VLADAS TERLECKAS
Associated professor of the Finance and Credit
Chair of the Vilnius University
THE ESTABLISHMENT OF BANK OF LITHUANIA AND ITS DEVELOPMENT. Having lots its statehood at the end of the 18th century, Lithuania did not have its own bank of issue and its own currency until 1992. In the period of 1918-1922 the function of the bank issue in Lithuania was performed by the German Darlehnskasse Ost and payments were made in it's issued osto money. Such monetary system created in the Spring of 1916 by the Kaiser invaders. Such a system was aimed to rob occupied Eastern lands. According to the December 30, 1918 agreement with the Darlehnskasse Ost it granted a loan to the Government of Lithuania in the amount of 100 million marks in exchange of the right of the Darlehnskasse to be the bank of issue of Lithuania and osto money be recognized as legal tender of the country. This is how the monetary union with Germany's financial interests without any control by the Government of Lithuania.
On February 26, 1919 the Government of Lithuania gave osto money the name of "auksinas". The intentions of the Government of Lithuania to issue own currency in 1919 and 1920, and to found a bank of issue were not implemented. Only in 1922 the strengthening of the Mark inflation caused a fall of the economics and social situation in Lithuania, and approaching elections to the Seimas pressed the Government to speed up the preparations of the establishment of its own bank of issue and the introduction of national currency. On August 9 and 11 of 1922 after debates on basic issues the Constituent Seimas passed laws on the monetary unit and the Bank of Lithuania - the legal framework of a national monetary system. The main concepts of the Law on the Bank of Lithuania were in compliance with theoretical ideas and experience of that time world-wide. Although the Law had been prepared and adopted in a rush, very few amendments were done during the entire period of the activities of the Bank of Lithuania. This proves its good contents.
On September 27, 1922 the first and the founding share holders' meeting was organized. It elected the management of the Bank of Lithuania and approved other documents of the founding. The September 28 Act of the President of the Republic appointed the Governor and his Deputy. Having the staff of only 5 members the Bank started to perform some operations on October 2. On the same day the Litas appeared in the circulation. This is how Lithuania established its national bank of issue and banknotes for the first time in its 700 years history as a state. This was achieved by using own capacities and funds and without technical assistance from abroad. The significance of the establishment of the Bank of Lithuania and the national monetary system also lies in the fact that it disrupted the monetary union with Germany and eliminated its unfavorable economical and financial impact on the Lithuanian currency and economy. Furthermore, the founding of the Bank of Lithuania and issue of national currency strengthened the economical independence of the country, formed preconditions for the development of credit policy, which is entirely necessary for a more active restoration of economy. The issue of the Litas eliminated currency chaos and speculation. Until the introduction of the Litas various different currencies (from 11 to 13) were used for payments simultaneously in Lithuania. They were the Tsar and the Kerensky Government roubles, US dollars, German and Polish marks, and other kind of currency.
It should be noted that Lithuania was last of the neighboring states established after the World War I to found its own bank of issue introduce national currency. This was done in Poland an the end of 1918, in Latvia in 1919, in Estonia in 1921. This lag of Lithuania was due to several reason: a longer occupation caused a stronger economic impoverishment, Lithuania led longer and more difficult fights for independence, a conflict with Poland also had a negative impact.. The most important reason to explain the situation was the monetary union with Germany which generated the view of top authorities of the State that the country benefited from the usage of foreign currency. With such currency in circulation they were free from balancing the state budget and from efforts to maintain currency stable.
THE NATIONAL MONETARY SYSTEM. The "auksinas" and German Marks which were in circulation, within the course of three months (until the end of 1922) were substituted by the Litas. The exchange rate fluctuated with respect to the rate of USD in DEM. A severe inflation of the latter currency resulted in a strong drop of the "Auksinas" rate: at the start of October, 1922 said ate was equal to 175:1, whereas at the close of the year - 850:1. In the middle of 1923 the Litas was introduced in the Klaipeda region.
The Bank of Lithuania had to back the banknotes in circulation by 1/3 of gold. The remaining portion of the money backed by foreign currencies and commercial bills. The December, 1939 amendments to the Law on the Bank of Lithuania provided the Bank with the right to issue the first 36 million litas without the gold backing. The Bank attained a higher banknote backing level as prescribed by the law. Such a policy contributed to a lesser Litas devaluation, later it provided for the increase of the purchasing power of the Litas.
Until 1925 no coins were used in Lithuania, all payments were made in paper litas and cents. The first money issued by the Bank of Lithuania were interim banknotes (September 10, 1922 issue) of 6 denominations - 1, 5, 20, 50 cents, and the Litas notes of 1 and 2 denominations. they were printed in a rush by the Otto Elsner Printing House in Berlin. The first monetary units were simple to look at and poorly protected against counterfeiting. Until the issue of permanent banknotes and having interim money in circulation it was possible to refuse foreign currency and to diminish losses generated by its high inflation. These banknotes were printed by A.Hase Company in Prague on November 16, 1922. Their denominations were more varied: 1, 2, 5, 10, 50 cents and 1, 2, 5, 10, 50, 100 Litas. The Litas banknote designs were by artist Adomas Varnas. With the issue of permanent banknotes at the end of 1922, interim ones were substituted by new and withdrawn from circulation. In 1925 500 litas and in 1926 1000 Litas denomination banknotes were placed into circulation. Such high denominations facilitated payments and settlements. Said denominations and later issues of banknotes were produced by the Breadbury, Wilkins and Co Company in England which became the winner of the tender, the designs thereof were created by the artists Adomas Galdikas, Vytautas Jomantas, Antanas Þmuidzinavièius. A significant event in the inter-war monetary history of Lithuania was the issue of own coins in 1925 after a century-long interval. Coins facilitated the calculation of money and settlements. Until 1936 bronze coins (cents) and silver coins (Litas) were minted by the English company King's Norton Metal Works and Royal Mint, accordingly. They minted 50 million coins. With the issue of coins respective denominations of paper cents and litas were, little by little, withdrawn from circulation. Having no more coins of 1925 issue and in order to be economical, they were minted in Spindulys Mint in Kaunas, which was established in 1936. The silver coins minted here were of a higher assay of 0.7500, whereas this standard in England was only 0.5000. The Kaunas Mint minted over 23 million coins of 1936 issue and about 180,000 commemorative coins 10 litas coins. The designs of all issues were created by sculptor Juozas Zikaras.
The intention to mint and issue gold coins was nit realized, most probably, due to a change of "style" in the monetary area. After the World War I the most common were monetary systems without gold cons in circulation. Such a situation was caused by the attempts of governments to centralize the reserves of gold and to cheapen money turnover.
THE LIQUIDATION OF THE BANK OF LITHUANIA. The same fate of thirst by the outside forces befallen on the state and on the Bank. From the very beginning of the occupation of Lithuania the USSR encroached on the gold foreign exchange reserves of the Bank of Lithuania and its "infant" - Litas. Patriotically minded Ministers and the Governor of the Bank took the line of active resistance and the occupants retreated for some time.
On August 1, 1940 the Bank or Lithuania was nationalized
along with other banks and credit institutions. Their nationalization
more resembled confiscation. The shareholders of the Bank lost
their capital and the tenants of safes in the Bank were deprived
of their valuables. After the annexation of Lithuania the Bank
was commanded be the representative of the State Bank of the USSR.
The preparations for incorporating the Bank into the structure
of the USSR State Bank were going on: procedures of crediting,
money circulation arrangements were urgently changed according
to the Soviet mode; the clients of other banks under liquidation
were removed to the Bank. The so called policy of "stratified"
crediting and seizing of debts, which aimed to finally impoverish
the former owners of enterprises, to oppose different social groups
and to entirely liquidate the private sector. Contradictory introductions
confused crediting and disorgTAS
THE ESTABLISHMENT OF BANK OF LITHUANIA AND ITS DEVELOPMENT. Having lots its statehood at the end of the 18th century, Lithuania did not have its own bank of issue and its own currency until 1992. In the period of 1918-1922 the function of the bank issue in Lithuania was performed by the German Darlehnskasse Ost and payments were made in it's issued osto money. Such monetary system created in the Spring of 1916 by the Kaiser invaders. Such a system was aime
