Repression versus free and controlled market. Research into the (weak) effectiveness of the Polish foreign currency (US dollar/zloty) market over the years1983–1989 and 1991–2006

In 1982–2006 the Polish foreign currency market underwent a total revolution. A liberalization of the capital account took place. Poland became a member of the IMF, OECD and European Union. The exchange rate control system underwent an evolution as well: from an unreal, through rigid to a marketforces controlled system. A similar change is also visible among the market participants— now, Poland makes part of the global financial system sharing all its advantages and threats. In the paper, the author tried to verify the hypothesis about the improvement in the effectiveness of the Polish foreign exchange market (in its weak version).

The presented research results suggest that till 1998 (or 2000) the Polish market was really getting more and more effective. However, since the beginning of the 21st century the hypothesis of the market’s effectiveness has been rather difficult to accept (although, its rejection may require some further, more advanced research). The main cause of the exchange rate’s ineffectiveness may consist in the advantageous balance of Poland’s EU accession and integration and, prior to 2004, in the declining interest rates together with optimistic expectations of the market participants as to the success of Poland’s aspiration after the EU membership. On the other hand, in 2007 the transition period will expire during which Poland has been permitted to reckon the Open Pension Funds in the public finance sector. Slowly, the negative aspects of the pending problems (miners’ pensions, compensations for longterm contracts in the electric power sector, and maybe also for the liquidation of special economic zones, guarantees and lack of reforms in the Polish State Railways, indemnity for the Eureco consortium) hitherto delayed will begin to be felt. The adverse influence of the integration on the state budget can increase the deficit over the desirable 3% or induce the authorities to further indebtedness. As a result, the hitherto observed onesided pressure on the zloty exchange rate can vanish. It is probable then that an improvement in the market effectiveness will take place with the appearance of factors that usually contribute to weakening of the exchange rate but till now have not been sufficiently strong.