How would you handle the Euro banknotes if a country leaves the Euro?


         My proposal for selected Euro exit recommended an overnight change to all bank accounts following hasty and secret week-end meetings to trigger the exit. It does not allow advance printing of new notes, as this would alert people to the coming changes and trigger a run on the banks in the affected country.

            I suggest that new drachmas or escudos be issued at the exchange rate of one drachma or escudo for one Euro. They would not, of course be worth one Euro, as the new currency would devalue as soon as it traded against the Euro. That would be one of the main purposes of issuing a new currency, to allow a devaluation to aid adjustment of their economies to the competitive realities. The one to one rate would be penal exchange rate for all those holders of Euros in the  exit country that you decided had to take some of the losses resulting  from the economic failure.

             Holders of Euro banknotes outside the EU would be unaffected by the exit of say Greece. They would still have Euros the day after the exit. Greek citizens would be expected to switch their Euros at the one to one rate into drachmas. If they turn up at the shops the day after the creation of the drachma, their Euro notes are accepted as drachma notes pending the issue of new drachma notes to them  at the one to one exchange rate. If a foreign non EU tourist turns up in Greece with Euros they would be able to go to a foreign exchange shop and get an enhanced number of drachmas at the market rate as a normal foreign exchange transaction.

             During the transitional period some Greeks would be tempted to take Euro notes out of the country and to switch them into other hard currencies. The scope for this would be limited, as from the moment of exit and the creation of the drachma any money they withdrew from their bank accounts would be drachmas. They would no longer be able to withdraw Euro notes. The notes they currently have would not be allowed out of the country legally, and would be subject to whatever policing arrangements the Greek state wanted to impose to try to prevent cheating.

              The issue to be resolved for the EU is the treatment of Euro notes held by non Greek EU nationals working or living in Greece. The simplest way forward would be to allow them to keep their Euros and to exchange them at market rates when needed into drachmas. The EU might, however wish and be able to assert its jurisdiction to make defined categories of people suffer the loss on their notes as Greek citizens would do.


  1. Duyfken
    April 8, 2012

    I would be surprised were no unofficial alternative currency or barter system to come into play in Greece. Were I a local resident, I would be wary about holding any Euros, particularly those with a Greek index letter (“Y”), and would prefer to do my shopping in another currency, probably the US$, but has that come to pass yet?

  2. Alan
    April 8, 2012

    I am surprised, and somewhat disappointed, that Mr Redwood seems to be actively advocating a policy of a government seizing people’s money and replacing it with money of a lower value. This is not what I thought of as a Conservative principle. I think we should respect the rights of individuals to hold property.

  3. lifelogic
    April 8, 2012

    What an idiotic mess the unelected EU civil servants, cheered on by the BBC and all three parties, have created just to expand their power bases at the top of the USSR mark II.

    1. lifelogic
      April 8, 2012

      I see that:- the Archbishop of Canterbury has appealed for people who rarely attend church to … saying they are welcome even if they are “a bit vague” about religion.

      It always seems to me that Bishops and most religious figure are nearly always “a bit vague about religion”. Usually answering questions like where was God when the tsunami/earth quake/gunman/cancer/plane crash struck with something like “he was, as he always is, at the centre of everything”.

      They seem to be able to deliver these lines with a straight face too. Quite a talent I suppose.

      1. LBS
        April 8, 2012

        Nothing to do with the subject

        1. lifelogic
          April 8, 2012

          I know.

  4. David Williams
    April 8, 2012

    The Euro notes would still be used in the black economy.

  5. Antisthenes
    April 8, 2012

    All euro notes as I understand it can be identified by country of origin so there would be little difficulty in controlling inward and outward flows. With some exceptions like Greeks with external euro accounts. However not insurmountable problems so currencies would be the least of the difficulties. The main problem would be the turmoil that decoupling would cause in the markets and the effects of what will in practice be large scale defaulting partial or otherwise. As I stated yesterday the knock on effect would be catastrophic and all economies would nose dive. It may in the long run be the best thing for the southern states as things can hardly become any worse than they are now. For Europe as a whole it would be sharp and painful but at least there would be the possibility that after a few years all could come out of it economically leaner and cleaner. On the other hand there is just as much possibility that many would not and the nose dive would become permanent. In any event the EU would be a much different animal than it is now, it may not exist at all. For us in the euro-sceptic camp it appears to be an ideal scenario as power is repatriated and sovereignty is restored. A fragmented Europe is not alas the best outcome either as the the old adage “united we stand divided we fall” could become a reality.

    This is all daydreaming as the EU elite are not going to allow the breakup of the euro-zone as for them doing so would destroy the EU project and having put in place the single currency they have backed themselves into a corner. Therefore the only way it will come about is if all their previous and future efforts to contain the euro crisis fail and then all hell will be set loose.

  6. Andy Man
    April 8, 2012

    Whatever way it happens the people are left paying the price for politicians lies and theft. I suppose that’s what we all get for being economically illiterate enough to believe the statist, crony capitalists that pass themselves off as free market democrats.

  7. alan jutson
    April 8, 2012

    Not an easy solution as I opinioned a few days ago in my response to your original posting on this subject John.

    If you want to do it by stealth then you could print Euro notes in a slightly different form from the norm, and continue to use them without notification whilst withdrawing the old (normal) ones from circulation through the banking system on a day -day basis.
    Thus you would not inform the population that you were going to devalue at all at the outset when you changed from the normal Euro (although some would guess) to the newly printed Euro.

    Once the new euro has been in full circulation for say a year, then you could call them drachmas still with a one to one value and issue new currency at the same time, then once again after time and withdrawal through the banking system of the new different euro’s again by stelth, you could devalue..

    The revised Euros held by people outside of Greece would then be allowed to be changed by their own Banks in other countries, on a one to one Euro basis.

    Clearly there would be a lot of Greeks holidaying in other parts of Europe and the rest of the World with cash, but perhaps if you had to show a passport when changing money, those mattress stuffers of cash attempting to change it would be refused if they held a Greek passport.

    Not an ideal solution and certainly not an immediate solution, but otherwise I see chaos and a very large alternative economy in the old Euro for many years to come as the original euro would circulate as cash in the alternative economy at a higher rate than a new drachma, as it would never reach a bank to be withdrawn from circulation and trips to Europe by such users would be commonplace.

  8. Nick
    April 8, 2012

    1. Would people accept Euro’s from Greece?

    After all, lots of people don’t accept Scottish notes issued by the likes of RBS.

    Greek citizens would be expected to switch their Euros at the one to one rate into drachmas

    They aren’t stupid, which is why the Greek government is in trouble. After lying about its debts (like politicians in the UK), the Greeks have decided that giving money to fraudsters is a good thing. Just like Ken Livingstone.

    So why would they exchange at 1:1 when they could get more money by exchanging outside of Greece? Or by getting a foreign national to go and exchange the money for them at the enhanced rate.

    Remember, there is freedom of movement of people and capital in the EU. They can’t be stopped from moving their Euros outside Greece unless you break the law.

    he issue to be resolved for the EU is the treatment of Euro notes held by non Greek EU nationals working or living in Greece.

    They will shaft them as politicians always do.

    Reply: They would not by Greek law be allowed tontake their current Euro notes abroad, so only criminals would do so.

  9. MickC
    April 8, 2012

    “try to prevent cheating”?

    Surely you mean “try to preserve the value of their money against the idiocy of a state which has made colossal errors”?

    1. lifelogic
      April 8, 2012


  10. Rebecca Hanson
    April 8, 2012

    How do you decide who is Greek (and gets Drachma) and who isn’t?

    Happy Easter John.

  11. Nick
    April 8, 2012

    During the transitional period some Greeks would be tempted to take Euro notes out of the country and to switch them into other hard currencies. The scope for this would be limited, as from the moment of exit and the creation of the drachma any money they withdrew from their bank accounts would be drachmas.


    It’s already offshore or under the bed.

  12. JimF
    April 8, 2012

    There are inconsistencies with this approach, which you begin to touch on in your final para. It is the Greek Government which has gone bust, not Greeks themselves, or foreign visitors to Greece who happen to hold Euros.

    Surely the answer is for the Greek Government to pay its creditors in the new confetti money, whilst private individuals of whatever nationality hold their Euros safe (but their mortgages remain denominated in Euros)? Bear in mind some of the hardest hit in Greece would be public sector workers with large (Euro) mortgages. They were also the ones who benefitted most from the profligacy of the past years (as in the UK).
    Greece would be ahead of the game then, with individuals and exporting Companies allowed to sell goods abroad and keep Euros whilst the less productive and those selling within the domestic market were paid in new drachma. This would also be a recipe for other Countries to both “keep” the Euro and devalue against it.

    1. Nick
      April 8, 2012

      Surely the answer is for the Greek Government to pay its creditors in the new confetti money, whilst private individuals of whatever nationality hold their Euros safe


      The problem is that most of its creditors are Greeks. It’s things like state pensions.

      The fundamental question is who gets to take the hit. What isn’t being talked about is jailing those responsible.

      Even in the UK, where the bank bail out is 70 bn, no prosecutions for the regulator or the bankers involved. No, its targeting the innocent that’s the order of the day. That’s why its all talk about those with the broadest shoulders getting the hit.

      Given the real government debt is 7,000 bn, the same will happen here. In spite of promises on this blog to reveal the debts before the election, after the election nothing has happened on the state pension, state second pension. We have had some movement on civil service pensions. Buried in the whole of government accounts is the figure of 1,150 bn on top of gilts.

      So in the case of Greece who gets hit for how much? If its other countries, its tax payers. If its banks/insurance companies/pension companies its going to be people saving to their retirement. On top, if they take the hit, that means 8-10 times the losses have to be pulled in loans. Which companies won’t be able to roll over their loans, and will they go bust as a result?

  13. Alan Wheatley
    April 8, 2012

    This latest analysis further illustrates the mess that is the Euro and the credit due to the wise counsel that helped to keep the UK out.

    But I am still at a loss as to the significance for the UK citizen other than, perhaps, avoiding Greece until after devaluation, where upon holidays look a good prospect.

  14. Acorn
    April 8, 2012

    Why not go back to the pre Euro Drachma, it would certainly bring the point home to all Eurozone states, of how big a disaster the Euro – and the whole EU project in fact – has been.

    The Greeks joined at 340 Drachma to the Euro, an interest rate parity conversion says that there would today be 900 old Drachma to the Euro! Imagine if you are a BMW dealer in Greece. You will be paying for your stock in Euro and selling the things for Drachma … yikes! Also if that dealer had cross border debt, that will probably be covered by English law, not Greek law like sovereign debt; defaulting on corporate debt could be tricky.

    Did you know nearly 82 billion drachmas ($320 million) in banknotes were unaccounted for when a Bank of Greece deadline for their withdrawal ended on March 1. Drachma coins had been accepted until March 2004.

  15. Bernard Otway
    April 8, 2012

    And what if my name is Spiro and I now decide to take as many euros out [before D day Drachma day] leave them in a foreign account,so I can profit after D day by changing them back into Drachma at the much more advantageous rate,surely this is as much a run on the currency albeit BEFORE D day,AND will not it show up in money movements.

    1. Nick
      April 8, 2012

      Well, they will try and tax the FX profits.

  16. James Reade
    April 8, 2012

    “Holders of Euro banknotes outside the EU would be unaffected by the exit of say Greece”.

    Sure, because there’d be no impact at all on the euro exchange rate of such tumultuous events?

    It’s not like letting one leave essentially signs the exit forms for the rest, ending up with just Germany left on its own eventually, is it? You’ve seen the impact on govt bond yields once talk began of a break-up of the eurozone, I presume? It’s quite something – up until that point, all eurozone bond yields were essentially identical, since then they’ve unravelled. Coincidence?

    Unlike you John, I have a bit of analysis behind my suggestion it’s more than a correlation. It’s called irrevocably fixing one’s exchange rate, a bit like Scotland did with England a long time ago. Just as Greece struggles, so does Scotland. But we accept that, it’s politics, isn’t it? Once we say it’s not irrevocable, people trade based on that. And we’ve all seen the fall-out from that.

    I’m glad you’ve thought through the implications of this bizarre little set of events you think would be helpful for the global and eurozone economies.

    Can you next start a set of posts on what to do when Scotland leaves the Poundzone please? Oh wait, no, sorry, I forgot, you’re not ideologically opposed to the Union, whereas you are to the EU.

    Reply: it is my view that Scotland should leave the UK if that is the wish of the Scottish people, and they should have an early referendum to decide. Similarly, I think the UK voters should have an early referendum on whether to leave the EU. The sterling currency union only works with Scotland thanks to an integrated benefit and budget system, with transfers from London to Scotland the rest of the UK. Euroland does not have such a system.

  17. Damien
    April 8, 2012

    Why would the PIIGS want to leave the euro when they are receiving fiscal transfers from Germany?

    France Spain Greece and Ireland are all having elections shortly and it is highly likely that all or one will reject the EU/IMF austerity agreement(s). Germany will then face the stark choice of continuing its southern fiscal transfer with no quid pro quo from the PIIGS or Germany leaving the EZ (while remaining inside the EU).

    Merkles party has already passed a resolution permitting Germany to leave the EZ while staying inside the EU. Germany has also reinstated the Special Financial Stabilisation Fund (SoFFin). This provides guarantees (firewall) of €400 billion for German banks and €80 billion for their banks recapitalisation. These are prudent provisions if Germany was to reintroduce a new “mark”.

    German exit from the euro would result in the euro plummeting hitting Germany hard as German national debt is mostly denominated in Euros. The firewalls would hold but the euro would continue to decline but then Germany would be able to pay back its debt in appreciating “marks”.

    After a German exit the EU would remain intact and other countries could volunteer to join the “mark”, but on Germany’s terms!

    CNN Money reported that Bernanke held a meeting at the NY Fed with top bank representatives to discuss monetary policy looking for an action plan to ask them to help deal with the EU debt crisis. It is now clear that a euro collapse is a real possibility.

  18. Terry Harris
    April 8, 2012

    I can’t see the idea of 1:1 exchange rates f0r the Greeks but the prevailing FX rate for the tourists, et al. What’s to stop a black market in Greek Euro being given to foreigners to come into Greece and exchange at the market rate? I am sure the Eastern European criminal fraternity would have a field day with this.

  19. Denis Cooper
    April 8, 2012

    Until new drachma notes are available you use euro notes overstamped with a large red triangle, ie a Greek delta for drachma. It’s easy and quick to do that.

  20. Conrad Jones (Cheam)
    April 8, 2012

    Mr Redwood,

    You are certainly right to consider how Greece could leave the EURO.

    I think a move to the Drachma and Sovereign control over their currency is the right and democratic thing to do.

    I would like to ask your opinion on an idea that has been suggested by many knowledgable Economists concerning National Debt.

    In order to start to reduce the Greek Debt, the Greek Government still has to pay interest payments on existing debt. Currently they are receiving more Loans just to pay off and service past debts. Would International Bankers accept Greek Drachmas as Interest Payments? Would the Greek Government have to Borrow those Drachmas or could they Issue them directly without Issuing Treasury Bonds?

    The Bank of England has shown uncommon discipline in issuing British Currency on behalf of the Government, it is the Private Banking Network that has shown Anarchisitc Tendencies in the Creation of Debt and Currency that has lead to a Worldwide Crisis feeding off the naivety of Financially illiterate Politicians.

    If the Greek Government got control of it’s own currency – there would be hope and unrivalled good times for the Greek people to look forward to.

    The pattern they should follow is that of Guernsey – they issue their own Currency when paying for Public works. It has helped the Island of Guernsey have far lower taxes than the United Kingdom, surely you would support such a monetary policy? Unless you don’t like Greek people for some reason.

    Reply: If the Greeks had the drachma back as their own currency then it would be up to them to decide how much to issue. Issue too little and you have recession issue too much and you have inflation.

    1. Conrad Jones (Cheam)
      April 9, 2012

      Thank you for your reply.

      I totally agree.

      A way to prevent too many, or too few Drachmas being created would be to allocate this task to the Greek Treasury / National Bank. The Greek Government could set the Policy (which would appear in their Party Manifestos) and an Independent Policy Commitee at the Greek National Bank would implement the Policy by deciding how many Drachmas to create, based on a target Inflation Rate (perhaps 1% to 2%). This would be similar to the Bank Of England MPC, except the Greek Government would issue currency (through the National Bank Policy Committee) and Banks would be restricted from issuing I.O.Us. Treasury Bond Issue encourage National Debt and would be prohibited. All current Treasury Bonds would be honoured but no new issues would be made. This would divert investment to more productive sectors of the economy.

      As the Drachma would be stabilised by an Independent Body and not expanded by the Private Banking Sector, the Drachma would become seen as an accepted form of payment of existing debts.

      The Property Market would be less susceptible to Price Bubbles as Banks would not be allowed to create as much mortgage I.O.Us but instead, would have to lend Government Created money that already existed. This would help divert investment to more productive enterprises and would would create longer term Jobs, and stabilise the Housing Market.

      The Government Policy would not involve setting Interest Rates in any way, that would be at the discretion of the Private Banks to attract either lenders or borrowers depending on their balance sheets.

      The Greek People would then have a say in the Economy of their Country.

      Hard to say whether this would work or not but we need an open mind about the debt problem.

      At present, Exponential National Debt is a growing problem and only funded by Taxes and rollover debt. To me, we are all in a Plane which is attempting to climb ever higher and steeper – I fear we are fast approaching the stall speed. Just look at the latest M4 charts at the Bank of England – it looks like a plane’s altitude chart where the wing attack angle is dangerously large, and we’ve just fallen a couple of thousand feet.

  21. Leslie Singleton
    April 8, 2012

    My keyboard has both a £ and $ key and I have long (as you know because I have written to you before) thought the way forward was via parallel currencies, meaning that each country could have in play if it wanted both its own currency and a hard external currency. This was studied in some depth at the time when the “Hard Ecu” was being promoted. I was a believer then and I am a believer now. For “Hard Ecu” read the kind of Euro that Germany might like. Why wouldn’t that work? It is true that we would be left inter alia with what to do about the problem of people left with Euro denominated mortgages which is the real tragedy in all this but it seems to me that we are going to have to face that no matter what happens. It is clearly not going to be easy on any basis but I see a role for parallel currencies in there somewhere.

    1. JimF
      April 8, 2012

      Have said just the same above and several times previously and never had anyone argue against it. Major’s only good idea ever.

  22. Monty
    April 8, 2012

    The currency isn’t just the national stock of banknotes though is it? What about all the Euro denominated savings accounts? How would this transition system affect say the Greek owner of a 100K Euro account in a Greek bank, versus his neighbour with 100K Euros in an account in a German bank? Would the former become instantly poorer than the latter as his 100K Euros get transformed into 100K Drachmas which are destined to equate to perhaps only 90K Euros?

    Reply: I have already talked about electronic money conversion.

  23. merlin
    April 8, 2012

    I’m deeeply shocked and amazed-Greece is now not in the euro and the drachma has returned this is complete fantasyland. This is a prime example of hope over experience. Has anybody noticed that just recently Greece has received another bail out package from the EU, or am I missing something. The whole notion predicated is hypothetical and is extremely unlikely to occur. It’s similar to the idea that there will be a referendum on withdrawal from the EU, John,, even you have stated that this is not going to happen and the UK parliament has a built in majority for a federal europe. A realistic suggestion -instead of imagining what may happen in the future.How about discussing what is most likely to happen-here are a few pointers

    1) Greece has recently been bailed out by the EU so is okay for the time being
    2) If Greece suffers further financial trauma which you stated is a serious possibility it will receive further financial support from the EU
    3) The EFSF is being increased to nearly 1 trillion dollars to support any other countries that may need bailing out
    4) Spain for example has recently instigated serious austerity measures to help it combat its deficit.
    A very simple statement – todayApril 8th 2012 after 60 years the EU continues and is capable of dealing with virtually any unforseen financial change. If you want to know what will happen in the future just look at the past-this so -called cataclysmic event that will break up the EU or the euro has not occurred in 60 years! Hoping that the EU will disintegrate is like imagining you will win the lottery-my prediction, by the time of the next election the EU will be the same as it is now.

  24. rd
    April 9, 2012

    How can you issue new drachmas without printing them in advance?

    Reply: Bank account money

  25. Derek Emery
    April 9, 2012

    I’ve read that those Greeks with money are well aware of the risks and have already moved most of their money offshore. It’s said there has been a run on Greek banks and that Greeks are buying homes in the UK as one way of investing their money.

Comments are closed.