Photo: Wikimedia Commons
One of our favourite regular reads is the The Long Run, the Short Run and the In-Between-note from Jefferies’ Sean Darby, which (we think) comes out once a week.Darby’s latest has a very nice, idiot’s version of how Greece would leave the Euro and re-Drachmatize the economy.
It’s as simple as this…
1. The authorities declare ‘force majeure’ and default on their external debt.
2. Immediately, all existing bank deposits are ‘frozen’. A bank holiday is declared in
which only limited amounts of money may be withdrawn from the domestic banking
3. Capital controls are imposed and the vast majority of banks are nationalized or taken
under government control. Foreign transfers of money out of the country are
4. A new currency is announced and all existing bank deposits are redenominated in
the new currency at a devalued rate of say around 50% to 60% (or enough to bring
the country theoretically into a current account surplus).
5. The new currency is allowed to float.
6. All existing debts and claims are redenominated in the new currency: both
government and private sector. Wages, pensions and benefits are paid in the new
7. The old currency is phased out as the official medium of exchange within the
8. All local prices are posted in the new exchange rate. There is no reference to the old
or other exchange rate such as the US dollar within the economy
Now of course, this is ridiculously sanitised, and there consequencs internally and externally would presumably be pretty mammoth. But in terms of the raw mechanics of how this works, that’s pretty much how it goes.
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