Information AboutLitas |
| CATEGORIES ABOUT LITHUANIAN LITAS | |
| currencies of lithuania | |
| fixed exchange rate | |
|
HISTORY The interwar period (1922-1941) The first litas was introduced on October 2, 1922, replacing the Ostmark and Ostruble , both of which had been issued by occupying German forces during World War I. The litas was established at a value of 10 to 1 to the United States Dollar and was subdivided into 100 centai. Despite the World Wide Economic Depression , the litas was quite a strong and stable currency. One litas was covered by 0.150462 grams of gold stored by the Bank Of Lithuania in foreign countries. In March 1923, the circulation amounted to 39,412,984 litas, backed by 15,738,964 in actual gold and by 24,000,000 in high exchange securities. It was required that at least one third of the total circulation would be covered by gold and the rest by other assets. By 1938, 1 U.S. dollar was worth about 5.9 litas. All coins released in the interwar period were designed by sculptor Juozas Zikaras (1881-1944). The litas was replaced by the Russian ruble in 1941 after Lithuania was annexed by the Soviet Union , with 1 litas equal to 0.9 ruble, when the actual worth of the litas was about 3-5 rubles. Such an exchange rate provided great profits for the military and party officials. Trying to protect the value of the currency, people started to massively buy and, which together with a downfall in production (following Nationalization ), caused material shortages. Then withdrawals were limited to 250 litas. When the litas was last in circulation, before World War II , it was worth about 20 U.S. cents . In 1941, the litas was completely abolished. The independent Lithuania (1989- ) The litas became Lithuania's currency once more on June 25, 1993, when it replaced the temporary currency talonas at a rate of 1 litas to 100 talonas. Preparatory work Officials started to prepare for the introduction of the litas even before independence was declared, it was thought to introduce the litas alongside the ruble even if Lithuania remained a part of the Soviet Union. In December 1989, artists were asked to submit sketches of possible coin and banknote designs. Also, a list of famous people was compiled in order to determine who should be featured. The Bank of Lithuania was established on March 1, 1990. Ten days later Lithuania declared independence. At first the Lithuanian government negotiated in vain with '' Francois Charles Oberthur '', a press located in France to print the banknotes. In November 1990 The Bank of Lithuania decided to work with the ''United States Banknote Corporation'' (now '' American Banknote Corporation ''). In late fall, 1991 the first shipments of litas banknotes and coins arrived in Lithuania. In November 1991, the Currency Issue Law was passed and the Litas Committee was created. It had the power to fix the date for the litas to come into circulation, the terms for the withdrawal from circulation of the ruble, the exchange rate of the litas and other conditions. Officials waited for a while for the economy to stabilize to not to expose the young litas to inflation. About 80% of Lithuania's trade was with Russia and the government needed to find a way to smooth the transition from the ruble zone. Also, Lithuania needed to gather funds to form a stabilization fund. Gathering funds At first, Lithuania did not have gold or any other securities to back up the litas. Lithuania needed to find about 200 million U.S. dollars to form the stabilization fund. First, it sought to recover its pre-war gold reserves (about 10 tons) from France, United Kingdom, Switzerland, etc. In the interwar period Lithuania stored its gold reserve in foreign banks. After the occupation in 1940 those reserves were “nobody’s”: there was no Lithuania and most western countries condemned the occupation as illegal and did not recognize the Soviet Union as a successor. The Bank Of England , for example, sold the reserves to the Soviets in 1967. However, in January 1992 it announced that this action was a “betrayal of the people of the Baltic states” and that it would return the originally deposited amount of gold, now worth about 90 million Pound Sterling , to the three Baltic States . Lithuania received 18.5 million pounds or 95,000 Ounce s of gold and remained a customer of the bank. Similarly, in March 1992 Lithuania reclaimed gold from the Bank Of France and later from the Bank Of Sweden . In October 1992, the International Monetary Fund (Lithuania joined this organization on April 29, 1992) granted the first loan of 23.05 million U.S. dollars to create the stabilization fund. However, it is estimated that at the time of the introduction of the new currency, Lithuania managed to gather only $120 million for the stabilization fund. For a brief while it was kept a secret so as not to further damage the reputation and trust in of the litas. The first talonas reform In early August 1991, as a response to public complaints about Inflation , the Lithuanian government introduced the Talonas (Lithuanian plural form is “talonai”; sometimes translated as “coupon”). It was a quick and unforeseen reform pushed by the Prime Minister Gediminas Vagnorius . At first, it was very similar to ration coupons: every person received 20% of his/her salary in talonas up to a maximum of 200 talonas. In order to buy goods other than food, a person must have paid the same price in rubles and in talonas (for example, if a pair of shoes cost 50 rubles, a person must pay 50 rubles ''and'' 50 talonas to buy them). This system was widely criticized. First of all, in no way it addressed the reasons why there were shortages of goods, i.e. it did not promote the Supply ; it just limited the Demand . Also, the demand for expensive goods (like home appliances) dropped sharply because people needed a lot of time to accumulate the necessary amount of talonas to buy them. It caused bottlenecks in the Supply Chain and further damaged already troubled production. In addition, this scheme could not prevent the Hyperinflation of the ruble because the talonas was not an independent currency; it is a supplementary currency with a fixed exchange rate to the ruble. The system tried to encourage Lithuanians to save 80% of their salaries. But people accumulated their rubles and had nowhere to spend them. It led to the inflation of goods that did not require the talonas (like food or goods on the Black Market ). The second talonas reform In the summer of 1992, everybody anticipated that the litas would be shortly released. Lithuania was desperately lacking cash (some workers were paid in goods rather than in cash) as Russia tightened its monetary policy. In addition, the litas coins and banknotes were already produced and shipped to Lithuania from abroad. However, on May 1, 1992 it was decided to reintroduce thw talonas as an independent, temporary currency to circulate alongside the ruble in hopes to deal with inflation. A dual currency system was created. On October 1, 1992 the ruble was completely abandoned and replaced by the talonas. Lithuania was the last of the Baltic states to abandon the ruble. The self-imposed deadlines to introduce the litas were continuously postponed without clear explanations. Nicknamed "Vagnorkės" after . Delayed introduction of the litas '' Lietuvos Rytas '' journalists investigated the production of the litas and found that for a while it was purposely held back. For example, 6 million litas designated to pay for printing the banknotes stayed in a zero interest bearing account for a year in a bank in Sweden. By 1992, the litas was ready for introduction, but the banknotes were of extremely low quality (one could easily Counterfeit them with a simple color printer; especially the 10, 20, and 50 litas banknotes). Newly elected President Algirdas Brazauskas dismissed the Chair of the Bank of Lithuania, Vilius Baldišis, for incompetence just two months before the introduction of the litas. Baldišis was later charged for Negligence that cost Lithuania $3,000,000. Some claim that the Russian secret services were behind the affair. Baldišis’ explanation was that he was trying to cut the costs of printing the banknotes and thus did not order better security features. Also, “U.S. Banknote Corporation” was accused of violation of the contract terms. But when the new issue of litas banknotes was redesigned, reprinted, and introduced in June 1993, it was found that the quality of the money was still too low and the banknotes would have to be redesigned further in the future. All these scandals and the small backup of gold reserve (about $120 million instead of $200 million) damaged the reputation of the litas. Thankfully, the newly appointed chair, Romualdas Visokavičius, moved things quickly and managed to win the trust of the public. Unfortunately, in October he was asked to resign mostly because of his involvement with a private bank "Litimpex." Introducing the litas On June 25, 1993, the litas was finally introduced at the rate of 1 litas to 100 talonas. 1 U.S. dollar was worth 4.5 litas and decreased to about 4.2 a couple of weeks later. Even the introduction of the litas was followed by a scandal. The government allowed the changing of unlimited amounts of talonas to the litas without having to show the source of the talonas. This allowed criminal groups to legalize their funds. In July, circulation of the talonas was stopped and on August 1, 1993, the litas became the only legal tender. Following the reintroduction of the litas, their was an effort to weed out U.S. dollars from the market. The talonas was never really trusted by the people and the ruble was very unstable. Thus, people started using U.S. dollars as a stable currency. Another alternative was the German Mark , but it was not available in larger quantities. A lot of shops printed prices in several different currencies, including dollars, and the economy was very "dollarised" as it was legal to make trades in foreign currencies. Due to poor banknote quality (both talonas and early litas) it was easy to counterfeit them. Most shops were forced to acquire Ultra Violet lamps to check for forgeries. One group, for example, printed 500 talonas banknotes in Turkey. It is estimated that their notes totaled 140,000 litas. From April 1, 1994 to January 31, 2002, the litas was pegged to the U.S. dollar at the rate of 4 to 1 (the litas was stable around 3.9 for half a year before the pegging). The main reasons for this fixation was little trust in the emerging monetary system, fear of high fluctuations in currency exchange rates, desire to attract foreigner investors, and . At around this time Lithuania also established a Currency Board . From April 1, 1994, the litas was fully backed by gold and other stable securities. The litas and the euro On February 1, 2002 the litas was associated with the Euro at a rate of 3.4528 to 1 and this rate is not expected to change until the litas is replaced by the euro (on January 1, 2007 at the earliest). The design of Lithuanian Euro Coins is already prepared. After the peg, Lithuania became a member of the Eurozone De Facto . Since June 28, 2004, the litas has been fixed to the ERM II {Link without Title} , the EU's exchange rate mechanism. Lithuania was party to joining the mechanism since joining the EU. CURRENT COINS All coins are round and are larger in diameter as their value increases. They all have the Obverse carrying the Coat Of Arms in the center and the name of the state "Lietuva" in capital letters. The first coins were minted in the United Kingdom and arrived in Lithuania on October 31, 1991. Currently all coins are minted in the State-owned Enterprise "Lithuanian Mint," which started its operations in September 1992 and helped to cut the costs of introducing the litas. 1, 2, and 5 centai Real Change versus Pseudoreform'', Cato Policy Analysis, October 28, 1991, No. 163 {Link without Title} |
|
|