Lessons for Greece from Czech-Slovak splitThe man was Mr Pavel Kysilka, now the chief economist of Česká spořitelna [chess-car spaw-rzih-tel-nuh], a commercial bank. See the historical list of the Czechoslovak and Czech national bank governors.
A 1993-Slovak-stamped 1,000-Czechoslovak-crown banknote (printed in 1985) with Czech composer Bedřich Smetana.
His main message to Greece – which may drive itself out of the eurozone after the looming Sunday elections (and the world's central banks are already coordinating their intervention to compensate the collapses that may result from the polls) – is that the scenario is simple in principle but it is not very difficult to botch it. If you leave it to professionals, they won't; if you leave it to politicians, they will.
The dynamical history of the territory of Czechoslovakia in the 20th century has made currency unions and splits a part of the daily routine, if I exaggerate just a little bit. So there's really a lot of stuff that the candidates for new currency splits may want to learn from us.
Monetary Velvet Divorce
On January 1st, 1993, Czechoslovakia was split to Czechia and Slovakia, after a few years of various Hyphen Wars (on whether or not a hyphen should be written in the word Czechoslovakia). There was a plan to maintain a currency union for some time. However, it couldn't work for long: many Slovaks were afraid that the currencies could split at the end and the Slovak crown would devalue as a result. So they were moving their savings to Czechia where they would remain more valuable in order to protect their full savings.
(This situation is 100 times worse in Greece today, of course.)
It's an example of a self-fulfilling prophecy and due to the unstable outflows, the currencies had to be split as early as in February 1993 i.e. one month later. If you want to know the outcome, the Slovak crown, originally arising from the Czechoslovak one in a 1:1:1 ratio, did get weaker but after some initial swings, it turned out to be just 20-30 percent weaker than the Czech counterpart, i.e. the gap was arguably much smaller than many people expected. There has never been a good reason for the gap to be astronomical but let me admit that this is a postdiction, not a prediction.
Slovakia joined the euro at the rate SKK 30.126 per euro; the current rate of the Czech currency which hasn't joined the euro and has no plans to do so (although it's vaguely obliged to join "sometime in the future" by the EU treaties) is CZK 25.5 per euro. The first number is just 18% greater than the second one.
But Kysilka recalls some fun stories about the logistics; he was the first governor of the Czech National Bank, peacefully separating from his federal ancestor Mr Josef Tošovský. On February 2nd, 1993, we were told that the currency union would be abolished in 6 days. From the next day, payments in between the countries were stopped, capital controls and border controls tightened, and the goal was to prevent any transfer of cash in between the two newborn countries.
Those 6 days were needed to switch to new currencies that became official on February 8th. You didn't need to worry about your money in the banks – they were destined to be "localized". You were encouraged to deposit your cash in the banks and transfer up to CSK/CZK/SKK 4,000 in cash. About 40,000 people with helicopters, thousands of cars, and a 24/7 dispatching center were available for the process of stamping of hundreds of millions of banknotes – by different Czech and/or Slovak stamps. The army was assisting, too. It turned out that 4 days were actually enough for this operation to have taken place without any problem whatsoever that we would remember. It was so smooth that most of us don't remember any stories from the event today.
A cutely exotic behind-the-scenes detail recalled by Kysilka was that the stamps were actually printed in Latin America. ;-) To make things even cooler, they were transported by sea in boxes and prepared in the national banks (not sure how long time before the split they were printed). All employees were told that it was just gold so it wasn't interesting. Except for Ron Paul, who would care about some boxes full of gold? ;-)
We tend to say that things (e.g. formats in which savings are held) are much more complicated in today's Greece than they were in Czechia and Slovakia of 1993. I have often said the same thing but I am actually not sure about it. In many respects, Greece is less sophisticated than we were 20 years ago. Unfortunately, they could also be less competent to make the transition.
A longer history of stamping
I found a cool web page (orig. in CZ) about all the stamping episodes that occurred in the lands of Czechoslovakia during the 20th century (and about all the banknotes in our history, for that matter). There have been many, indeed. The page contains the picture of all the stamps that had ever been used as well as all the banknotes with the stamps attached to them (as well as all the regular banknotes without stamps).
When Czechoslovakia was born on October 28th, 1918, Mr Alois Rašín became the first Czechoslovak finance minister and he has pretty much managed every single detail of the currency split with Austria-Hungary, too. He authored the relevant laws, too. The monetary reform was codified on a secret night session of the Parliament on February 25th, 1919, after a week when the issue was discussed by a committee.
Husz (20) korona banknote with a Czechoslovak 1919 stamp, featuring our double-tailed lion
I just mentioned a night session. During the very same night, the Czechoslovak army already occupied all the borders to guarantee no mouse and no envelope would penetrate them. The stamps, posters with the rules were distributed all over the republic. The public was told about the reform at schools, churches, and in the villages – with the help of drums in the latter case. Just like in 1993, they needed a week – March 3rd to 9th (and to 12th in Slovakia), 1919, for the full transition. 244 million stamps were needed. One half of the cash you gave to the authorities was returned in the form of new Czechoslovak bonds. About 15,000 people in 410 district offices worked on the reform. The stamps were printed by two firms in Prague.
Just to be sure, what they were stamping were Austrian-Hungarian "crowns" banknotes. The crown just happened to be the latest name of the Austrian currency although many other names have been tried throughout the centuries. To make things paradoxical and to reinforce our conservative image, Czechoslovakia was the only successor country of Austria-Hungary that actually kept the name of the latest Austrian-Hungarian currency, the "crown". The Austrians didn't keep the Kronen; the Hungarians have forgotten about the Korona, too. You must wonder why our monarchy was named after them if they didn't even dare to name their currencies after "their" imperial ones.
Of course, the name of Austria-Hungary was a bit of an anachronism in the last decades of the monarchy. It was pretty much a democracy and the rights of ethnic groups were pretty much respected. And the Czech lands were the most industrially advanced area of the monarchy which was kind of more important than some feudal habits and names.
As things were stabilized after March 1919, the stamped banknotes were replaced by new Czechoslovak banknotes. The left column on that web page shows you all the historical banknotes in Czechoslovakia.
A new stamping arrived with the German occupation – and the "formally opposite" Slovak independence – in 1939. It seems there were no paper stamps in Böhmen und Mähren; ink stamping was probably enough. The likely reason is that whoever would try to counterfeit it could have been easily executed so the need for a very safe technology was limited. So for example, here is a fun (well, today it's fun, not so much in 1939) Czechoslovak 5-crown banknote with Josef Jungmann, a hero of the Czech National Revival 100-200 years ago (despite his German sounding name), and with the stamp of the Protektorat Böhmen und Mähren. ;-)
The Nazis imposed an artificial exchange rate of 10 protectorate crowns per 1 Third Reich Mark which made the mark much stronger than how it would be at the actual market rate of 6-7 crowns per 1 mark. This meant that the work was being sucked out of the Czech lands.
The website above has all the banknotes used at any moment in the history, including those for the Slovak Fascist State that had to stamp the Czechoslovak banknotes, too: "Slovak State" was glued to the usual Czechoslovak themed banknotes. Again, the protectorate and the Slovak State managed to print their own banknotes to replace the stamped ones after some months.
As you may expect, the German occupation and the Slovak fascist independence didn't last indefinitely. What does it mean? Well, another stamping after the war. So here you have some 1939 Slovak fascist banknotes with a yellow stamp of Czechoslovak daddy Masaryk to show who is in charge again:
Now, this was a reunification. I don't know whether the Slovak fascist crown was converted to the new post-war Czechoslovak crown in a 1-to-1 ratio. My understanding of that history is that there was no stamping of the protectorate crowns in Czechia. They had to do the transition smoother in the Czech lands but I don't understand how it was done. It had to be a huge mess because after the war, Czechoslovakia was covered by lots of Reich Marks, protectorate crowns, Slovak crowns, Hungarian currency, Polish currency, and various military vouchers, not to speak about the fact that many things had to be rationed.
Let me post a one-crown protectorate banknote, anyway.
Cute, the banknote clearly represented our lands as a civilized component of the Third Reich with attractive (German-compatible) babes and "almost" as many rights as everyone else. Note that the Czech description is capitalized and the German one above it is not! How generous. ;-)
However, there were some speedy postwar currency reforms in 1945, anyway. So new stamps were needed in the 1940s. In 1953, a huge monetary reform was made, destroying all the larger savings (due to a nonlinearity in the number of new crowns you would get for the older ones); I think that no stamps were used at that time. The sophisticated workers in my town of Pilsen staged the most impressive uprising (in the whole history of the Soviet bloc) against the communists' assaults on the (relatively) rich people.
In 1962, Czechoslovakia prepared lots of additional new stamps for special events – such as the Cuban Crisis. Up to exceptions picked by numismatics, these stamps were officially destroyed after 1993 when the Velvet Divorce of countries and currencies took place.
This article began with a Czech-composed-based Czechoslovak banknote with a Slovak stamp so it's natural to end with a 1973 Slovak-language-based Czechoslovak banknote featuring the 1944 Slovak National Uprising and improved by a 1993 Czech stamp. ;-)
We've seen lots of such stamps, banknotes, mergers, and splits, and if you leave this huge logistical exercise to professionals and not politicians, you shouldn't be afraid of it too much. When people start to be afraid of a possible event and make certain things unsustainable, it's better to make the events happen.
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