Yugoslav krone

Yugoslav krone or simply krone (крyна; krona) was a short-lived, provisional currency used in parts of the then newly formed Kingdom of Serbs, Croats, and Slovenes (KSCS, later renamed Yugoslavia), specifically parts of which had previously been part of the Austria-Hungary. It had the form of rubber stamped (since January 1919) and tagged Austro-Hungarian krone notes and dual KSCS dinar-krone notes (since January 1920) where the krone amount was overprinted on provisional banknotes printed for the purpose of exchange of krone, as well as Serbian dinar, for the new KSCS dinar. The dual notes were withdrawn from circulation and replaced by notes denominated in dinars only by 1 January 1923. According to the official exchange rate, the Yugoslav krone value varied from $1/undefined$ of a Serbian dinar at its introduction to $1/undefined$ of a Serbian dinar or KSCS dinar at its withdrawal from circulation. The name translates into English as crown.

Krone notes in circulation in the teritory of the KSCS were Austro-Hungarian krone notes, rubber stamped in 1919 to distinguish them from other Austro-Hungarian krone notes in circulation in other former Austro-Hungarian territories. The decision was motivated by the desire to separate fiscally from other successor states and protect the KSCS market from inflationary pressures caused by printing of krone notes in abroad. The stamped currency was also subsequently tagged using adhesive stamps and 20% of the amount submitted for tagging was withheld by the government as a compulsory loan to the state.

The krone to dinar exchange rate was a matter of economic and political debate and it was determined at the level of 4 krone to 1 dinar. At the same time Serbian dinar was exchanged at par. The views regarding the rate remained conflicting in the KSCS and its successor states where Serbian sources point out that the exchange caused no adverse effects, while Croatian historians and public perception portray the exchange rate as unjust and depriving the areas of the KSCS outside of Serbia of wealth.

Background
In the final days of the World War I, Austria-Hungary disintegrated. Former Austro-Hungarian territories predominantly inhabited by the South Slavs were organised into the short-lived State of Slovenes, Croats and Serbs. On 1 December 1918, this new state became a part of the Kingdom of Serbs, Croats and Slovenes (KSCS, later renamed Yugoslavia) through unification with the Kingdom of Serbia. The unification was proclaimed by Prince Regent Alexander of Serbia who assumed considerable powers. Alexander then appointed the first prime minister of the country. The list of members of the Temporary National Representation as the provisional legislative body of the new state was drawn up by government minister Albert Kramer without input from relevant political parties, on authorisation by the regent. At the time of establishment of the kingdom, there were several currencies in circulation on its territory. The Serbian dinar was in circulation in the territory of the former Kingdom of Serbia, while the Austro-Hungarian krone was in circulation in the territories previously belonging to the just recently dissolved empire. Serbian dinar was in use in some areas of Banat, Bačka and Baranja though. The Austro-Hungarian krone was also in use in other territories previously included in Austria-Hungary at the time. There were some krone notes in Serbia since World War I occupation of the country. At the time the population was required to exchange Serbian dinar for Austro-Hungarian krone as the occupation currency, but the requirement was generally avoided and therefore the amount in circulation there was relatively low.

A considerable factor affecting value and stability of Austro-Hungarian krone was repayment of war bonds issued by Austria-Hungary during the war. While the states established in the empire's former territories declared they would not honour any debts arising from the bonds, Austro-Hungarian Bank honoured claims under the bonds without exception. It did so by printing required amounts of krone, increasing supply of the currency and thereby inflation. In late 1918, the SCS finance minister Momčilo Ninčić sent a committee (Milko Brezigar, Velizar Janković, and Milan Marković) to Vienna and Budapest to find out if it is possible to stop printing of Austro-Hungarian krone and to visit Prague where the KSCS planned to order printing of its new currency. The governor of the Austro-Hungarian Bank Ignaz Freiherr Gruber von Menninger told the committee that the printing would continue to avoid fueling a potential Bolshevik uprising in the Republic of German-Austria. The Treaty of Saint-Germain-en-Laye ending the war with German-Austria was interpreted as stipulating that Austro-Hungarian successor states would have to redeem the Austro-Hungarian krone notes circulating in their territory, although the relevant wording was not very clear.

Rubber stamping
In December 1918, the National Council of Slovenes, Croats and Serbs, the body formally administering the former Austro-Hungarian territories within the new kingdom, started to examine ways in which to remove Austro-Hungarian krone from circulation. Its concept was formulated by Ivo Belin in late 1918. He proposed replacing krone with dinar at par, i.e. 1 dinar for 1 krone. Belin proposed stamping of Austro-Hungarian krone notes in circulation in the country to prevent influx of notes from other former Austro-Hungarian territories. He proposed that the stamped notes should be quickly replaced by a provisional currency and then the provisional currency should be replaced by dinars issued by the national bank. Belin expected the former Austro-Hungarian territories within the new kingdom to cover the cost of the replacement operations. Subsequent government plans for the currency exchange were formulated similarly, so it is likely that Belin's thinking at least influenced the government planning.

After it was determined that the Austro-Hungarian krone would continue to be printed, the KSCS government ordered stamping of the Austro-Hungarian krone in circulation in the country. The decision was adopted on 12 December 1918 and it also prohibited any inflow of the currency exceeding 1000 krone and all export of krone. The move was designed to determine the amount of the currency in circulation in the kingdom while creating a separate currency thereby preventing any currency union in the former Austro-Hungarian lands. There was talk of such union at the time, but it was regarded as unlikely.

Stamping was completed by 31 January 1919. It was carried out by various authorities using a wide variety of rubber stamps. Those authorities included the Ministry of Finance, commercial and savings banks, tax authorities, district and municipal government offices, military bodies, and numerous other authorised and even unauthorised bodies. In the process, various types of rubber stamps were used: they were round, elliptical, square, rectangular and of other shapes; inks used were black, blue, red, purple and green and other. The stamps were applied to various areas of krone notes, and had diverse contents in various languages (including German, Hungarian, and Italian). This led to public perception that the stamping was poorly managed. The stamps used were easy to counterfeit. There was some smuggling of Austro-Hungarian krone into the KSCS in expectation of more favourable exchange than elsewhere, but the amount involved was insignificant. Overall, 5.323 billion krone were stamped. Similar to Czechoslovak currency of 1919, the notes used were 1912 Austro-Hungarian krone banknotes in 10, 20, 50, 100, and 1,000 krone denominations.

The stamping of krone in the KSCS led the government of German-Austria to consider stamping Austro-Hungarian krone in circulation there. They expected that the KSCS might withhold a portion of the notes in the process of stamping. Those notes could then be taken out of circulation and used to buy assets in German-Austria using bad money and driving the prices up in the process. In early February, Czechoslovakia, another successor-state of Austria-Hungary, started stamping krone notes in circulation there, further giving weight to arguments by Ludwig von Mises who successfuly advocated stamping of krone notes in German-Austria — which started in February 1919.

Tagging
In addition to rubber stamping, most krone notes were tagged using special adhesive stamps. The stamps, a hundred million of them, and accompanying receipt forms were printed in Vienna in exchange for three railroad goods wagons — two loaded with flour and one with carrying bacon. The tagging encompassed rubber stamped krone notes except 10 krone and smaller notes which were exempt. The tags used on 10, 20 and 50 krone notes were bilingual (Serbo-Croatian and Slovene), while those on the 100 and 1000 krone notes could have been in any recognized language and either script (Latin or Cyrillic). Tagging was completed in the period from 26 November 1919 to 11 January 1920. The ministry of finance reported 4.6 billion krone were tagged, while the National Bank of Yugoslavia later claimed almost 5.7 billion krone were tagged. The tagging was likely motivated by financial reasons. Namely, 20% of the amount tagged was withheld as compulsory five-year loan to the government yielding 1% annual interest. The loan was not repaid in cash. Instead, its terms were modified several times until 1930 when it was determined that the receipts may be used to pay taxes or fines. This compulsory loan was perceived by the public as confiscation. The withheld notes were immediately returned to circulation by the government.

Exchange rate to dinar
There were conflicting views on the rate at which the stamped and tagged krone notes would be exchanged for the new currency. In Serbia, there were calls for withdrawal of the krone notes without any compensation. Such arguments were based on assertions that krone was enemy money used to cause destruction and death in Serbia. This view was shared by some politicians originally from the territories formerly belonging to Austria-Hungary. Those were, for example, Nikola Winterhalter, Vitomir Korać, Janko Šimrak, and Ivan Ancel. This approach was rejected by the government on the bases that it would wipe out private financial property of a large part of the population and potentially cause an economic crisis, and that such a move would be politically problematic. The act of stamping of the krone notes largely removed fears that krone would be abolished without any compensation. There were proposals for application of various rates of conversion of krone and Serbian dinar to the new currency. The ideas ranged from exchange at par to exchange of 10 krone for 1 dinar. The government-defined exchange rate changed over time from 2 krone to a dinar in late October 1918, to 3 krone to a dinar in mid-1919, and 4 krone to a dinar on 1 January 1920 and the latter was defined as the rate of the actual exchange. This exchange rate was used, in a limited extent, to exchange krone for dinars even before the official swap, in effect, only in parts of Bačka, Banat and Baranja where both currencies were in circulation.

Interim currency
In 1919, in the period between stamping and tagging of the krone notes, finance minister Ninčić devised a plan to introduce an interim currency. The plan called for the currency to be issued by the state directly instead of the national bank. This was because the KSCS had not yet legislated existence of the national bank and Ninčić wanted to avoid excessive delays in replacing krone notes. According to his plan, the national bank would later issue more permanent currency in place of the provisional one. The government of the KSCS decided on 1 February 1919 to introduce KSCS dinar and ordered printing of 3.5 billion dinars in Paris. The printing suffered from delays due to lack of printing capacity which led the government to hire additional suppliers in Prague and Zagreb. Shortages of ink, paper, and spare parts, collapse of the government and replacement of Ninčić with Vojislav Veljković caused further delays. By September, only one billion dinars were printed. By November, this increased to 2.1 billion, but only 800 million were actually delivered. When it became clear that the exchange could not take place before May 1920, Belin unsuccessfully proposed to exchange krone with Serbian dinars instead of KSCS dinars as they could be obtained more quickly. The National Bank of Serbia returned to Belgrade from its wartime seat of Marseilles in February 1919. Shortly afterwards the government proposed legislation transforming the National Bank of Serbia into the central bank of the new kingdom which would issue the KSCS dinar. (The transformation involved issuing of additional shares of the bank, but the bank remained predominantly in Serbian ownership.)

In January 1920, as the final decision on exchange of the krone notes was debated there were renewed calls for at par exchange from Matko Laginja, the head of the Croatian Union. At the same time, prominent Slovene politician Gregor Žerjav conceded to the 4:1 krone to dinar exchange rate, but requested the krone remain a legal currency within the KSCS. On 13 January, the government made the decision on the exchange combining the two demands and its earlier position. The decision was made that the new provisional notes would be issued in dinar and krone simultaneously at the ratio of 4 to 1 and that each note would have a dinar amount and a four times higher krone amount. The government decision further said the exchange would be at par, but that was interpreted as meaning krone at par for krone, and dinar at par for dinar. Thus 1 Austro-Hungarian stamped krone was exchanged for 1 (Yugoslav) krone, and 1 Serbian dinar was exchanged for 1 KSCS dinar. Small-value (up to 10) krone notes were to remain in circulation and the government bodies would keep accounts in both dinar and krone. The national bank issued the joint dinar-krone notes ordered by the state in February 1919 as its own. The dinar-krone ("krone on dinar") notes were printed as dinar and overprinted with krone at the prescribed ratio. Denominations issued were 2, 4, 20, 40, 80, 400 and 4000 krone on $1/undefined$, 1, 5, 10, 20, 100 and 1000 dinar. In total, 1.277 billion dinar was used for the exchange which corresponds to 5.1 billion krone exchanged. The withdrawn krone notes were stored in the Petrovaradin Fortress until they were handed over to German-Austria pursuant to a special agreement. The dinar-krone notes were gradually replaced in 1922 with new designs without krone denominations. This caused dinar to remain sole legal tender in the KSCS by 1 January 1923.

Aftermath
The financial issue of the currency swap rapidly grew into a political question if Serbia plundered inhabitants of the former Austro-Hungarian territories within the KSCS. There were and still are conflicting views regarding the impact of introduction of Yugoslav krone and its exchange for KSCS dinar at the rate of 4 to 1. While Serbian sources point out that there were no adverse economic consequences from the operation, Croatian historians such as Ivo Banac, Franjo Tuđman, and Ivo Goldstein, and Austrian-Croatian historian Alojz Ivanišević argued that the exchange ratio was unjustified. Their views correspond to the public perception in Croatia present since 1920 — that the currency swap was unjust or even malicious. Specifically, the opinion developed that krone was intentionally depreciated and Serbian dinar favoured.