Greek exit—Strange Currencies

Greek exit—Strange Currencies

How could an introduction of a new currency following the Greek debt crises work in practice? Plausible measures and eventualities are outlined by Dr Warren Coats Jr, who led the International Monetary Fund in introducing a new currency to Bosnia, and participated in introductions in Iraq, South Sudan, Bulgaria and central Asia.

Background

While the Greek government and public both express a strong will to maintain the euro as their currency, euro zone members continue to threaten that the Greek public cannot reject a bailout while keeping the single currency. In the event of a new currency being created, the dynamics of the situation are susceptible to substantial change.

What is the likelihood of Greece redenominating a new currency?

It is unlikely that Greece will undertake a clean replacement of the euro with their own currency, as both the public and Syriza favour keeping the euro. More probable is that the government will begin to issue euro IOUs, should the government have a shortage of real ones with which to pay salaries and pensions. These IOUs will be given value the same way any fiat currency is—by making them good for paying taxes. People will, naturally, confer more trust upon the real thing so that the IOU vouchers will quickly fall to a discount with real euros. The scale of this fall will depend on how many the government must issue.

What have been the experiences of other nations who have redenominated?

Different nations redenominate for different reasons. In 2005, Turkey redenominated 1m lira as 1 new lira to signal a new and mature fiscal policy with greater outward credibility. Afghanistan reden

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