Paul Krugman compares Greece to Argentina. Devaluation in Argentina surely helped, and so would it in Greece. But there's a problem. See my comment:
Greece will either stay in the Eurosystem, or will try to leave and end up with euro anyways. The latter is informal euroization.
On the problem of ensuring the acceptability of a new fiat money, see George Selgin.
The comparison to Argentina is a poor one. Argentina's central bank was a fully-operational currency issuer when it lifted its peg, and the peso already circulated along with dollars.
Greece's central bank is currently in-operational as a currency issuer; drachmas simply don't exist.
Should the Bank of Greece try to relaunch itself, will its drachma liabilities be voluntarily accepted as mediums of exchange? Probably not, for the same reason its bonds are worthless. Like the Greek government, the BoG simply has no credit. Compounding this is the fact that already-existing euros circulate in paper form, and the fact that so many Greeks have accounts in German banks they can use for payments. Given this broad array of payments choices, the free drachma will be stillborn.
Nor can drachmas be forced into circulation. A country that can't enforce tax laws can't enforce legal tender laws. No, the drachma won't be reappearing any time soon.Krugman assumes that the euro is like a glove. You can put it on and take it off easily. In actuality the Euro is more like a Chinese finger-trap. It's easy to put on, but once you're in, getting out is well night impossible. As attractive as devaluation is, that's not the core issue. There simply is no way to get from here to there.
Greece will either stay in the Eurosystem, or will try to leave and end up with euro anyways. The latter is informal euroization.
On the problem of ensuring the acceptability of a new fiat money, see George Selgin.
Related Posts
Subscribe Our Newsletter