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The Bank Polski took over from the P.K.K.P. its note issue. During 1925-26, notes were also issued by the Polish Treasury to meet budget deficits and a second period of inflation followed in which the zloty fell from 5.1 to the dollar to about 9.2 in 1926. Then under the influence of improving Government finance, the issue of Treasury notes was gradually reduced. Finally, in the stabilization scheme of 1927, they were to be replaced wholly by notes of the Bank of Poland, part of the external loan being set aside to provide gold cover. At the end of 1927 the Treasury note issue was reduced from 30o million to 170 million zloty, the re maining fiduciary circulation being composed of notes and sub sidiary coinage of the bank.
The rise in the tide of inflation overtook the Polish Treasury before it had learned to swim. Before Poland had even equipped herself with a Constitution the mark had fallen to Boo to the dollar. No budget ever received the final ap proval of parliament until the end of 1923, and it was not until 1927 that a parliamentary system of national finance was con structed. For the financial reform carried out by M. Grabski, who became prime minister and minister of finance in Dec. 1923, see POLAND: History. Before the summer of 1924, the budget was independent of the printing press and the major part of Poland's immediate problem was solved. But the new budget stood at the high figure of over 1,600 million zloty, and even so would have failed to balance by 16o,000,000 but for extraordinary revenue such as the Italian loan. At the end of 1924 Poland funded her chief external debts, viz., those to the United States and Great Britain and also those for relief credits.
The initial successes of Grabski's reform could not be properly consolidated. Political upheavals prevented any settled financial policy, and it was not until the coup d'etat of May 1926, when Marshal Pilsudski became virtually dictator, that any possibility of lasting stability appeared. After his accession to power and the financial reform vigorously carried out by his Government, a de facto stabilization of the exchange followed, and from Aug. 1926 the zloty remained fixed at about 43.5 to the pound.
The English coal strike gave a considerable stimulus to Polish trade, and with a favourable trade balance in 1926 of 410 million gold francs, the Bank of Poland was able to build up suf ficient reserves of gold and foreign currencies to maintain the exchange at this new figure. This phase ended in Oct. 1927, with
the floating on the London and New York markets of a loan for about .115,000,00o sterling, with which the Government was able to stabilize the currency, transfer its note issue to the Bank of Poland and generally to re-establish its finances. Although the country's foreign trade for 1927 was not so favourable as in the previous year owing to the severe competition of British coal, Poland benefited greatly by the general improvement in European conditions that then took place. At home, with in creased prosperity and stable political and economic conditions, the situation was more favourable than in any other post-war year.
Foreign capital began to flow in, in the form of credits to industry and public loans, and the acute credit stringency of 1926 diminished.
Poland is an independ ent, democratic Republic (Rzeczpospolita), with a Constitution based on the charter of March 17, 1921. The revival of a Polish State, as a successor of the Polish kingdoms which disappeared in 1795 and 183o, was recognized by the Treaty of Versailles and the Treaty of Riga, but was originally the spontaneous act of the Poles after the collapse of the German and Austro-Hungarian empires in 1918. The Constitution is based partly on the Polish Constitution of 1791, partly on French institutions, but mainly on general contemporary ideas. It can only be amended by a two-thirds majority of both houses of parliament. The executive consists of the president of the republic, elected for seven years by a majority of the National Assembly, consisting of the mem bers of the Senate and Sejm sitting together. He is the official representative of the republic, the head of the army, and nominates the ministers. But the real executive power is in the hands of a council of ministers responsible to the parliament. The parliament consists of two chambers: the Senate with III deputies and the Sejm with 444 deputies. Elections to both chambers take place every five years by general ballot, on a system of proportional representation. Every citizen of either sex over the age of 21 has the right to vote in the elections to the Sejm; every citizen over the age of 3o, in the elections to the Senate. The Senate has a right of rejecting a bill passed by the Sejm. But such a bill must be sent back to the Sejm, which has a deciding vote and can, by a majority of eleven-twentieths, override the amendment of the Senate.