The Polish Zloty and the Independence of Narodowy Bank Polski as the Foundations of Economic Development

Professor Adam Glapiński, Governor of Narodowy Bank Polski

For more than three decades now, Poles have enjoyed sovereignty, and the Polish economy has been a spectacular success. Nobody has gifted us that success, we owe it to ourselves. It is thanks to the hard work of Poles, their ambition and entrepreneurship, that the Polish economy has achieved rapid growth in prosperity in recent decades.

Forecasts for our economy remain optimistic. They indicate that Poland can attain the level of GDP currently enjoyed by the wealthy countries of Europe, including Italy, France, and the United Kingdom as early as the beginning of the next decade.

In a world torn by geopolitical tensions and wars, including Russia’s aggressive stance, our economic success is not, however, guaranteed. That is why everybody who puts the good of Poland first should mobilise their forces and support the building of a powerful state and a strong economy. This is our greatest duty to history.

In this article, I would like to outline the role played by the Polish currency and Narodowy Bank Polski in supporting rapid and stable economic growth, thereby strengthening the country.

Recent years, when we have had to cope with the pandemic crisis followed by a global rise in inflation, have clearly demonstrated how important the role of NBP is for the fate of our country.

Today, when the macroeconomic effects of the past years’ global shocks have largely subsided, it is clear that the Polish central bank has risen to the challenge. First of all, price stability has been restored. At present, inflation runs below 3 per cent and is within NBP inflation target. At the same time, the costs of disinflation to the real economy have been limited. Today, Poland’s GDP is approximately 16 per cent higher than before the pandemic and this year’s GDP growth clearly exceeds 3 per cent. Also, unemployment is among the lowest in the European Union.

The results of the Polish economy expose the absolute lack of legitimacy of the attacks on NBP, most often politically motivated, which we have had to deal with in Poland in recent years.

At the same time, the fall in inflation in recent months allows the Monetary Policy Council to cut the interest rates. This year, NBP reference rate has been reduced from 5.75 per cent to 4.0 per cent, which lessens the burden on borrowers, limits the cost of public debt servicing, and supports economic growth.

Looking ahead, as the Governor of Narodowy Bank Polski, I ask myself first of all what role monetary policy and the central bank can play in the building of a prosperous economy and a strong state. I assure you that, as it has always done, Narodowy Bank Polski will implement monetary policy in a way that ensures that long-term price stability in the Polish economy is maintained, and economic growth remains balanced. Preserving the stability of the monetary system and high trust in the Polish currency, NBP’s monetary policy will remain the foundation of Poland’s economic growth and prosperity of the Polish people.

Three elements are of key importance for the central bank to be able to continue performing its duties successfully.

The first one is preserving its independence. Unfortunately, today the independence of Narodowy Bank Polski tends to be challenged for political reasons. Indeed, even where attacks on central bank independence are merely part of political rhetoric, they are extremely harmful. They can erode public trust in the independent central bank, and consequently, lead to higher inflation expectations, higher inflation, and thus persistently higher interest rates. This happens at the expense of credibility of the Polish state and public debt servicing costs.

The second element of key importance for ensuring long-term price stability and macroeconomic stability is retaining the zloty and not adopting the euro prematurely.

It is because we have our own currency with a floating exchange rate that we are able to adjust interest rates to suit the Polish economy. This is important because macroeconomic processes in Poland often take a different course than in the euro area. As a result, the Polish economy needs a different level of interest rates than those set by the European Central Bank. Above all, economic growth in Poland is faster in the long term than in the euro area. This means that higher interest rates are generally required to ensure low inflation in Poland.

Another equally important benefit of having one’s own currency is that the floating exchange rate of the zloty serves as a “cushion”, which allows the Polish economy to respond to economic shocks through changes in the nominal exchange rate rather than through economically and socially painful changes in unemployment and GDP.

What should be underlined is that having a national currency with a floating exchange rate has not been an obstacle to dynamic growth of exports in the past decades. Since 2005, Polish businesses have increased their share in global trade the most in the entire EU.

At the same time, after euro adoption many countries have incurred significant costs due to the loss of monetary independence. In particular, interest rates in the euro area proved to be too low for some south European economies. This led to a surge in debt, which, while boosting short-term economic growth, eventually caused a crisis, a sharp increase in unemployment, and a loss of competitiveness. It was not possible to restore competitiveness through the depreciation of the nominal exchange rate. It necessitated internal devaluation, meaning a long and painful process of suppression of real wages.

Therefore, perhaps only in the future, with the continued growth of Poland’s economic prosperity, will the discussion about the economic benefits of adopting the euro make any sense.

However, let’s remember that economic issues are only one of the aspects of having one’s own currency. The zloty is also one of the pillars of Polish sovereignty and national identity.

A third challenge that the Polish economy and NBP are facing today is linked to the changes taking place in the international financial order, including in the role played by individual currencies within it. Although these changes are occurring gradually, in the coming decades they may have serious implications for the global economic order. As a country and as a central bank, we must be prepared for these changes.

The international financial system is still based on the hegemony of the US dollar. This hegemony is evident, for example, in the area of central banks’ foreign currency reserves, as well as in the global currency market, in the settlement of international payments and trade in raw materials, and in foreign loans.

The leading role of the dollar in the global financial system results from many factors. Among them are the size of the US economy, a deep and liquid financial market, a democratic political system and strong protection of property rights, and the independence of the central bank. Yet, it is the military power of the United States – our ally and the most important guarantor of security – that is the foundation of the dollar’s strength.

However, in recent decades there has been a gradual shift in the balance of power in the global economy. The United States’ share in global production and trade has declined, accompanied by the rise of large emerging economies, particularly China. We have also seen the expansion of Chinese military power, the growth of Chinese influence worldwide, and the advancement of Chinese technology.

These trends prompt deep reflection and questions about the shape of the international financial system in the coming decades and the role that individual currencies will play in it.

At the moment, it is difficult to speak of a retreat from the dollar as the dominant reserve currency. This is due to the strength of the US state and economy, but also the fact that there is no alternative currency that could quickly take over the role of the dollar in the global financial system.

As a result, the largest portion of central banks’ foreign currency reserves continues to be held in US dollars. Although their share has declined from slightly over 70 per cent at the beginning of the 21st century to 56 per cent currently, it was the result of the diversification of reserves and not a retreat from the dollar.

The return of central banks to purchasing gold was of particular importance in this diversification. In 2022-2024, the scale of gold purchases by central banks reached a record high, exceeding 1,000 tonnes annually. The share of gold in global official reserve assets has exceeded 20 per cent, making this precious metal the second most important component of these assets after the dollar.

The growing demand for gold – not only from central banks – has resulted in the price of this precious metal rising to record levels. The price per ounce of gold was approximately 40 dollars at the beginning of the 1970s. Today this price is already around 4,000 dollars.

Taking the above considerations into account, the Management Board of Narodowy Bank Polski agreed to my proposal and decided to strategically increase the share of gold in the official reserve assets to 30 per cent.

Currently, our gold reserves exceed 530 tonnes and are valued at 250 billion zloty. This represents over 25 per cent of all our reserves. That’s an impressive amount! We rank 12th in the world among central banks.

However, we do not rest on our laurels. We will strive to increase the share of gold in our reserves even further. As historical experience shows, gold serves as an anchor of financial security, a pillar of trust, and a guarantee of independence.

Gold has a limited supply and is not someone’s liability, so it guarantees us security. This is crucial in a world of growing geopolitical tensions and shifting economic relations.

As the most important component of central banks’ global reserves after the US dollar, gold also meets the criterion of liquidity.

Moreover, gold supports the profitability of our reserves. Since the beginning of the 1970s, the price of gold has risen on average by over 7 per cent per year – almost the same as US equities and much more than bonds.

Reflections on the question: “How should a central bank support the building of a strong state and a strong economy?” lead me to set out three strategic goals for Narodowy Bank Polski in the coming years.

Firstly, we will continue to ensure price stability, and if we achieve this goal, in accordance with Polish law we will also support the government’s economic policy.

Secondly, we will defend – as we would our independence – the Polish zloty and our independent central bank, because they are the foundations of macroeconomic stability and growing prosperity of the Polish people.

Thirdly, we will increase the share of gold in our reserves, because it is the pillar of our country’s financial security and the strength of our currency.

Most importantly, however, for the Polish economy to continue to grow rapidly in the coming years, the whole Polish state must conduct a wise and prudent economic policy, respecting the rule of law, the institutional architecture of the state, and pluralism.

Finally, I would like to encourage readers to reach for my book based on NBP materials entitled “The Polish Zloty and the Independence of NBP as the Foundations of Economic Development”, which delves deeper into the topics outlined above. The publication, both in Polish and in English, can be downloaded and ordered free of charge on the nbp.pl website.