Greece’s Two Currencies”, Social Europe, 8 January.
Imagine a depositor in the US state of Arizona being permitted to withdraw only small amounts of cash weekly and facing restrictions on how much money he or she could wire to a bank account in California. Such capital controls, if they ever came about, would spell the end of the dollar as a single currency, because such constraints are utterly incompatible with a monetary union. Greece today (and Cyprus before it) offers a case study of how capital controls bifurcate a currency and distort business incentives. The process is straightforward. Once euro deposits are imprisoned within a national banking system, the currency essentially splits in two: bank euros (BE) and paper, or free, euros (FE). Suddenly, an informal exchange rate between the two currencies emerges.
Relevant Posts
- Zoning out – Why leaving the euro would still be bad for both Greece and the currency area, The Economist, 17 January 2015.
- Βαρουφάκης, Γ. (2014) “If Scotland, why not Greece?”, Yannis Varoufakis Thoughts for the post-2008 World, 10 March.