20 Paras – Yugoslavia

In 1965, Yugoslavia implemented a significant economic reform package, known as the "Economic Reform of 1965," which directly addressed its troubled currency situation. The Yugoslav dinar was fundamentally overvalued and non-convertible, propped up by complex and restrictive multiple exchange rates. This system, managed by the National Bank, created severe distortions: it subsidized inefficient import-dependent industries, discouraged competitive exports, and fostered a growing black market for foreign currency. The overvaluation acted as a hidden tax on the agricultural and export sectors, widening the regional economic disparities between the more developed republics (like Slovenia and Croatia) and the less developed ones.

The reform aimed to integrate Yugoslavia more fully into the world market by introducing a single, devalued exchange rate to make exports more competitive and imports more expensive. The official dinar was devalued by approximately 67%, moving from 750 dinars to 1,250 dinars per US dollar. Furthermore, the government took steps toward partial convertibility for business transactions, allowing enterprises greater autonomy in retaining and using foreign exchange earnings. This was a cornerstone of the broader shift away from a centrally planned economy toward the unique system of "market socialism" and worker self-management.

However, the currency reforms of 1965 had mixed and ultimately destabilizing consequences. While they initially boosted exports, the devaluation also fueled inflation by making imported machinery and goods more costly. The reforms failed to fully dismantle the underlying structural weaknesses, such as soft budget constraints for large enterprises and politically-directed investments. Consequently, the temporary stabilization gave way to persistent trade deficits, rising foreign debt, and recurring inflationary pressures throughout the 1970s and 1980s, setting the stage for the chronic monetary crises that would plague Yugoslavia in its final decades.