• The period 2001-2006 saw the completion of the Polish money’s healing process started back in late 1989 – first, by bringing down inflation and then, by stabilising it at a low level. The annual inflation rate in the period between January 2001 and October 2006 averaged 2.5%. This paved the way for a radical lowering of interest rates. The reference rate, i.e. the key rate of the NBP, has fallen from 19 to 4%. Real interest rate have also gone down – the inflation-adjusted reference rate has decreased by almost 9 percentage points, i.e. by over three-fourths.

• The years 2000-2006 brought an increase in the relation of notes and coin in circulation to GDP – down from approx. 5% in 2005 to approx. 7% in 2006 Q3. No significant changes were observed in this period in the quantity and value structure of the currency in circulation. The number of revealed counterfeit currency has decreased steadily. Allowing for the growing circulation, the relation between the revealed counterfeit banknotes and the circulation volume has decreased almost fourfold, and in the case of coins – almost twofold. The number and size of collector issues has increased and Polish coins have won a number of prestigious international awards. At the same, the NBP started technical preparations for the future replacement of the Polish zloty with the euro, i.e. the single currency of the united Europe.

• Organisational changes, modifications of investment guidelines and a new information system introduced in 2001-2006 helped to streamline the process of managing foreign currency reserves and curb investment risk. Official reserve assets increased in this period from $27.5 billion to $47.2 billion (that is by 72%), which in euro terms represented growth from €29.5 billion to €37.2 billion (that is by 26%) with yields ranging between 2.3-6.5%. This difference results from shifts in the dollar-euro exchange rate.

• The NBP continued to service the central budget and introduced numerous improvements for entities holding accounts with the NBP. A system of Electronic Banking (enbepe) was launched, enabling the holders of the bank accounts to make wire transfers and place other orders on their accounts electronically. The NBP has also activated Business-to-Business (B2B) links, which connected the NBP’s Integrated Accounting System with IT accounting systems of the Ministry of Finance.

• As a result of measures implemented in 2001-2006 within the payment system, an effective infrastructure compliant with restrictive security standards was created in the NBP for large amount settlements in the zloty (SORBNET system) and the euro (SORBNET-EURO). The NBP joined the pan-European systems TARGET and STEP2, which paved the way for the development of a retail payment settlement system in the euro for domestic and cross-border payments. It is, among others, thanks to those steps that the Polish payment system is currently modern, complies with best international standards and allows banks and their clients to access the increasingly cheaper and faster settlement channels. Through the links with European infrastructure this area is now fully prepared for the future adoption of the euro as the Polish national currency.

• By acting towards the stability and development of the banking system1 the NBP has limited its engagement in bank restructuring, while at the same it increased the scale of monitoring and analytical activities, a feature characteristic of developed central banks. The research on financial system stability and mainly on the stability of the banking system has been further developed and extended. Moreover, a wide-scale analysis of the financial system’s development has also been initiated. Research results are regularly published and presented to the general public. They indicate that the financial system is currently more stable than it was at the beginning of the reviewed period, which is connected with privatisation of banks and acquisition of strong strategic investors.

• In 2001-2006 the NBP became an important research centre. It has greatly extended the field and scope of its scientific investigation and also enriched its research methods and instruments of pursuing specific research tasks. The areas of intensified research include monetary policy, monetary transmission mechanism, inflation expectations, financial system, global economy, economic climate, enterprises and households. New research projects have been launched on determinants of economic growth and the labour and real estate markets. There are also intensive works underway concerning the methodology of macroeconomic forecasts. All this research makes extensive use of quantitative methods, and research results are used by the NBP’s Management Board and the Monetary Policy Council. What is more, both the financial market and the general public have access to these studies through the numerous publications of the NBP and its staff.

• In 2001-2006 the NBP improved its previously existing forms of information activity and significantly extended their scope. In particular, in the period under review the frequency and quality of contacts with the media improved, yearly Open Days of the NBP were initiated both in the NBP’s Head Office and in its regional branches, the webpage (www.nbp.pl) has been extended and its resources enlarged, which resulted in considerably increased public interest in its contents. The NBP also started to implement the Programme of Economic Education, which serves, among others, a few thousand teachers of economic subjects at Polish schools and several hundred thousand of their students. Moreover, the NBP launched the Economic Education Portal (www.NBPortal.pl), which is one of the most popular tools of obtaining economic knowledge in Poland and also an inspiration for educational activities of other central banks.

• As far as the management of the institution, in 2001-2006 the NBP successfully introduced strategic planning, project management, quality management and systems of operational and financial risk management. These changes facilitated the setting of precise strategic goals of the bank for the coming years, more careful planning of tasks by particular departments and also an ongoing supervision over task implementation process and better management of resources. The transparency of the NBP has been enhanced. The quality of internal organisational processes has improved and the management of particular projects’ budgets has been streamlined. The system of financial risk

1 The present analysis does not account for the activity of banking supervision. This issue will be dealt with in a separate publication.

management made it possible to separate the majority of functions connected with managing this type of risk from current operational decisions and introduced the monitoring of transactions made by operational units of the NBP. In turn, the system of operational risk management provided better prevention of operational losses and limited the reputation risk, which is particularly important in view of the significance of the trust put in the central bank by the public.

• In 2001-2006 the so-called audit activity of the NBP was transformed into modern internal audit oriented at analysing and reducing risk. Auditorial activity is integrated with the risk management system and the system of internal control, which is conducive to limiting the risk of the bank's activity and a more effective implementation of its tasks.

• In 2001-2006 organisational changes were introduced both in NBP Head Office (creation, liquidation and restructuring of departments so that they suited the changing tasks, in particular in terms of educational activity, analyses and research, risk management and internal audit) and in the field network of the NBP (winding up and restructuring of regional branches and the Main Foreign Currency Branch. As a result of these changes, the structure of the NBP has become more transparent and its operation efficiency has increased, the field structure of the NBP has been adjusted to the administrative division of the country and the number of NBP offices has been reduced, thus cutting the costs of the bank's activity connected with employment and property operation by over 10%.

• Under its long-term employment and training policy, the NBP has been supportive of employees’ initiatives to raise their qualifications, and only employs people whose education level complies with the requirements set for the given position. In 2001-2006 the share of employees with university education increased from 34 to 53.7%. The number of employees with a PhD and those holding academic titles has doubled. At the same time the number of training courses organised for the employees has risen by over 60 pre cent.

• Investments implemented in 2001-2006 led to a significant enhancement of IT systems thanks to the centralisation of IT divisions at NBP Head Office. Configuration simplifications and standardisation of desktop stations used by NBP employees made it possible to automate many processes connected with computer maintenance. Works on creating new IT solutions has also become more effective.

• The years 2001-2006 saw some changes in the NBP’s accounting principles aimed at adjusting them to the standards observed in the ESCB. The annual financial report of the NBP is now examined by an external auditor and the time for the settlement of the NBP’s profit with the central budget has been shortened. Thanks to the introduction of the Integrated Accounting System, the NBP received modern solutions in terms of maintenance, management and security technologies.

• Poland’s accession to the European Union prompted the NBP to extend the scope of international cooperation in almost all fields of its activity. The NBP is collaborating with both the EU and non-EU entities. Starting from the beginning of 2003, the employees of

the bank have participated in the sessions of ESCB committees and working groups, first as observers and then, after Poland's entry to the EU, as full members.

• Thanks to the reorganisation, use of modern methods of management and work organisation solutions, modern investment technologies and thanks to employing specialists for the implementation of the key functions of the bank, in 2001-2006 the operating costs were reduced by over 10%, while at the same time labour productivity rose in all the fields of activity. The Polish central bank performs its tasks efficiently and effectively. It a standard-setting, professional and at the same time open and modern public institution.