What Happens If Greece Leaves The Eurozone? A Massive Run On The Bank, That's What

drachmas

From Marginal Revolution:

Talk of Euro abandonment would trigger an immediate run on Greek banks, sending the country into an even deeper hole.  Who wants a Euro deposit to be converted into a drachma deposit?

You could imagine keeping current Euro-denominated deposits and adding new drachmas to the system, circulating at a flexible exchange rate.  That still might trigger a bank run (who expects the parallel currencies to last forever?).  Furthermore the new drachmas would bring seigniorage only if the law forces their overvaluation in some manner; refer back to the earlier discussion of the bank run.

Read the rest at Marginal Revolution –>

Photo: Drachmas

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