A common comment on the eurozone crisis is that it would be very difficult for any country (say Greece) to leave the eurozone. There is even a prize for someone to come up with a good way, which Tim Hartford tells us would be very hard to win.
That the debt problem in itself would not go away by changing currencies is clear. But decolonisation involved literally scores of new countries issuing new currency in replace of the imperial currency. (Not India, it was always on the rupee, but plenty of African countries, for example and including by countries such as Canada, Australia, the US if you go far enough back ....) Why is leaving a currency zone and adopting a new currency regarded as so hard? It has been done many times.
UPDATE. Ed Dolan sets out the mechanisms by which countries have exited from currencies.
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Ellen DeG...
1 hour ago
I can't, because I don't know enough history. But I would like to see someone else explain more.
ReplyDeleteMy guess is that the new currencies were introduced at fixed exchange rates with the old. Or both were fixed in terms of gold. So that makes everything easier, because the new currency isn't really very new in that case.
A better example might be Europe after WW2, when they introduced some new currencies from scratch, IIRC.
We also have the Baltic countries. I know that Estonia took all their Rubles and sent them to the rebel leader in Chechnya who had helped them earlier.
ReplyDeleteNick: I believe the post gold-standard era currency exits were fixed exchange rates to begin with. But that only has to be a starting point.
ReplyDeleteMy probably quite ignorant answer is that it is now harder because the environment in which currencies operate has changed remarkably in the past 30-40 years. Back "then" you didn't have clever dicks able to monitor fluctuations minute by minute, and take a bet; you had a reserve currency in the USD which was largely trusted, mostly stable; you had other threats which tended to concentrate the mind on things other than monetary - I'm thinking US/Russia/China relations; you had a relatively unsophisticated financial market - who had heard of CDS, CFDs, 'sub-prime', and even futures were mostly restrained to 'worthwhile' stuff like protecting farm output, or forward mineral delivery?
ReplyDeleteSo, how come it's difficult? Dunno, but you guys are always talking about a level playing field, while one set of goal posts keeps being moved, and the other's been stolen ;)
kvd
Two other things Lorenzo - sort of related, but noted mainly for your interest.
ReplyDeleteThis speech https://www.bankofengland.co.uk/publications/speeches/2011/speech525.pdf is quite a good lesson on the history of the removal of risk from reward in the banking industry.
And secondly, it is now possible to buy a put or call option of certain financial companies whose primary business is futures trading. Now if that isn't doubling down on an activity totally divorced from anything remotely connected to the economic welfare of all of us, well I don't know what is.
kvd