24, 1994, just three weeks later, the already revalued Dinar had to be pegged to the German Mark at a rate of 13 million to 1.

By 2003, the only country still using the Dinar was Serbia. And they also replaced it at par by the new Serbian Dinar. The remaining successor states of the former Yugoslavia, were all using currencies pegged to the German Mark and to the Euro after 2002.

There are now seven successor states of the former Yugoslavia in existence – Slovenia, Croatia, Bosnia and Herzegovina, Serbia, Montenegro, Kosovo, and Macedonia.

Map of the land area of the former Yugoslav federation — Click to enlarge image
Romania experienced a period of hyperinflation in the 1990s. At certain points, 1 Euro was exchanged for 40,000 Lei on the market. Finally, in 2005, the Leu was re-denominated once again at a rate of 10,000 old Lei for 1 new Leu.
The Romanian government has set a target date for the adoption of the Euro – January 1, 2019.
In Ukraine, after the collapse of the USSR, the government issued coupons that were necessary alongside the currency to buy groceries. Then, in 1992, the Karbovanets replaced the Ruble at par.

In the following years, Ukraine experienced a period of hyperinflation. In 1996, the Hryvnia replaced the hyperinflated Karbovanets at a rate of 100,000 to 1. The Hryvnia remained relatively stable until Russia annexed Crimea in 2014. Crimea replaced the Hryvnia with the Russian Rouble. The Ukrainian Hryvnia’s value has dropped significantly from 8 Hryvnia per 1 US Dollar to 26 Hryvnia per 1 US Dollar, in effect losing about 70% of its value in a couple of years.

Final Thoughts
As you can see, there is not much difference between ideologies and governments. They all tend to follow the same practices and, in the end, they all destroy or at least significantly debase their currencies.
The average 100 year old person living in Central Europe has experienced a currency conversion once a decade. Now we are using the Euro, which, I am fairly certain, will undergo a currency conversion within the next 5-7 years.
So how would you go about preserving your wealth in Central Europe? Clearly, we can throw currencies out the window. Real estate gets obliterated in war times. Anything not hidden gets stolen several times over by the many invading troops and common thieves. Private businesses get nationalized, then destroyed by bureaucratic idiots. Travel can be completely banned for decades, so having a safe box abroad doesn’t help much either.

From a Central European’s perspective the only good choice for preserving wealth during the past 100 years were well-hidden precious metals.

Written by Peter Fröhlich exclusively for the SRSrocco Report.
3/23/2017