The Finnish markka (Finnish: Suomen markka, abbreviated mk, Swedish: finsk mark, currency code: FIM) was the currency of Finland from 1860 until 28 February 2002, when it ceased to be legal tender. The markka was replaced by the euro (€), which had been introduced, in cash form, on 1 January 2002.
The markka was divided into 100 pennies (Finnish: penni, with numbers penniä, Swedish: penni), postfixed "p"). At the point of conversion, the rate was fixed at one euro worth approximately equal to six markka, or precisely €1 = 5.94573 mk.
The markka was introduced in 1860 by the Bank of Finland, replacing the Russian ruble at a rate of four markka equal to one ruble. In 1865 the markka was separated from the Russian ruble and tied to the value of silver. After Finland gained independence in 1917 the currency was backed by gold. The gold standard was abolished in 1940, and the markka suffered heavy inflation during the war years. In 1963 the markka was replaced by the new markka, equivalent to 100 old units.
Finland joined the Bretton Woods Agreement in 1948. The value of markka was pegged to the dollar at 320 mk/$, which became 3.20 new mk/$ in 1963 and devalued to 4.20 mk/$ in 1967. After the breakdown of the Bretton Woods agreement in 1971, a basket of currencies became the new reference. Occasionally, devaluation was used, 60% in total between 1975 and 1990, allowing the currency to more closely follow the depreciating US dollar than the rising German mark. The paper industry, which mainly traded in US dollars, was often blamed for demanding these devaluations to boost their exports. Various economic controls were removed and the market was gradually liberalized throughout the 1980s and the 1990s.
The monetary policy called "strong markka policy" (vahvan markan politiikka) was a characteristic feature of the 1980s and early 1990s. The main architect of this policy was President Mauno Koivisto, who opposed floating the currency and devaluations. As a result, the nominal value of markka was extremely high and in the year 1990, Finland was nominally the most expensive country in the world.
Koivisto's policy was maintained only briefly after Esko Aho was elected Prime Minister. In 1991, markka was pegged to the currency basket ECU, but the peg had to be withdrawn after two months with a devaluation of 12%. In 1992, Finland was hit by a severe recession. It was caused by several factors, the most severe being the incurring of debt, as the 1980s economic boom was based on debt. Also, Soviet Union had collapsed, which brought an end to the bilateral trade, and existing trade connections were severed. The most important source of export revenue, Western markets, were also depressed during the same time. As a result, by some opinions years overdue, the artificial fixed exchange rate was abandoned and the markka was floated. Its value immediately decreased 13% and the inflated nominal prices converged towards German levels. Also, as a result, several entrepreneurs who had borrowed money denominated in foreign currency suddenly faced insurmountable debt.
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