Can anyone explain how the banks would go about reinstating and recapitalizing the individual currencies that make up the Euro. Not that I believe they will break up the currency, but I'm just curious of how they would go about the procedure. I'm assuming there would also be winners and losers?
I would assume there would be a flight to German-denominated bonds as well, yeah?
If anyone could shed some light that would be great.
Thanks!
I think I am right in saying this happened in Germany when the country was made whole again. Obviously there was no electronic banking so it wasn't as easy. I am sure all electronic currency would be an easy fix. For printed bills, there would be a time frame in which you could bring the outdated currency to a bank and exchange it for the new form. Once that time window closes, you are SOL if you miss it. There was a story of two children whose mother horded cash for the entire time they were behind the Berlin Wall and it turned out to be A LOT. She died before telling them about it, and when they stumbled upon it a day later, the window had just closed.
Anyway, I really am not sure how they would be brought onto the market. That would be a disaster.
I would imagine this would be a debacle. I'm really curious how they would re-establish the exchange rates b/w the individual currencies. What a fucking disaster just to think about. I'm in Paris often and I remember a cabbie telling me when the Euro was introduced everyone immediately lost 20-20% purchasing power from the franc. He said it was really noticeable to the middle class the most. Rich is rich, poor is poor, but the he said the middle got decimated.
Imagine people having a stab at what the fx rates should be, they'd just pick a number off the top of their head and rank down through the EUR countries from there. It'd be a sham!
It would be pretty insane. Perhaps countries would just go off the final home currency-euro rates, but some countries (particularly in Club Med) would have to devalue immediately.
I dont think the flight from the euro would happen by all countries at once. My view is that say Greece wanted to leave the Euro denominated currency, then it would simply turn on its printing presses and let its currency be freely floating. There will most likely be a shift in purchasing power in Greece, but this should'nt have much impact on the rest of Europe. The departure from the Euro can only be staggered.
"wanted" odd choice of word. And you really think they would let it freely float!?
Edit: sorry didn't realise it was Bernankey, I'm out.
Lol. I dont think they'd want it to be freely floating, but i dont know how much capital controls they would be able to exercise.
They would have to find a way to fix the rates for a while after the change. Peg every Euro currency to each other, essentially setting them equal to one another. It would be the same thing as the Euro currency yet there would be X different currencies. I figure if they don't fix the price while markets calm down, it would be a blood bath for certain - if not all - countries in question. I am not sure this is possible since I really don't care to trade/follow FX markets.
Regardless of how it would be done, someone would take a beating and would have to find some kind of monetary policy to counteract an attack on their currency.
I think the single currency is a dumb idea as we are seeing proven true right now. An individual country is not capable of monetary policy operations when needed. Instead it's like a group of people tethered together as they traverse a glacial terrain that has hidden crevices. The problem is that some 500lbs fatass is on the end of that rope ready to take everyone with him when he goes through the surface. Too stupid and lazy to hit up a treadmill....
Pegging against each other would eventually result in a Black Wednesday style event.
Single currency may work under fiscal and monetary union not just monetary. But still tough.
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