THE VOICE OF INTERNATIONAL LITHUANIA
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Front and back of 1922, 50 Centai banknote.
Front and back of 1929, 5 Litai banknote.
Front and back of 1922, 100 Litai banknote.
Photos courtesy of Colnect.
AUKSINAS to RUSSIAN RUBLE to OSTMARK and OSTRUBLE to LITAS to SOVIET RUBLE to LITAS – THE FIRST and SECOND INTRODUCTION of the LITHUANIAN LITAS
The official currency of the Republic of Lithuania is the Litas. Twice it has been the official currency. The first period was during the inter-war years when Lithuania regained its independence from Imperial Russia and the second period began in 1993, after Lithuania regained its independence from Soviet Russia, and is still the official currency. We would like to share with you some interesting information about what was involved in the creation of the Litas and its reintroduction.
FIRST LITAS, 1922-1941
The first litas was introduced on 2 October 1922 to replace the German Ostmark and Ostruble, both of which had been issued by the occupying German forces during World War I. Interestingly the ostmark was known as the auksinas in Lithuania as the auksinas was the currency of Lithuania in the 17th century. Before the German Ostmark and Ostruble the currency used in Lithuania was the Russian Ruble as it was occupied by Imperial Russia.
Auksinas coin Russian ruble
Ostmark was the name given to a currency denominated in Mark which was issued by Germany in 1918 for use in a part of the eastern areas under German control at that time known as the Ober Ost area. This area included Lithuania, Latvia, Estonia, Belarus, parts of Poland and Courland, which were former territories of the Russian Empire.
The currency consisted of paper money issued on 4 April 1918 by the ‘Darlehnskasse’ in Kaunas and was equal to the German Papiermark. The Ostmark circulated alongside the Russian ruble and the Ostruble, with two Ostmarks equal to one Ostruble.
Ostruble was the name given to a currency denominated in kopeck and ruble, which was issued by Germany in 1916 for use in the Ober Ost area under German occupation and the Government General of Warsaw). It was initially equal to the Russian ruble. The reason for the issue was a shortage of rubles. The banknotes were produced by the "Darlehnskasse" in Posen (now Poznan) on 17 April 1916. From 4 April 1918, the Ostruble circulated alongside the Ostmark in the Ober Ost area. It was valued at 2 Ostmarks = 1 Ostruble. In the Government General of Warsaw the Ostruble was replaced by the Polish marka on 14 April 1917.
The intitial vale of the Litas was established at a value of 10 litas = 1 US dollar and was subdivided into 100 centai. Even with the world wide economic depression, the litas was quite a strong and stable currency, reflecting the negligible influence of the depression on the Lithuanian economy. One litas was covered by 0.150462 grams of gold stored by the Bank of Lithuania in foreign countries. In March 1923, the circulation amounted to 39,412,984 litai, backed by 15,738,964 in actual gold and by 24,000,000 in high exchange securities. It was required that at least one third of the total circulation would be covered by gold and the rest by other assets. By 1938, 1 U.S. dollar was worth about 5.9 litai, falling to about 20 U.S. cents just before its disappearance in 1941 following Soviet Russia’s invasion and occupation of Lithuania.
After Lithuania was annexed by the Soviet Union the litas was replaced by the Soviet ruble with 1 litas equal to 0.9 ruble. The actual “street value” though of the litas was about 3-5 rubles. Such an exchange rate provided great profits for the military and party officials. Trying to protect the value of the currency, people started to massively buy. This combined with a downfall in production caused by Moscow’s nationalization of all private businesses and industry resulted in severe shortages of many items. Withdrawals were then limited to 250 litai before the litas was completely abolished.
Coins were introduced in 1925 in denominations of 1, 2, 5, 10, 20 and 50 centai and 1, 2 and 5 litai, with the litas coins of silver. These coins replaced the banknotes of corresponding value. 10 litų coins were introduced in 1936. All these coins were designed by the famous sculptor Juozas Zikaras (1881-1944). The litas coins displayed Jonas Basanavičius and Vytautas the Great, which was replaced by a portrait of President Antanas Smetona.
In 1922, the Bank of Lithuania issued notes in denominations of 1, 2, 5, 10, 20 and 50 centai, 1, 2, 5, 10, 50 and 100 litų. In 1924, 500 and 1000 litai notes were added. Banknotes below 5 litai were replaced by coins in 1925.
Front and back of 1922, 50 Centai banknote – Photos courtesy of Colnect
Front and back of 1929, 5 Litai banknote – Photos courtesy of Colnect
Front and back of 1922, 100 Litai banknote – Photos courtesy of Colnect
1993 - THE SECOND LITAS
In the previous article, we talked about Lithuania’s transition from the Soviet Ruble to the Talonas after independence was regained in 1990. The litas once again became Lithuania's currency on June 25, 1993, when it replaced the temporary Talonas currency at a rate of 1 litas to 100 talonas. You may find it interesting that officials had started to prepare for the introduction of the litas even before independence was declared. What is even more interesting is that it was even considered to introduce the litas alongside the ruble even if Lithuania remained a part of the Soviet Union. In December 1989, artists were asked to submit sketches of possible coin and banknote designs. Also, a list of famous people was compiled in order to determine who should be featured.
The Bank of Lithuania was established on March 1, 1990. Ten days later Lithuania declared independence. At first the Lithuanian government negotiated in vain with the famous French printing house Imprimerie Oberthür to print the banknotes. In November 1990 The Bank of Lithuania decided to work with the United States Banknote Corporation (now American Banknote Corporation). In late fall of 1991 the first shipments of litas banknotes and coins arrived in Lithuania.
In November 1991, the Currency Issue Law was passed and the Litas Committee was created. It had the power to fix the date for the litas to come into circulation, the terms for the withdrawal from circulation of the ruble, the exchange rate of the litas and other conditions. Officials waited for a while for the economy to stabilize to not to expose the young litas to inflation. About 80% of Lithuania's trade was with Russia and the government needed to find a way to smooth the transition from the ruble zone. Also, Lithuania needed to gather funds to form a stabilization fund.
At first, Lithuania did not have gold or any other securities to back up the litas. Lithuania needed to find about 200 million U.S. dollars to form the stabilization fund. First, it sought to recover its pre-war gold reserves (about 10 tons) from France, United Kingdom, Switzerland, etc. In the interwar period Lithuania stored its gold reserve in foreign banks. After the occupation in 1940 those reserves were “nobody’s”, there was no Lithuania and most western countries condemned the occupation as illegal and did not recognize the Soviet Union as a successor. The Bank of England, for example, sold the reserves to the Soviets in 1967. However, in January 1992 it announced that this action was a “betrayal of the people of the Baltic states” and that it would return the originally deposited amount of gold, now worth about 90 million pound sterling, to the three Baltic states. Lithuania received 18.5 million pounds or 95,000 ounces of gold and remained a customer of the bank. Similarly, in March 1992 Lithuania reclaimed gold from the Bank of France and later from the Bank of Sweden.
April 29, 1992 Lithuania joined the International Monetary Fund. In October 1992, the IMF granted the first loan of 23.05 million U.S. dollars to create the stabilization fund. However, it is estimated that at the time of the introduction of the new currency, Lithuania managed to gather only $120 million for the stabilization fund. For a brief while it was kept a secret so as not to further damage the reputation of and trust in the litas.
DELAYS INTRODUCING THE LITAS
Journalists investigating the production of the litas found that for a while it was purposely held back. For example, 6 million litas designated to pay for printing the banknotes stayed in a zero interest bearing account for a year in a bank in Sweden. By 1992, the litas was ready for introduction, but the banknotes were of extremely low quality. It was felt that one could easily counterfeit them with a simple color printer, especially the 10, 20, and 50 litai banknotes.
Newly elected President Algirdas Brazauskas dismissed the Chair of the Bank of Lithuania, Vilius Baldišis, for incompetence just two months before the introduction of the litas. Baldišis was later charged for negligence that cost Lithuania $3,000,000. Some even claimed that the Russian secret services were behind the affair. Baldišis’ explanation was that he was trying to cut the costs of printing the banknotes and thus did not order better security features. The “U.S. Banknote Corporation” was also accused of violation of the contract terms.
Considering all the past problems with the quality of the banknotes, you would think that with the next issue all the quality concerns would have been resolved but when the new issue of litas banknotes was redesigned, reprinted, and introduced in June 1993, it was found that the quality of the money was still too low and the banknotes would have to be redesigned further in the future. All these scandals and the small backup of gold reserve (about $120 million instead of $200 million) damaged the reputation of the litas. Thankfully, the newly appointed chair, Romualdas Visokavičius, moved things quickly and managed to win the trust of the public. Unfortunately, in October he was asked to resign mostly because of his involvement with a private bank "Litimpex."
INTRODUCTION OF THE SECOND LITAS
The 1, 2 and 5 Litai banknotes were replaced in 1998 by coins
On June 25, 1993, the litas was finally introduced at the rate of 1 litas to 100 talonas. 1 U.S. dollar was worth 4.5 litai and decreased to about 4.2 a couple of weeks later. From April 1, 1994 to February 1, 2002, the litas was officially pegged to the U.S. dollar at the rate of 4 to 1 (the litas was stable around 3.9 for half a year before the pegging). The main reasons for this fixation was little trust in the emerging monetary system, fear of high fluctuations in currency exchange rates, desire to attract foreign investors, and International Monetary Fund recommendations. The peg was renewable every year. For a while a peg was considered to a basket of currencies: the European Currency Unit. At around this time Lithuania also established a currency board.
This 4 to 1 rate remained until Lithuania became a member of the EU and then the litas was the pegged to the Euro with the official Bank of Lithuania exchange rate of 1 Euro to 3,4528 litas. Even the introduction of the litas was followed by a scandal. The government allowed the changing of unlimited amounts of talonas to the litas without having to show the source of the talonas. This allowed criminal groups to legalize their funds. Also, due to poor banknote quality (both talonas and early litas) it was easy to counterfeit them. Most shops were forced to acquire ultra violet lamps to check for forgeries. For example, it is reported that one enterprising group of counterfeiters printed 500 talonas banknotes in Turkey. It was estimated that their notes totaled 140,000 litas.
In July, circulation of the talonas was stopped and on August 1, 1993, the litas became the only legal tender. Following the reintroduction of the litas, there was an effort to weed out U.S. dollars from the market. The talonas was never really trusted by the people and the ruble was very unstable. Thus, people started using U.S. dollars as a stable currency. Another alternative was the German mark, but it was not available in larger quantities. A lot of shops printed prices in several different currencies, including dollars, and the economy was very "dollarised" as it was legal to make trades in foreign currencies.
As one final measure, from April 1, 1994, the litas was fully backed by gold and other stable securities.
THE LITAS AND THE EURO
On 2 February 2002 the litas was pegged to the euro at a rate of 3.4528 to 1. This rate is not expected to change until the litas is completely replaced by the euro. After the peg, Lithuania became a member of the Eurozone de facto. Since 28 June 2004, the litas has been part of the ERM II which is the EU's Exchange Rate Mechanism. The design of Lithuanian euro coins is already prepared.
Lithuania has postponed its euro day several times, since the country does not meet the convergence criteria. A recent analysis of SEB bankas in Lithuania says that Lithuania could not adopt the euro before 2013 due to the high rate of inflation — which reached 11% in October 2008 — well above the Maastricht criterion of 4.2%.
In 1993, coins were introduced (dated 1991) in denominations of 1, 2, 5, 10, 20 and 50 centų, 1, 2 and 5 litai. The 1, 2 and 5 centai pieces were minted in aluminium, the 10, 20 and 50 centų in bronze and the litas coins were of cupro-nickel. In 1997, nickel-brass 10, 20 and 50 centų coins were introduced, followed by cupro-nickel 1 litas and bimetallic 2 and 5 litai in 1998. All have the obverse designs showing the Coat of Arms in the center and the name of the state "Lietuva" in capital letters.
Photo courtesy of BalticValue.com
The first coins were minted in the United Kingdom. Currently, all coins are minted in the state-owned enterprise "Lithuanian Mint", which started its operations in September 1992 and helped to cut the costs of introducing the litas.
FROM LITAS TO EURO
Lithuania still waits to join the Euro Zone. While many government and business leaders are still diligently working to achieve this goal many, perhaps even the majority, of the general public is of the mind – Who needs it. While our good friends in Estonia entered the Euro Zone 1 January 2011 and everything seems to be going well for them, many in Lithuania fear that entering the Euro Zone will escalate inflation and drive prices higher. This is of great concern for the people of Lithuania given that in the past few years the prices of everything have escalated out of control with out any one in control seemingly doing anything to try to control it.
PROTECTING THE VALUE OF THE LITAS
Another concern of the Lithuanian people is how the litas would be exchanged for the Euro. I will use the exchange rates of the largest bank in Lithuania to explain this concern.
Currently if you had an account with SEB Bankas in Lithuania you could walk into one of their banking centers or log into your account via the internet and exchange litas for Euros. If the exchange is done with banknotes the buy rate would be 3.442 Litas for 1 Euro. If the exchange is done via transfer of funds from your account the buy rate would be 3.4442 Litas for 1 Euro. Given that the official Bank of Lithuania currency rate is 3.4528 Litas for 1 Euro, the difference from the buy rate to the official rate is only .0108 and .0086 centai respectfully. This difference is absolutely miniscule and nobody would complain if when the time comes that Lithuania switches to the Euro that these would be the rates of exchange. The concern many people have is that when the time comes for the exchange, since it will now be “official” that the difference between the buy rate and official rate will be increased resulting in excessive loss of value in their Litas.
So now Lithuanians wait to see if the Litas will stay in place, will the Euro take its place and if the Euro does come will the government protect their life savings by keeping the exchange rate at a very expectable level as it is now.
Su pagarbe – Vincas karnila
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