Litas

The Lithuanian litas (ISO currency code LTL, symbolized as Lt; plural litai or litų) is the currency of Lithuania. It is divided into 100 centų (genitive case; singular centas, nominative plural centai). The litas was first introduced in 1922 after World War I, when Lithuania declared independence and was reintroduced on June 25, 1993, following a period of currency exchange from the ruble to the litas with the temporary talonas then in place. The name was modeled after the name of the country (similarly to Latvia and its lats). From 1994 to 2002, the litas was pegged to the U.S. dollar at the rate of 1 to 4. Currently the litas is pegged to the euro at the rate of 3.4528 to 1. Euro was expected to replace the litas by January 1, 2010, but due to the current rate of inflation and the economic crisis, this date will be delayed for another three years until 1 January 2013.
==First litas, 1922-1941==
===History===
The first litas was introduced on October 2, 1922, replacing the ostmark and ostruble, both of which had been issued by the occupying German forces during World War I. The ostmark was known as the auksinas in Lithuania.
The litas was established at a value of 10 litas = 1US dollar and was subdivided into 100 centų. In the face of world wide economic depression, the litas appeared to be quite a strong and stable currency, reflecting the negligible influence of the depression on the Lithuanian economy. One litas was covered by 0.150462 grams of gold stored by the Bank of Lithuania in foreign countries. In March 1923, the circulation amounted to 39,412,984 litai, backed by 15,738,964 in actual gold and by 24,000,000 in high exchange securities.[2] It was required that at least one third of the total circulation would be covered by gold and the rest by other assets. By 1938, 1 U.S. dollar was worth about 5.9 litai,[3] falling to about 20 U.S. cents before its disappearance in 1941.[4]
The litas was replaced by the Soviet ruble in April 1941 [1] after Lithuania was annexed by the Soviet Union, with 1 litas equal to 0.9 ruble, although the actual value of the litas was about 3-5 rubles. Such an exchange rate provided great profits for the military and party officials. Trying to protect the value of the currency, people started to massively buy which, together with a downfall in production (following nationalization), caused material shortages. Withdrawals were then limited to 250 litų[5] before the litas was completely abolished.
===Coins===
Coins were introduced in 1925 in denominations of 1, 2, 5, 10, 20 and 50 centų, 1, 2 and 5 litai, with the litas coins in silver. 10 litų coins were introduced in 1936. All these coins were designed by the sculptor Juozas Zikaras (1881-1944). The litas coins displayed Jonas Basanavičius and Vytautas the Great, which was replaced by a portrait of President Antanas Smetona.
===Banknotes===
In 1922, the Bank of Lithuania issued notes in denominations of 1, 2, 5, 10, 20 and 50 centai, 1, 2, 5, 10, 50 and 100 litų. In 1924, 500 and 1000 litų notes were added. Denominations below 5 litai were replaced by coins in 1925.
==Second litas, 1993-==
The litas became Lithuania's currency once more on June 25, 1993, when it replaced the temporary talonas currency at a rate of 1 litas to 100 talonas.
===History===
====[edit] Preparatory work====
Officials started to prepare for the introduction of the litas even before independence was declared, it was thought to introduce the litas alongside the ruble even if Lithuania remained a part of the Soviet Union.[6] In December 1989, artists were asked to submit sketches of possible coin and banknote designs. Also, a list of famous people was compiled in order to determine who should be featured.
The Bank of Lithuania was established on March 1, 1990. Ten days later Lithuania declared independence. At first the Lithuanian government negotiated in vain with François Charles Oberthur, a press located in France to print the banknotes. In November 1990 The Bank of Lithuania decided to work with the United States Banknote Corporation (now American Banknote Corporation). In late fall, 1991 the first shipments of litas banknotes and coins arrived in Lithuania.
In November 1991, the Currency Issue Law was passed and the Litas Committee was created. It had the power to fix the date for the litas to come into circulation, the terms for the withdrawal from circulation of the ruble, the exchange rate of the litas and other conditions. Officials waited for a while for the economy to stabilize to not to expose the young litas to inflation. About 80% of Lithuania's trade was with Russia and the government needed to find a way to smooth the transition from the ruble zone. Also, Lithuania needed to gather funds to form a stabilization fund.
====[edit] Gathering funds====
At first, Lithuania did not have gold or any other securities to back up the litas. Lithuania needed to find about 200 million U.S. dollars to form the stabilization fund. First, it sought to recover its pre-war gold reserves (about 10 tons) from France, United Kingdom, Switzerland, etc. In the interwar period Lithuania stored its gold reserve in foreign banks. After the occupation in 1940 those reserves were “nobody’s”: there was no Lithuania and most western countries condemned the occupation as illegal and did not recognize the Soviet Union as a successor. The Bank of England, for example, sold the reserves to the Soviets in 1967. However, in January 1992 it announced that this action was a “betrayal of the people of the Baltic states” and that it would return the originally deposited amount of gold, now worth about 90 million pound sterling, to the three Baltic states. Lithuania received 18.5 million pounds or 95,000 ounces of gold and remained a customer of the bank. Similarly, in March 1992 Lithuania reclaimed gold from the Bank of France and later from the Bank of Sweden.
In October 1992, the International Monetary Fund (Lithuania joined this organization on April 29, 1992) granted the first loan of 23.05 million U.S. dollars[7] to create the stabilization fund. However, it is estimated that at the time of the introduction of the new currency, Lithuania managed to gather only $120 million for the stabilization fund. For a brief while it was kept a secret so as not to further damage the reputation and trust in of the litas.
====[edit] Delayed introduction of the litas====
Lietuvos Rytas journalists investigated the production of the litas and found that for a while it was purposely held back. For example, 6 million litas designated to pay for printing the banknotes stayed in a zero interest bearing account for a year in a bank in Sweden. By 1992, the litas was ready for introduction, but the banknotes were of extremely low quality (one could easily counterfeit them with a simple color printer; especially the 10, 20, and 50 litų banknotes).
Newly elected President Algirdas Brazauskas dismissed the Chair of the Bank of Lithuania, Vilius Baldišis, for incompetence just two months before the introduction of the litas. Baldišis was later charged for negligence that cost Lithuania $3,000,000. Some claim that the Russian secret services were behind the affair. Baldišis’ explanation was that he was trying to cut the costs of printing the banknotes and thus did not order better security features. Also, “U.S. Banknote Corporation” was accused of violation of the contract terms.
But when the new issue of litas banknotes was redesigned, reprinted, and introduced in June 1993, it was found that the quality of the money was still too low and the banknotes would have to be redesigned further in the future. All these scandals and the small backup of gold reserve (about $120 million instead of $200 million) damaged the reputation of the litas. Thankfully, the newly appointed chair, Romualdas Visokavičius, moved things quickly and managed to win the trust of the public. Unfortunately, in October he was asked to resign mostly because of his involvement with a private bank "Litimpex."
====[edit] Introduction of the litas====
On June 25, 1993, the litas was finally introduced at the rate of 1 litas to 100 talonas. 1 U.S. dollar was worth 4.5 litai and decreased to about 4.2 a couple of weeks later. Even the introduction of the litas was followed by a scandal. The government allowed the changing of unlimited amounts of talonas to the litas without having to show the source of the talonas. This allowed criminal groups to legalize their funds.
In July, circulation of the talonas was stopped and on August 1, 1993, the litas became the only legal tender. Following the reintroduction of the litas, there was an effort to weed out U.S. dollars from the market. The talonas was never really trusted by the people and the ruble was very unstable. Thus, people started using U.S. dollars as a stable currency. Another alternative was the German mark, but it was not available in larger quantities. A lot of shops printed prices in several different currencies, including dollars, and the economy was very "dollarised" as it was legal to make trades in foreign currencies.
Due to poor banknote quality (both talonas and early litas) it was easy to counterfeit them. Most shops were forced to acquire ultra violet lamps to check for forgeries. One group, for example, printed 500 talonas banknotes in Turkey. It is estimated that their notes totaled 140,000 litas.[8]
From April 1, 1994 to February 1, 2002, the litas was pegged to the U.S. dollar at the rate of 4 to 1 (the litas was stable around 3.9 for half a year before the pegging). The main reasons for this fixation was little trust in the emerging monetary system, fear of high fluctuations in currency exchange rates, desire to attract foreign investors, and International Monetary Fund recommendations. The peg was renewable every year. For a while a peg was considered to a basket of currencies: the European Currency Unit. At around this time Lithuania also established a currency board.
From April 1, 1994, the litas was fully backed by gold and other stable securities.
====[edit] The litas and the euro====
On 2 February 2002 the litas was pegged to the euro at a rate of 3.4528 to 1; this rate is not expected to change until the litas is completely replaced by the euro.[citation needed] After the peg, Lithuania became a member of the Eurozone de facto. Since 28 June 2004, the litas has been part of the ERM II,[9] the EU's exchange rate mechanism. The design of Lithuanian euro coins is already prepared.
Lithuania has postponed its euro day several times, since the country does not meet the convergence criteria. A recent analysis of SEB bankas says that Lithuania could not adopt the euro before 2013 due to the high rate of inflation — which reached 11% in October 2008 — well above the Maastricht criterion of 4.2%.
===Coins===
Main article: Coins of the Lithuanian litasIn 1993, coins were introduced (dated 1991) in denominations of 1, 2, 5, 10, 20 and 50 centų, 1, 2 and 5 litai. The 1, 2 and 5 centai pieces were minted in aluminium, the 10, 20 and 50 centų in bronze and the litas coins were of cupro-nickel. In 1997, nickel-brass 10, 20 and 50 centų coins were introduced, followed by cupro-nickel 1 litas and bimetallic 2 and 5 litai in 1998. All have the obverse designs showing the Coat of Arms in the center and the name of the state "Lietuva" in capital letters.
The first coins were minted in the United Kingdom and arrived in Lithuania on October 31, 1990. Currently, all coins are minted in the state-owned enterprise "Lithuanian Mint", which started its operations in September 1992 and helped to cut the costs of introducing the litas.
===Banknotes===
In 1993, banknotes (dated 1991) were issued in denominations of 10, 20, 50, 100, 200 and 500 litų. Due to poor designs, these were found to be easily copied and a second series of notes was swiftly introduced in denominations of 1, 2, 5, 10, 20 and 50 litų, with only the 100 litų notes of the first series remaining in circulation. 200 litų notes were introduced in 1997, followed by 500 litų in 2000.
Category:Lithuania