Czechs and Slovaks split their currency

THE Czech Republic will begin using its own currency next Monday, ending monetary union with Slovakia, Vaclav Klaus, the Czech Prime Minister, said last night.

He made the announcement on Czech television after the Czech and Slovak parliaments approved laws providing for the abolition of the Czechoslovak koruna as the common currency of the two states.

Mr Klaus said the new Czech koruna would have parity with the old currency, adding that citizens would have four days - from tomorrow to Sunday - to change old notes for specially-marked new bills.

He said there would be a maximum of 4,000 koruna ( pounds 91) per person in the period allotted for the changeover. Amounts exceeding that could be deposited in exchange for payment slips.

The announcement, which came just over a month after the political division of the old Czechoslovakia, had been inevitable considering the different pace of economic development in the two new republics, Ivan Kocarnik, the Czech Finance Minister, said.

Speculation that the Czechoslovak koruna was on its last legs had been growing, although the plan was to keep it in circulation for at least six months as part of an extensive customs and monetary union between the two states.

While banks in both countries have been stamping banknotes with distinctive new markings, Slovaks in particular have been apprehensive about the split, which is likely to see a devaluation of the Slovak koruna against its stronger Czech counterpart. Since early January, queues have been forming outside Slovak banks as people rushed to exchange Czechoslovak koruna for hard currency.

In the Czech Republic, although the run on hard currency has not been so pronounced, foreign currency reserves of the Czech central bank fell from dollars 847m to dollars 482m in the first three weeks of the year.

Internal anxieties have been echoed abroad, with German, Austrian and Hungarian banks suspending purchases of koruna.

'People in both the Czech and Slovak republics and abroad no longer trust our currency,' Julius Toth, the Slovak Finance Minister, said last week.

Analysts attribute the collapse of the common currency to the growing divergence of the two economies and the fact that, whereas the Czechs want to proceed quickly towards free market policies, the Slovaks want a slower transformation.