EXCHANGE RATES AND REVALUATIONS IN EASTERN EUROPE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R002000020007-7
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 7
• Document Creation Date: December 16, 2016
• Document Release Date: October 5, 2004
• Sequence Number: 7
• Publication Date: December 24, 1974
• Content Type: MF

STAT
Approved For Release 2004/10/12 :CIA-RDP85T00875R002000020007-7
 Director
Office of Eastern European Affairs
Department of State
Approved For Release 2004/10/12: CIA-RDP85Tab&770
STAT SUBJECT : Exchange Rates and Revaluations in
Eastern Europe
6505
STAT
24 December 1974
Attachment:
As staced.
Distribution: (5-6683)
Original & 1 - Addressee
1 - D/OER
STAT
A L
lease 2061111'01,12 C1"-DP85TM875R00200002Mr-7
MEMORANDUM FOR: Mr. Nicholas G. Andrews
REFERENCE : Your memorandum, subject as above,
dated 29 November 1974
As you requested, I am forwarding herewith a paper
entitled Eastern Europe: A Brief Primer on Foreign
Exchange Rates.
 ? a Approved *For Release 2004/10/12 : CIA-RDP85T00875R002000020007-7
Eastern Europe: A Brief Primer on Foreign Exchange Rates
STAT
23 December 1974
Approved For Release 2004111,,0/12: CIA4 - RDP85T00875R002000020007-7
 ? Approved For Release 2004/10/12 : CIA-RDP85T00875R002d00020007-7
exchange rates for the individual East European currencies in
December 1974. The following tabulation compares the rates
for December 1974 derived through the ruble/dollar exchange
rate with the latest official rates per dollar announced by
the countries themselves:
Currency Units Per Dollar
Cross Rate Based
on Ruble-Dollar
Rate of Dec 74
Latest Quoted
Official
Rate
Bulgaria (leva) .97
.98
(Dec 73)
Czechoslovakia (crown) 5.96
5.84
(Nov 74)
East Germany (mark) 1.84
2.50
(see the text)
Hungary
(forint) 9.71
9.15
(Dec 73)
Poland
(zloty) 3.31
3.32
(Oct 74)
Romania
(lei) 4.97
4.97
(Aug 74)
East Germany, for political reasons, insists that its
official dollar exchange rate is the same as West Germany's.
In the other cases, the rates in the tabulation would pre-,
l0
sumably be the same if the dates were identical, that is, if
the East European governments faithfully followed the monthly
changes in the ruble-dollar exchange rate announced by Moscow.
However, the governments make their announcements irregularly,
usually at intervals of several months.
Limited Significance of the Official Exchange Rate -- In
any event, the official exchange rates, whether calculated through
the ruble or announced by the governments, are used for account-
ing purposes only. Because East European currencies are not
convertible, no exchange of thole currencies occurs in commercial
transactions. In the trade East European countries with
Approved For Release 2004/1.0/12 :? CIA-RDP85T00875R002000020007-7
 Approved For Release 2004/10/12 : CIA-RDP85T00875R002000020007-7
each other and with the USSR, the official rates provide accounting
units for converting currencies; trade imbalances are settled
with commodities, not cash. In their trade with the West, the
official rate presumably is used to translate hard currency
values into the national unit of account. All trade statistics
published by East European countries are cited in national
currency units. The actual financial actions with the West
are settled in Western currencies.
Changes in the Official Exchange Rate Since 1971 --
Because East European official exchange rates are pegged to
the Soviet ruble, and because the Soviet ruble has appreciated
relative to the dollar by about 20% since 1971, the East
European currencies have similarly appreciated relative to
the dollar in terms of their official exchange rates. On the
other hand, neither the exchange rates among th.: East European
countries nor their exchange rates ,with the USSR have changed
since 1962, as noted earlier in this paper. The recurring
announcements by East European monetary authorities of changes
in the official rate relative to all Western currencies since
1971 reflect the effects of world monetary fluctuations as
measured by the Soviet ruble, to which their currencies are
pegged. Thus, the official East European rates have been
revalued not only relative to the dollar but also relative to
other declining currencies such as the British pound and the
Italian lira. On the other hand, the rates have been devalued
relative to such currencies as the West German mark and the
French and Belgian francs.
P It !6
Approved For Release 2004/10/12: CIA-RDP85T00875R002000020007-7
 Non-Commercial Rates
Purpose -- Whereas commercial rates involve transactions
outside the country, non-commercial rates involve goods and
services sold to, and consumed by, foreigners within the
country's borders. These include receipts and expenditures
by tourists and embassies, by users of international trans-
portation and telephone and telegraph services, and by individ-
uals and institutions making remittances. Non-commercial
rates in Eastern Europe were initiated in the late 1950s.
They are more favorable to foreigners than the commercial
(official) rate, and are intended to encourage Western
tourism. These higher rates are a tacit admission that the
commercial (official) rates overvalue the relative purchasing
power of the domestic currency.
The Tourist Rate -- The latest tourist rates quoted by
the monetary authorities, and the differences between them
and the latest quoted official rates, are shown below:
Approved For Release 2004/10/12 : CIA-RDP85T00875R002000020007-7
Units per
US Dollar
Difference from
Official Rate
(Percent)
Bulgaria (leva 1.20
+ 22.5
Czechoslovakia (crown) 10.15
+ 73.8
East Germany (mark) 2.50
0
Hungary
(forint) 23.4
+155.7
Poland
(zloty) 33.20
+900.0
Romania
(lei) 12.00
+141.5
During 1974, Bulgaria and Romania revalued their tourist
that is; reduced the premium -- because of the high
-4-
r'~1i~i Pc;
Approved For Release 2004/10/12, :,CIA-RDP85T00875R002000020007-7
 Approved For Release 2004/10/12 : CIA-RDP85T00875R002000020007-7
inflation rates in the West. These two countries are more
dependent on tourism for hard currency earnings than are the
other East European countries, and seem confident that the
reduced premium will not curb the inflow of Western tourists.
US Annuitants in Poland -- Poland offers a unique incentive
to US annuitants -- the so-called PKO rate. Under this
system, US annuitants cash their annuity checks. at the Polish
welfare Bank (PKO) and receive 60 zlotys per dollar. By -
mutual agreement between Poland and the United States, the
zlotys are drawn from US PL480 holdings of local currency in
Poland. On 1 January 1975, the PKO rate -- which applied
to some transactions other than US annuitants, such as other
remittances from abroad -- will be reduced to coincide with
the tourist rate. US annuitants, however, will still receive
the rate of 60 to 1.
-5-
Approved For Release 2004/1Q/1?,: CIA-RDP85T00875R002000020007-7