Cityboy1 - guest blogger


Ladies and gentleman, I give you Cityboy1............

Having seen Miss Pickering’s curiosity perked by the question of how exactly do Greece and the Euro divide up the CD collection, it appears that there are some other flower fans who wonder about international currency unions in their spare time. So for your general enjoyment, I present a rough summary of the Friday morning talk we had.

However this is a huge topic and I’m sure it won’t answer everyone’s questions, so in the manner of a (semi-)trained performing horse, I am happy to participate in a Q and A dialogue with the co-operation of Miss P, answering any questions via the moderated medium of her blog.

Currently many people expect Greece to leave the Euro and sooner rather than later. The ones who can (i.e. have disposable income) and have money or assets of some kind in Greece are pulling out their money from the banking system - withdrawing money from bank accounts so they hold cash in Euros, buying things which are easily tradable and convertible (for example, gold and silver) into other currencies. Currently this is happening at the rate of roughly 0.5% of deposits a day. This is because they don’t want their money to be stuck in Greek banks when the plug is pulled because they don’t want their wealth to be re-denominated (converted) into New-Drachmas. The reason for this is that they believe the new currency will drop in value against the Euro over time – which is almost certainly true as the main reason for voluntarily leaving the Euro is to allow this to happen.

The scenario would play like this 

Zeus has 10,000 Euro’s in his savings account in the Olympus bank. The government announces one Monday that Greece has left the Euro and that they now have a new currency “The New Drachma” which is initially worth 1 Euro. So now Zeus has a bank account with 10,000 ND as the local bank has simply redenominated his account. However nobody else (i.e. foreigners) believes a ND is worth a Euro so they refuse to trade with him in Euro’s at that price – they demand more ND’s, and the exchange rate starts to fall until say it takes 2 ND to buy a Euro (most estimates believe this 50% loss in value would occur in a day or two).

This is great for people in Greece who sell things to foreigners, they can now export cheaply and their cheese/holidays/clothes look much cheaper to people buying in Euros than other EU countries stuff does. It’s also not so bad for Greeks buying Greek stuff, they now get paid in ND’s and spend ND’s so no immediate change there. It’s fairly bad for Zeus with his 10,000 ND’s which are now only worth 5,000 euro’s – say goodbye to buying a new imported car or going overseas for a holiday; these just got a lot more expensive. It’s bad for his wife Hera who runs a factory and has to import raw materials from overseas, as they’ve just doubled in price. So now she has to put her prices up to keep making a profit. Hello, inflation!

What about the Euro’s in cash under the bed or in my cookie tin?

Good news – you can walk back into the bank and exchange those for ND’s at the new 2 to 1 rate – you’ve doubled your money. Same with selling the gold you bought – you’ll get a much better price in ND’s. Hence the spiriting out of money. This has confused some people, as I have seen people interviewed on the BBC complaining they’d just taken Euro’s out for their Greek holiday, obviously not remembering that the Euro is still a tradable currency and has value.

But when I go to the bank what will the ATM give me?

It will give you ND’s. These may be entirely new bank notes (which has happened in the past – when Czechoslovakia split in two, new banknotes were introduced over a weekend in Slovakia). Or they may be Euro’s marked in some way – stamped with a “ND”. Brazil used to do this when inflation meant notes started being issued in multiples of 10,000 Real’s – old 100,000 Real notes were stamped as “100 Nova Reals”

Other future topics to cover are “Capital Controls”, “Hyperinflation”, “Is this Good or Bad for them/for us”, “Why do they have to leave anyway”, “The markets have already priced this in”

I love this, the blog has become like a Sunday broadsheet, flowers, food, economics all we need is for someone to have a night of debauchery with a footballer, or a fake sheik.


Lotte and Bloom said...

best guest blog. ever. x

YYZ said...

Brilliant. Thank you, Cityboy1 and Miss P!

Emily said...

This is incredibly interesting. I love the combination of flowers and economics.

Mrs Beard said...

Actually very interesting and made not-boring by the addition of Zeus.

CityBoy1 rocks.

domestikate said...

Ooh I like this. Thank you Cityboy1! And yes please to the other topics ...