OPINION

You Don’t Buy a Cow to Get a Glass of Milk

Under current circumstances, replacing the zloty with the euro in the foreseeable future does not seem the optimal choice

The debate concerning Poland’s adoption of the euro resurfaced in the wake of the war in Ukraine. Some stated that adopting a common currency would protect the Polish economy against the weakening of the zloty while reducing the risk of direct Russian aggression. Such arguments are far from convincing because the cost-to-benefit balance for speedy accession to the eurozone has not changed significantly.

The zloty weakening against the euro following the start of the war in Ukraine should not become a cause for concern, or indeed a material argument in favour of a serious and irreversible decision like adopting the euro.

Firstly, the phenomenon of a local currency weakening in response to a negative shock is natural and desirable in equal measure, one of the key arguments in favour of preserving local currencies. Currency exchange rates function like a shock absorber, facilitating relatively painless economic adjustments while softening the impact of the destabilised environment. Secondly, the weakening of the zloty against the euro has been rather limited, given the scale of economic shock and geopolitical risk. On average, the zloty/euro exchange rate dropped by a mere 3 percent this year over the previous year; even during the market panic peak, the scale of the zloty's depreciation against the common currency did not exceed 10 per cent compared to pre-war levels.