Money and Markets: Essays in Honor of Leland B. Yeager

No-name money 163private ownership, would join Velimir Bole and Jose Mencinger in advising Arhar, thenewly appointed governor of the Bank of Slovenia. In 1991 and 1992, the four men wereto become the architects of the monetary reform in Slovenia.6 The share of exports as a percentage of imports decreased from 105.97 percent in 1989to 87 percent in 1990 (Statistical Yearbook of the Republic of Slovenia 1996: 359).7 Yugoslavia had a decentralized central banking system. Each of the eight republics andautonomous provinces had its central bank. The federal governing body was composedof the governors of all central banks. Within each region, all claims and debts to thecentral banking system were resolved by the local central bank, with currency being theonly exception.8 Specifically, many voters still remembered the Kingdom of Serbs, Croats, and Slovenes,which preceded Yugoslavia, as well as World War II in which different Yugoslavianrepublics had fought on different sides.9 Statistical Yearbook of the Republic of Slovenia (1996).10 The decline of GDP among all Republics averaged 21 percent (Bank of Slovenia 1992,Annual Reports).11 On January 15, 1992, the European Community ratified Slovenia’s independence,thereby making its existence official. Six months later, the United Nations followed andrecognized Slovenia as a sovereign country.12 The complete stabilization program is detailed in a report issued at the end of 1991 bythe Executive Council of the Assembly of the Republic of Slovenia (Assembly of theRepublic of Slovenia 1991).13 The name was chosen by the Parliament among several alternatives including tolar, lipa,krona, klas, karant, and, of course, Slovenian dinar.14 A few restrictions were imposed on the conversion process. Amounts of up to 20,000dinars (approximately twice the average monthly salary) were converted without anyrestrictions. Amounts between 20,000 and 50,000 dinars, instead, were converted intotolars and credited to the bearer’s current or savings accounts. Finally, amounts of over50,000 dinars were converted only at branches of the Social Accounting Service or atspecial counters of the Bank of Slovenia. In all three cases the institutions converting thecash recorded the transaction and the identity of cash bearers. In line with the smoothnessof the conversion, however, the number of cash operations exceeding 20,000 wasnegligible.15 Because of the flexible exchange rate and because of the catch up effect of theYugoslavian hyperinflation, the value of the tolar remained uncertain for the 10 monthsfollowing its introduction.16 During the collapse of the Austro-Hungarian Monarchy at the end of World War I,south Slavs formed the State of Slovenes, Croats, and Serbs and, on December 1, 1918,joined Serbia and Montenegro to form the new Kingdom of Serbs, Croats, and Slovenes.Until 1924, four currencies were in circulation in the Kingdom: crowns in the formerAustro-Hungarian regions, and dinars, levs, and perpers in Serbia and Montenegro.After several attempts at reforms, central authorities introduced an exchange rate of 4crowns per dinar, thereby imposing a significant penalty on crown holders. Slovenes,who at that time populated some of the least developed regions of the monarchy, tradedin crowns and were among the most heavily penalized groups. Similarly, at the end ofWorld War II, the Yugoslav government withdrew from circulation all occupationmonies (Croat kuna, Serbian dinar, Reichsmarks, Italian liras, Hungarian pengos, etc.)and introduced a new Yugoslavian dinar. Each old currency was exchanged at adifferent rate for the new one. In addition, at the exchange, a maximum of 5,000 dinarswere paid in cash, while the rest remained blocked against receipts, which could beexchanged only after three additional months passed (Notel 1986: 508, 547).17 We are thankful to Ross MacLeod for suggesting this useful analogy.18 Specifically, Pleskovic and Sachs (1994) proposed and advocated a currency board alongwith a fixed or pegged exchange rate regime.