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The Warsaw Voice » Special Sections » November 30, 2010
Poland’s Central Bank in the Eurozone
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Poland’s Central Bank in the Eurozone
November 30, 2010   
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When it joins the eurozone, Poland will have to radically change its entire banking system. On the one hand, the country will no longer be able to conduct a monetary policy of its own, but on the other it will have a say in decisions that the European Central Bank (ECB) makes on behalf of the eurozone as a whole. As soon as the single currency is adopted, the role of the National Bank of Poland (NBP)—the central bank—will change as well.

When Poland joined the EU, it committed itself to adopting the single European currency. However, several criteria have to be met. The formal condition for adopting the euro is for an EU member state to accomplish lasting nominal and legal convergence. Poland will be allowed to adopt the euro only when it fulfills all convergence criteria which are formally outlined in the Treaty Establishing the European Community. The four criteria concern inflation rates, government finances, long-term interest rates and exchange rates. Poland has fulfilled none of the four so far.

Entry date not yet set
Studies of the eurozone show that the euro fosters economic growth. In Poland, the euro will reduce the costs of zloty-to-euro foreign trade transactions, eliminate risks inherent in unstable exchange rates, decrease market interest rates and increase macroeconomic stability and reliability. These benefits of adopting the euro should stimulate exports and imports, lead to higher investment, improve competition and bring savings to the public sector as far as public debt management is concerned.

The main cost of euro adoption in the long run will be Poland giving up its independent monetary and exchange rate policies. In order to ensure optimal gains and minimal costs, Poland will need to choose the right moment to join the eurozone.

Even though the government considers eurozone entry a priority, it has still not come up with a time frame for the process. According to the government, naming a specific date now would be highly risky due to the uncertain economic situation. Still, the government wants to integrate Poland with the eurozone as soon as possible, confident that this would benefit the Polish economy. Under the Strategic Framework for the National Euro Adoption Plan, which the government adopted in October, the National Euro Adoption Plan will be unveiled in the third quarter of next year and contain a detailed schedule of Poland’s preparations for adopting the euro.

New tasks for central banks
After Poland joins the eurozone, responsibility for the country’s monetary policy will be transferred to the European Central Bank. That is not to say the National Bank of Poland will become redundant at that point, because EU regulations on eurozone central banks assign a number of tasks to the central banks in individual member states.

The most important financial instrument employed by the European Central Bank are interest rates, set by the bank’s Governing Council, whose members include the governors of national central banks. After Poland enters the eurozone, the Governing Council will include the governor of Poland’s central bank. In order to take part in discussions within the Governing Council and vote for changes in interest rates, he will need staff to prepare analyses and draft opinions. The central banks of eurozone member states have special economic departments to monitor and analyze the economic situation in the country and across the eurozone. The Polish central bank will be no different and remain a center for economic analysis.

The Governing Council’s decisions on interest rates are put into practice by the Executive Board of the European Central Bank. However, the actual implementation of monetary policy, that is, the practical application of different instruments, is the responsibility of individual central banks in eurozone member states. They handle deposit and credit transactions with commercial banks in order to keep the interest rates on the market at levels set by the Governing Council. Central banks are also required to implement the mandatory reserves system.

The situation is similar with the management of the Eurosystem’s currency reserves. The European Central Bank sets the guidelines under which currency reserves are to be invested, but the actual investment process is taken care of by national central banks. The national banks are also involved in the production and distribution of euro banknotes and coins and they organize and supervise payment systems. Finally, central banks in eurozone member states are tasked with collecting all kinds of statistical data. It is thus clear that the Polish central bank will still have a lot of tasks to perform after Poland joins the eurozone.
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