Czechoslovak Monetary Divorce

Tyler Cowen is looking into the dissolution of monetary unions. One recent case is the 1993 “Velvet Divorce” of the Czech and Slovak Republics. The basic mechanics of the switch. The countries had divided back in January, but maintained a single currency for a little bit, though the Czechs insisted on splitting up since they thought the Slovak economy would be weaker:

The current bank notes will be exchanged for stamped ones in the ration 1:1 since Thursday 4 till Sunday, February 7 at all post offices and detached sections of the Czech Savings Bank. During those days the banks will stop withdrawal from accounts and deposit books. Till Sunday only not-stamped bank notes are valid in the Czech Republic.

Stamped notes with the value of 100, 500, and 1000 crowns together with not stamped notes of lower value (10,20,50 and coins) will be valid since Monday, February 8. On the same day the Czech currency will be enriched by the first Czech 200 crown bill with the portrait of J.A.Komensky.

Every citizen aged 15 and more can exchange money to the value of 4000 crown, a person below 15 can exchange maximum 1000 crowns. The exchange will be certified in the identity card.

Persons who will not be able for serious reasons exchange money can do so within the following 6 months. If someone has at home more than 4000 crowns, he can deposit it in the Savings Bank of send through post to his own addresse where it will be delivered already stamped.

The situation in Slovakia was basically the same. Anticipation that the Czech Koruna would appreciate relative to the Slovak one meant “thousands of Slovaks rushed across the Czech border to have their old notes stamped as Czech.” Key to making this work is that at the time I believe the České Spořitelna bank was still a state-owned monopoly so capital controls could be applied in a straightforward and effective matter with ease.