Exchange rate policy principles and Effect on Polish Workers
Since April 12, 2000 the Zloty exchange rate has been a floating exchange rate that is not subject to any restrictions. The Polish central bank does not aim to set predetermined Zloty exchange rates against other currencies. It reserves, however, the right to intervene if it deems this necessary in order to achieve the inflation target.
On its accession to the European Union, Poland undertook to join the euro zone. Thus in the future the Zloty will be replaced with the common European currency, and monetary policy will be shaped by the European Central Bank.
Meeting the exchange rate stability criterion is one of the conditions of joining the euro zone. Therefore before the adoption of the euro, the Zloty exchange rate against the euro remains fixed for at least two years within the ERM II (Exchange Rate Mechanism II). This means that during this period the National Bank of Poland will maintain the market Zloty exchange rate against the euro within the permissible range, with regard to the set central parity.
Conducted research leads to the conclusion that a free float exchange rate system cannot provide a base for the calculation of the Zloty/euro central rate. Hence a modification of the Polish exchange rate system has to be introduced before entering the ERM II.
The Polish National bank has similar inflation targets to the UK as these are common directives from the EU but is experiencing the reverse of the UK situation with a currency that has strengthened remarkably not only against the £ but also the Euro.
As Poland has relied on the export of educated workers for well over 100 years rather than the last 5 years as a means of reducing unemployment and bringing much needed foreign currency through the repatriation of funds one can expect some active management of exchange rates to discretely occur as the last thing that Poland can afford is the cost of the returning workers unless there is true demand within the domestic market.
Understandably, in a global market for labour, Polish workers will gravitate to markets that offer them the best returns and therefore countries such as Norway and Switzerland hold greater attraction than Euro denominated countries which in turn are proving more popular than the UK thanks to the weakness of the £.
Whilst there is a brief respite in exchange rates the UK will find it increasingly hard to attract new
Polish labour when other markets remain more attractive unless pay rates rise. Indeed it is more than conceivable that a labour availability crunch is coming in the UK as the temporary labour pool shrinks only being offset by increased mobility amongst the existing pool of Polish labour occasioned by the impact of possible recession with plant closures.
