“The NBP Central Bank, Guardian of Poland’s Macroeconomic Stability”

The ancient Romans said “si vis pacem, para bellum”, which means “if you want peace, prepare for war”. This Latin proverb describing the main doctrine of the art of war reflects equally well the principle guiding the anti-crisis measures of the Polish Central Bank NBP. Because we never know exactly when and in what form the next crisis will occur, we are constantly preparing for the economic battle that we will have to fight if necessary, making sure that the economy is on solid foundations and that the financial position of the central bank is strengthened.

In the past fifteen years we have experienced two very serious global crises: the financial crisis of 2007-2012 and the pandemic crisis, and recently we have also been confronted with the tragic social and economic consequences of the geopolitical crisis caused by the Russian aggression of Ukraine . Admittedly, these crises did not have the same character, but each time the central bank fulfilled its role of guardian of macroeconomic stability.

The Great Financial Crisis began in 2007 in the United States as a result of an excessive easing of credit policy and the shift of financing from the real estate sector towards unregulated or underregulated entities, leading to a decline with significant impact on credit quality, while the amount of funding and “leverage” become uncontrollable. When these imbalances eventually escalated into crisis, their collapse threatened the solvency of the banking system, not just in the United States, but almost everywhere, in an increasingly financially integrated world.

“Trust Package”. Poland almost ran dry from this crisis. There was no need to save the banks with taxpayers’ money, as was the case in Ireland or Spain. We have also had no problems with foreign currency loans throughout Hungary. In Poland, there were no interruptions in the repayment of deposits from the guarantee fund, as was the case in Iceland, nor problems with cash withdrawals from bank accounts, as in Cyprus. Finally, there was no flight of foreign capital as in Slovenia. We can therefore say that we have succeeded. An important contribution to this was the establishment of a “Trust Package”, whereby the NBP provided commercial banks with liquidity in local currencies and – through currency swaps – also in foreign currencies, which were then necessary to secure open balance sheet positions with regard to foreign currencies. set. currency loans. The aim of the “confidence package” was to restore the efficient functioning of the interbank market, which in turn supported the stability of the financial system and the flow of money and credit in the Polish economy.

Nearly ten years later, we were faced with another global crisis – this time caused by the pandemic. To avoid the implosion of entire sectors of the economy, central banks and governments around the world had to react quickly and decisively, although the conditions for action were not the same everywhere. Poland was able to react quickly and on a large scale as responsible fiscal policies clearly allowed scope to increase public spending, and the response to fiscal policies was supported by immediate and determined action by the NBP. A rapid and determined cut in interest rates and the implementation of an asset purchase program under so-called “structural open market operations” played a key role in this. Thanks to these operations, the liquidity of the bond market was preserved and the effect of the NBP’s rate cut on the economy was reinforced, saving many companies from bankruptcy and jobs, which led to the decline in GDP.

Elite League. However, the relatively mild impact of the pandemic on the Polish economy is due not only to precise and decisive action on the part of economic policy, but also to the ability of Polish entrepreneurs to adapt quickly to changing circumstances. Many Polish companies have taken advantage of the opportunities created by the pandemic and increased their exports, especially household appliance manufacturers. In 2020 they produced a record number of devices and Poland became the fourth largest exporter in the world in this field. Polish manufacturers have also benefited from the growing role of electromobility and have become the largest exporter of batteries for electric cars and buses in the European Union. In 2020, almost every second electric bus bought in the EU came from Poland. There are many such examples. They make us realize that Poland has entered the elite class of economies that have not only weathered the pandemic relatively well, but have also taken advantage of it creatively to increase their potential.

One of the central bank’s areas of activity, where this progress is most noticeable, is the management of foreign exchange reserves, the value of which has already exceeded EUR 140 billion, having almost doubled over the past ten years. This is very important because the reserves guarantee the credibility of payments from the Polish state, including, indirectly, from the private sector. Despite unfavorable circumstances and very low interest rates worldwide, we are able to achieve very good investment results. In 2016-2020, the NBP generated profits, of which the total payment to the state budget exceeded 32 billion zlotys. One of the pillars of our investment strategy is the gradual increase in gold reserves, which effectively spread the risk of other investments as a safe haven. In 2018-2019, the NBP has already bought 125 tons of gold, bringing the stock of this ore to almost 230 tons, or about 8% of our official reserves.

Macroeconomic stability and a sizeable reserve portfolio proved invaluable as we faced another crisis just two years after the pandemic – this time of geopolitical origin. On February 24, 2022, Russia militarily attacked Ukraine, causing a humanitarian, political and economic catastrophe the magnitude of which we cannot even guess today. Mass exodus of citizens, supply chain disruptions, supply constraints on energy and food commodities, as well as heightened volatility in financial markets and a surge in risk aversion are just some of the phenomena we will face.

stock† In the early days of the war, many Poles worried about their future, which in turn was reflected in a sharp and rapid increase in demand for cash. Fortunately, the central bank was well prepared for this opportunity and had adopted a National Cash Circulation Security Strategy. So we had sufficient liquidity to fully cover the needs of bank customers. All bank orders were executed with no value limit, in the full nominal structure, throughout the national territory, which made it possible to quickly contain the panic.

Thanks to the policy of sequential accumulation of reserves, the NBP had sufficient reserves and an appropriate set of instruments at its disposal at the start of the crisis to counteract the negative trends of the financial markets and changes. In particular, we were prepared to react at any time to excessive movements in the zloty exchange rate, which could disrupt the smooth functioning of foreign exchange and financial markets or adversely affect financial stability or effectiveness of the pursued monetary policy. NBP.

The high level of reserves also allowed us to provide the National Bank of Ukraine with a US dollar/hryvnia swap line of up to USD 1 billion. These measures will reduce the risk of a subsequent destabilization of the political and economic situation in Ukraine, which would have a negative impact on the stability of the financial system in Poland.

mutual aid† In addition to this economic aspect, the latest crisis also has its tragic humanitarian dimension, one of the manifestations of which is the exile of millions of people faced with bombing raids by Russian troops. Many representatives of the courageous Ukrainian nation have found refuge in Poland. These people often arrived with cash in hryvnias, which they could not easily exchange for zlotys because of difficulties in the cross-border flow of money into the war-torn area. However, from the first day of the Russian aggression, we at the NBP worked together with our friends at the Central Bank of Ukraine to solve this problem. It was important to us that Ukraine’s heroic defenders knew we were taking care of their families. As a result of these efforts, the Polish Central Bank has signed an agreement with its Ukrainian counterpart allowing any adult Ukrainian refugee to exchange hryvnias (up to 10,000 UAH) for Polish zlotys.

Helping Ukraine is above all a moral duty, but also an obligation that we could not fulfill without the solid foundations of our national economy and without the solid financial position of the central bank, the result of our diligent efforts in recent years. This hard work and caution have enabled us today to bear the costs of military operations beyond our eastern border. Poland is a strong country and the NBP is a strong central bank. We want peace, therefore, as the ancient Romans taught us, we are constantly preparing for war.

Adam Glapiński, Professor of Economics, President of the Polish Central Bank Narodowy Bank Polski (NBP)

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