BANK OF ALBANIA
Interview with Gent Sejko, Governor of the Bank of Albania, TV Klan
Publication date: 27.09.2019
TV Klan: Recently, the Bank of Albania has announced its plan to put into circulation a new series of Albanian banknotes. Why a new series of banknotes and what's new?
Governor Sejko: The Bank of Albania has been working for almost four years on this project. We have just completed the new series of banknotes, which has some substantial changes from the previous series, but retains the same theme. It has the same historical figures as the old series, which is widely accepted and recognized by the Albanian public. It was the right time to make some changes on banknotes by adding some elements to its quality. In general, every 20 years, central banks put into circulation a new series of banknotes. It had been 23 years since our banknotes lastly changed. Therefore, with the aim to improve the qualitative elements as well as to enhance the security features of the banknotes, we decided to introduce these changes to the new series.
The series has changed continuously over various periods of time, so what we are doing now, is not out the ordinary practice. For example, the longest period a series has been in circulation for the longest in time more than 25 years - was during the period of socialism, i.e. before the 1990s. The existing banknotes in circulation date back in 1996. For this reason, and because we wanted to strengthen and introduce new security features and the improve quality of the banknotes, we launched the new series of banknotes. If you look at the new series, you will notice a number of new security features. Another novelty is the smaller size of the new banknotes. We will also launch a new denomination, which will have the highest nominal value. In this light, we have somewhat reduced the size of all the other denominations of the new series. All the reasons mentioned above explain why we are introducing this new series of banknotes.
TV Klan: As a matter of fact, we have noticed that the new banknote 200 LEKË is printed in polymer. Why was polymer chosen only for this denomination and not for the other denominations as well?
Governor Sejko: Polymer is a plastic element and is a novelty in the field of banknote printing. Nowadays, many central banks worldwide have started to issue banknotes in polymer. The central banks of England, New Zealand and Canada have decided to have their entire series of banknotes printed in polymer.
Polymer is a more durable material compared to the other material used to make a banknote, i.e. cotton fibre, including some other specific elements. The 200 LEKË banknote was decided to be printed in polymer because, as the banknote with the lowest nominal value, and it is the most used banknote. This banknote has the shortest lifespan. We have also been thinking, but there is yet some time to come to a final decision, that maybe the denomination of 500 LEKË will be in polymer as well. The new 500 LEKË banknote will be the last of banknotes to be issued in the series. Polymer banknotes certainly have a higher production cost, but have twice the life span of banknotes printed in cotton. However, other banknotes have very good qualitative elements too, and we will be able to look at them when they will be put into circulation. The public may learn more on security features and other elements of the new series at the Museum of the Bank of Albania.
TV Klan: When will the entire series of banknotes be put into circulation and what will happen with the existing banknotes?
Governor Sejko: It is very important to explain what will happen to the existing banknotes. The existing banknotes will continue to be legal tender and circulate alongside with the newly introduced banknotes.
This year we will put into circulation two banknotes, the denomination 200 LEKË printed in polymer and the denomination 5000 LEKË. Of the entire series of banknotes, these two denominations will be put into circulation on 30 September 2019. Meanwhile, the new denomination, 10 000 LEKË, and the 1000 LEKË banknotes will be put into circulation next year. The denomination 2000 LEKË will be put into circulation in 2021 and the latest in the series of banknotes, the denomination 500 LEKË will be put into circulation in 2022.
The existing banknotes will continue to circulate together with the new banknotes, as it is impossible to put the existing banknotes out of circulation at once. There is a number of banknotes in circulation, which will continue to be used by the public, and gradually, the Bank of Albania will withdraw the old ones, the most used ones at the time it will start to put into circulation the new banknotes. So new banknotes will be put into circulation and old ones will be withdrawn from circulation gradually. During this time span, both series of banknotes will be in circulation, so we will have the new and the existing banknotes in circulation at the same time. Although there are differences between the two series of banknotes, there are still some similarities; they feature the same historical figures and the same theme. We have constantly informed the public and we will continue to update them on the security features and the characteristics of the new banknotes and we believe there won't be any uncertainty when using them.
I would also like to point out that issuing and putting into circulation the new series of banknotes will also have an impact on the improvement of the financial literacy of the public, who still continues to use the term "New lek'’ and "OId lek”. Since I mentioned it, we would like to bring to the attention of the public the appropriate reference to the denominations our banknote, because the use of “new lek” and “old lek” is just outdated and confusing.
TV Klan: For the very first time, Albania will have a 10 000 LEKË banknote, which is a new denomination. Can you tell us some more details regarding this banknote?
Governor Sejko: This is a completely new denomination. If other banknotes have been here before featuring only a few changes to them, the 10 000 LEKË banknote is a new denomination, which will be put into circulation next year. This banknote's theme will be the flag anthem and it will have the portrait of the author of the anthem, the poet Asdreni. We are still in the process of designing this banknote that's why it is not public yet, but very soon it will be. This is a denomination with a higher nominal value, so its size will also be slightly larger compared to the size of other banknotes. The size of the 10.000 LEKË will be roughly the size of the 5 000 LEKË we already have. The 10 000 LEKË will be the highest denomination and all the other banknotes will gradually decrease in size. This banknote boasts a beautiful design and we are confident that the public will welcome it. Practically speaking, this denomination is convenient for the public as it will take less space in their wallets. Economic developments demand this banknote, hence it is the right time for this denomination to be put in circulation, and for this reason, we decided that next year the highest denomination 10 000 LEKË will be put into circulation.
TV Klan: In fact, if we could give a metaphor of the strong lek, the Bank of Albania also decided for the denomination of 10 000 LEKË. Even during this touristic season and the beginning of autumn, lek has shown again to be a strong currency against other currencies, the US dollar and the euro. Can you tell us a bit more about what is happening with the exchange rate at the moment?
Governor Sejko: In our press conferences and our communications with the media, we have repeatedly underlined the underlying factors in the exchange rate, leading to the appreciation of lek mainly against the euro, but also against other currencies that follow it. Practically, this year, euro came from several directions into our economy. The euro supply has been and continues to be strong. If we look at the latest figures from the balance of payments data, we can notice that foreign direct investments continued to increase in our economy. We had a successful touristic season, with high inflows, which increased the euro in the country. Remittances have also continued to grow. These are some of the main channels that bring the euro in the Albanian economy.
Our country is a small open economy, and our main trading partners are in the euro area. Trade exchanges and all types of other exchanges take place in the euro area. Hence, we have an increased supply in euro, which builds up pressures on the exchange rate. Under these circumstances, the Bank of Albania carefully monitors the market in order to see the effect of the exchange rate on inflation.
First and foremost, what concerns us, since this is also our legal obligation, is the effect that the exchange rate would have on our inflation target, as the exchange rate appreciation certainly has a negative impact on our inflation target. For this very reason, last year we decided to intervene with a special intervention program to withdraw the foreign currency from the market. Based on the parameters, this plan would be applied again if we were to see that the exchange rate would negatively affect inflation. But, we must keep in mind that we have a free exchange rate regime and of course this free regime forces us to follow the market under this regime. Therefore, we cannot intervene at each time there is an appreciation, as we often look at not only the impact on inflation but also monitor the exchange rate behaviour in the market for any eventual disorderly behaviour. What we consider as disorderly behaviour are speculations, increase of spreads more than they should, strange behaviour in the sense of speculative behaviour in the exchange rate. During this period, we had an appreciated currency, but the behaviour of the exchange rate in the financial system and in the real economy did not show any disorder. So, the spreads and the banks’ behaviour were normal. Hence we did not intervene, but of course we did monitor it.
Foreign exchange supply remains strong in the Albanian economy. Regarding the exchange rate, if such supply continues, it will certainly be under pressure. There is a new equilibrium in the exchange rate and we notice it. For a long time now, the exchange rate has been at a certain level and, in the absence of fluctuations, we will have a normal behaviour. Of course, we will continue to follow the free exchange rate regime, in case we will be faced with disorderly behaviours, as it happened last year, when there were specific factors that were linked to, for example, the conversion of some banks' capital or to a large loan in euro from the EBRD, which repaid another loan in the financial system. These factors, at a certain point, in parallel with the touristic season, led to a higher appreciation of the exchange rate and, coupled with speculative factors, forced us to implement this program. If such factors did occur, we would definitely review our behaviour, but for the moment, this is the situation we are in. We cannot predict the exchange rate.
TV Klan: The current exchange rate level does not pose a problem for the inflation level, although we have had deflationary pressures during last month, as the inflation rate undershoot the 3% target of the central bank.
Governor Sejko: As a matter of fact, the inflation level actually reflects the exchange rate behaviour during the previous quarter. The forecast of the Monetary Policy Department is lower than the level that calls for an intervention; therefore, we haven't intervened. But we will monitor the situation and see how the exchange rate will behave and we will look at its effects not only on inflation but also on the overall macroeconomic parameters.