Hungarian Pengő

The pengő (sometimes written as pengo or pengoe in English) was the currency of Hungary between 1 January 1927, when it replaced the korona, and 31 July 1946, when it was replaced by the forint. The pengő was subdivided into 100 fillér. Although the introduction of the pengő was part of a post-World War I stabilisation program, the currency survived only for 20 years and experienced the most serious hyperinflation ever recorded.

Name

The Hungarian participle pengő means 'twanging' (which in turn derives from the verb peng, an onomatopoeic word that stands for 'twang') and was used from the 15-17th century to refer to coins making nice twanging sound when hit to hard surface (i.e. containing precious metal). After the introduction of forint paper money in Hungary, the term pengő forint was used to refer to forint coins.

In the beginning of the First World War precious metal coins were recalled from circulation, and in the early 1920s all coins disappeared because of the heavy inflation of the Hungarian korona. The name pengő was probably chosen to suggest stability. However, there was a controversy when choosing the name of the new currency, though the majority agreed that a Hungarian name should be chosen. Proposals included turul (a bird from Hungarian mythology), turán (from the geographical name and ideological term Turan), libertás (the colloquial name of the coins issued by Francis II Rákóczi), and máriás (the colloquial name of coins depicting Mary, patroness of Hungary).

The denomination of the banknotes was indicated in the languages of ethnicities living in the territory of Hungary. The name of the currency was translated as follows: pengő (pl. pengő) in German, pengő (pl. pengő) in Slovak, пенгов (pl. пенгова) in Cyrillic script Serbo-Croatian, пенгыв (pl. пенгывов, later пенге) in Rusyn, and pengő (pl. pengei, later penghei) in Romanian. Later pengov (pl. pengova), the Latin script Serbo-Croatian version was also added.

The symbol of the pengő was P and it was divided into 100 fillér (symbol: f).

History

Introduction of the pengő

After the First World War, according to the Treaty of Saint-Germain, the Austro-Hungarian Bank (the joint bank of the Monarchy) had to be liquidated and the Austro-Hungarian krone had to be replaced with a different currency, which in the case of Hungary was the Hungarian korona. This currency suffered a high rate of inflation during the early 1920s. A stabilisation program covered by League of Nations loan helped to break down inflation, and the korona could be replaced in 1 January 1927 by a new currency, the pengő, which was introduced by Act XXXV of 1925 It was valued at 12 500 korona, and defined as 3800 to one kilogram of fine gold - which meant that the pengő was pegged to the gold standard, however, without exchange obligation. In the beginning the cover ratio (which included gold and - to 50 % - foreign exchange) was fixed at 20 % which had to be raised to 33.3 % within 5 years. This goal was reached quickly, moreover, the cover ratio was 51 % in 31 July 1930. Later it decreased somewhat due to the economic and financial crisis caused by the Great Depression. Until then the pengő was the most stable currency of the region.

After the Great Depression

The effects of the Great Depression reached Hungary after 1930, it hit predominantly agriculture. The pengő had to be devalued and the debt of the country increased. After a short period of recovery, the war preparations - amongst which the most important was the Győr-program - had loosen the financial and monetary discipline which in turn led to the depreciation of the pengő currency. The territories given back to Hungary by the Vienna Awards in 1938 and 1940 were economically less developed, which was an additional aggravating factor regarding the economic situation of the country.

World War II

The war caused enormous costs and, later, even higher losses to the relatively small and open Hungarian economy. The national bank was practically under government control, the issue of money was proportionatal to the budget demands. By this time, silver coins disappeared from circulation, and, later, even bronze and cupro-nickel coins were replaced by coins made of cheaper metal. In the last act of the world war, the Szálasi government took control of banknote printing and issued notes without any cover, first in Budapest, then in Veszprém when Budapest had to be evacuated. The occupying Soviet army issued its own military money according to the Hague Conventions.

Hyperinflation

The pengő lost value after the Second World War, suffering the highest rate of hyperinflation ever recorded. There were several attempts to break down inflation, e.g. a 75 % capital levy in December 1945. However, this did not stop the hyperinflation and prices continued spiralling out of control, with ever higher denominations introduced. The denominations milpengő (1 000 000 pengő) and b.-pengő (pronunciation: bilpengő) (1 000 000 milpengő or 1 000 000 000 000 pengő) were used to alleviate calculations, cut down the number of zeroes and enable the reuse of banknote designs with only the colour and denomination name changed.

The adópengő

The adópengő (lit. "tax pengő") was introduced on 1 January 1946 as an accounting unit for budget planning. However, from 8 July 1946, it was allowed to be used as a legal tender. It was intended to retain its value as the pengő's fell. However, although its value rose dramatically relative to the pengő (finally reaching 2×10^21 pengő), the adópengő nevertheless suffered severely from inflation. In July 1946, the adópengő became the only circulating currency as the value of pengő fell to such an extent that even the 100 million b.-pengő bill was effectively worthless.

The end of the pengő

The Hungarian economy could only be stabilized by the introduction of a new currency, and so, on 1 August 1946, the forint was introduced at a rate of 400 000 000 000 000 000 000 000 000 000 or 4×10^29 (short scale: four hundred octillion; long scale: four hundred quadrilliard) pengő. The adópengő was replaced at a rate of two hundred million to the forint (hence the 2×1021 ratio, mentioned above). The exchange rate for the US dollar was set at 11.74 forints.

Coins

In 1926, 1, 2, 10, 20 and 50 fillér and 1 pengő coins were introduced. The 1 and 2 fillér pieces were bronze, the 10, 20 and 50 fillér were cupro-nickel and the 1 pengő coins were 64% silver. In 1929, 2 pengő coins were introduced, also in 64% silver. Commemorative 2 and 5 pengő coins were also issued on anniversaries, with a non-commemorative 5 pengő coin issued in 1939.

During the Second World War, the 1 fillér ceased production, the 2 fillér coins were issued in steel and then zinc, the 10 and 20 fillér coins were minted in steel and the 1, 2 and 5 pengő pieces were of aluminium.

In 1945, the provisional government issued aluminium 5 pengő coins which were the last coins issued before the hyperinflation.

Paper money

The Hungarian National Bank issued the first series of 5, 10, 20, 50, 100 pengő banknotes in the last days of 1926. These were offset prints on watermarked paper (except for the 5 pengő note). The banknotes featured the outstanding people of the Hungarian history on the obverse and either different sites of Budapest or paintings on the reverse: the banknotes also served education purposes.

A new series of banknotes had to be printed soon to meet higher security standards. Since there was a lack of specialists in Hungary, the engraving was executed by Austrian professionals. New 5, 10, 20, 50 and 100 pengő notes were printed and even a 1000 pengő banknote was added to this series - however, the latter had such a high value that a big proportion of the people hardly ever saw any. This new series had almost the same topic as the previous. On the other hand, the 5 pengő notes were soon replaced with silver coins.

After the Vienna Award, Hungary had to supply its recovered territories with money. Since increasing the amount of silver coins would have been too expensive, 1 and 5 pengő notes were issued in 1941 and 1938, respectively. These notes were of simple design and poor quality. Meanwhile, a series of new banknotes including 2, 5, 10 and 20 pengő denominations was issued. The design represented ornaments based on Hungarian folk art and people.

At the end of the Second World War, the Szálasi government and the occupying Soviet army issued provisional notes in the territories under their power without any cover.

In 1945 and 1946, hyperinflation caused the issuance of notes up to 100 million b.-pengő (100 quintillion or 1020 pengő). During the hyperinflation, note designs were reused, changing the colour and replacing the word pengő with first milpengő, then b.-pengő, to generate higher denominations. The largest denomination produced was 100 million b.-pengő (100 quintillion or 1020 pengő). The note was initially worth about US$ 0.20. Notes of one milliard b.-pengő (one sextillion or 1021 pengő) were printed but never issued.

The introduction of adópengő was an attempt to keep inflation amongst limits, however, it could only slow down somewhat but did not stop the depreciation of the currency. Bonds were issued by the Ministry of Finance in denominations between 10 000 and 100 000 000 adópengő. These simple design bills on low quality paper became legal currency in the last months of the Hyperinflation almost completely replacing pengő.

The enormous amount of paper consumed during the production of the inflation pengő bills caused shortage in good quality security paper, this aggravated the production of forint banknotes.

Further reading

    * Gyula Rádóczy, Géza Tasnádi (1992). Magyar papírpénzek 1848-1992 (Hungarian paper money 1848-1992). Danubius Kódex Kiadói Kft. ISBN 9637434119.
    * Károly Leányfalusi, Ádám Nagy (1998). Magyarország fém- és papírpénzei 1926-1998 (Coins and paper money of Hungary 1926-1998). Magyar Éremgyűjtők Egyesülete, Budapest. ISBN 963036060233.
    * Mihály Kupa id. dr. (1993). Corpus notarum pecuniariarum Hungariae I-II. (Magyar Egyetemes Pénzjegytár) (General Hungarian Banknote Catalog). Informatika Történeti Múzeum Alapítvány, Budapest. ISBN 9630436582.
    * W. A. Bomberger; G. E. Makinen: Indexation, Inflationary Finance, and Hyperinflation: The 1945-1946 Hungarian Experience, in: The Journal of Political Economy, Vol. 88, No. 3. (Jun., 1980), pp. 550-560.