While Euro dominates Forex landscape in Europe, especially now during most turbulent times for the common currency since its inception, there are still few others left on the continent. Swiss Franc, is of course, one of the best known and most traded currencies in the world. Scandinavian countries still maintain their own monetary systems, which are growing in terms of popularity among foreign exchange traders. Central and Eastern European countries also have domestic currencies. Polish Zloty(PLN) represents the largest economy among those.

Just like most other currencies from so called emerging economies, Zloty suffered during the height of global financial crisis of 2008. Some of the major currencies dropped as well with Australian Dollar, for example, losing 50% of its value. Since the crisis peaked, however, PLN has been recovering very nicely, especially in relation to the Euro. This process accelerated recently, with Zloty gaining 6% on EUR in first three months of this year. EUR-PLN dropped to 3.8210, the lowest level in well over the year. In a move that surprised many, National Bank of Poland intervened in the open market with aim to weaken its currency, first such move since 1990′s.

Some would think it action by NBP is very rational. After all, over 75% of exports form the country go to EU, so keeping Zloty low would benefit domestic producers and manufacturers. On the other hand, with Poland trying to join monetary union (converting to Euro) in not too distant future, this could be seen as little puzzling. Country is on track to meet the Maastricht Treaty requirements over next couple of years, paving the road for converting PLN to EUR. If this is going to happen, strong Zloty would be preferable, since at some time wages, pensions and savings will be changed over to Euro. As high conversion level as possible should be of most benefit to citizens.

NBP might be trying to insure short term competitiveness, in order to keep the economy growing. And growing it has been. Poland has been the only member of EU which didn’t suffer recession, at least as it is officially defined. Coutry experienced growth even in 2009, while the rest of Eurozone’s GDP contracted. While the increase of 1.7%, maybe small, it is sure better than the 4% drop in EU. Frankly, no small feat in in light world wide crisis.

Perhaps Poland has second thoughts about joining the monetary union? The events in Greece and EU leadership response put a big question mark on what exactly the benefits would be. Country can be a member of EU and still retain independent monetary system, so why not keep the options open? Nothing must be decided immediately, so why not build up foreign currency reserves by selling the Zloty? Is this the new policy on NBP?

Unfortunately, two days after central bank intervention, things got more complicated. During official state visit to Russia plane carrying Polish delegation crushed killing all on board, including President Lech Kaczynski. Among others who lost life was also head of National Bank of Poland. In a sad twist, they were going to attend a ceremony commemorating 70th anniversary of massacre of 20,000 Polish military officers in Katyn. Act committed by Soviet secret police, the NKVD, forerunner of KGB.

It is almost certain that crush was an accident, but surely conspiracy theories will pup up left and right about some kind of involvement of Russian government, due to the nature of the visit. Inconceivable. However, this doesn’t change the fact that many decision makers in Polish establishment died. This surely will have some impact on financial markets and perception of Zloty going forward. We shall see how markets react once trading resumes after the weekend.

My deepest condolences to people of Poland.

Mike K.