It is not easy changing currencies. Some people now think that would be the least bad option for countries like Greece, facing ever worse choices on tax, spending and borrowing living with the Euro. Greece and the EU have very clearly stated they will not do this, so this is a very speculative musing in response to questions on how it could be done.
The easy part is dealing with bank account money.Tthe harder part is dealing with notes. If Greece – for example – agreed with Euroland and the EU that it should leave the Euro they would all need to move very rapidly to contain the short term damage and to carry out an efficient change over. They would need to promise putting in place all the legal and Treaty changes needed over a week-end of secret talks. Then they could announce that as from a stated time on the Sunday all Greek bank accounts denominated in Euros would be converted to new drachmas. It would be easiest to do it at one new drachma to one euro. It would be a relatively simple computer exercise.
The Greek authorities would need to decide which Greek bank accounts were affected. Presumably every Greek citizen or company with a euro account in Greece would be compulsory converted. Foreigners with euro accounts in Greece might be excluded. Greeks with euro accounts abroad would also need to be considered, with the Greek authorities probably wishing to convert those as well.
On the Monday when the markets opened the new drachma would presumably fall against the Euro – let’s say to 1.2 new drachmas per euro. Tourists and foreign traders with Greece would be 20% better off than locals, as they would still have euros to convert at the market rate. Greece would have devalued, making her exports cheaper and her imports dearer. It should boost tourism and inward flows.
Handling the bank notes is more complex. Let us assume the Greek state would want to compulsory convert all Greek citizen and Greek company holdings of Euros into new drachmas at the 1 to 1 rate, but did not wish to convert foreigners holding banknotes in Greece, or to convert all Greek letter Euro notes held anywhere in the Euro zone. They could say that all Greek citizens taking euro notes to banks or to the shops would have them acceopted as new drachma at the 1 to 1 rate. Any foreigner in Greece could exchange euros into new drachma at the market rate on showing a passport. Banks and shops could be given a period of time to gradually convert the euro notes into drachma notes, but for the time being the euro notes could act as drachma notes. Any foreigner wishing to spend money in Greece would be free to spend euros at the 1 to 1 rate, or eligible to get new drachma notes on conversion at market rates. For a period euro notes and new drachma notes would both be legal tender until enough new drahcma notes were in circulation to replace all euro notes. The banks and shops would convert the notes at as fast a rate as the notes became available.
This seems to be the least bad way, given that speed and secrecy would not allow the printing of a complete supply of new drachma notes for the switch over date.