Greece crisis: How do you change a currency – fast?
With Grexit looming for Greece, how would the country bring a new Drachma into circulation as quickly as possible?
The drachma was the world’s oldest existing currency before it was replaced by the euro on January 1, 2001.
And it may be about to make a comeback. This Sunday’s referendum is described by European leaders as a vote for or against the euro. If Greece votes “oxi”, the country may soon be looking for a new currency.
Haris Theoharis, a politician in the centrist party To Potami, said: "There's already a team within the prime minister's office, with staff from the general accounting office, right now working on the drachma."
But how? Has anything like this ever been done before?
Not really. The last time a currency union broke up was the Austro-Hungarian empire in 1918.
When it became apparent that a break-up was imminent, stacks of currency were transported across borders and into the countries in which people thought it would be worth more when converted. The currencies which were created after the break-up of the empire took years to stabilise.
In an ideal world, any government would want to introduce a new currency with an element of surprise to money rushing out of the country as people seek to avoid a devaluation of their euros. However, a Grexit, would be no surprise - though there are now capital controls in place to prevent the flight of money out of banks, and out of Greece.
Without the backing of the European Central Bank, a new currency would have to be introduced very quickly. De La Rue, the world’s largest printer of banknotes, said: “Working out the details … is all very well when you have a year or two to think about it. Make that a month or two, and things start to get interesting.”
First you need a design for a note.
De La Rue organised the complex operation to replace Iraq’s old currency in 2003-4, delivering the notes 10 weeks after the order was placed. The company said that this process typically takes a year and a half. In South Sudan, the company designed, produced and distributed a new currency in six months - an unusually quick process.
The company declined to comment on any current plans to create a new drachma. In 2012, the company drew up contingency plans when it looked like there was a possibility Greece might exit the eurozone, and Greek banks have been preparing for an exit of the monetary union for years.
According to the Bank of Greece, old drachma cannot be used anymore, so new ones must be printed if a new currency is adopted, though these would likely be based on the old notes.
It is a complex procedure: central banks provide designs or guidance, or a competition is held to produce ideas. De La Rue then works on the design.
In April 2013, designer Pavlos Vatikiotis came up with designs for a "new drachma", featuring portraits of modern Greeks from the arts and sciences, his tongue partially in cheek.
He said: "I think the currency should be beautiful because it's kind of a mirror of a country," he said, adding - fatefully - "I don't know if we will ever need to go back to the drachma, but if this happens I would love to have these beautiful notes in my purse."
Steve Pond, a designer at De La Rue, said: "A banknote is a country’s national, or international, calling card. An aesthetically pleasing banknote, or one that really communicates the special features of a country, has a knock-on effect. It influences people’s perceptions of that country.”
There is also the prospect of deciding on denominational structure and anti-counterfeit protection. De La Rue said that the largest coin should be worth 2pc of the average daily wage, and the smallest note 5pc.
For Iraq's new currency, De La Rue printed the banknotes in different location around the world: in Malta, Sri Lanka, Kenya and the UK. Special paper needs to be ordered, as well as millions of metres of security thread, watermarks, ultra-violet features and any other anti-counterfeiting devices.
In Austro-Hungary, countries did not print new notes, but stamped ink on top of old crowns to create a new currency. Czechoslovakia had its name stamped, and Romania had a cross.
Greece has its own facility in Holargos, northern Athens, which can print notes and mint coins. In theory, this can be used for a new drachma. The ECB said that it has been responsible for printing €10 notes for the whole eurozone. Faisal Islam, political editor of Sky News, notes that during the Greek crisis of 2010/11, boxes of euro notes were airlifted to Athens from Italy and Austria.
In Iraq, the distribution process was complicated by the ongoing war - one of the officials working on the Iraqi Currency Exchange team was badly injured in a bomb attack.
A Greek process would be rather less dangerous – with capital controls, large amounts of money cannot be moved around, and so new currency could be more easily distributed. New laws would have to be enacted, and businesses would potentially have to draw up new contracts. The Bank of Greece would fix an exchange rate, and Greece would lose access to the ECB.
But the real problem lies after. What happens to the money Greece owes? The country's debts are mostly denominated in euros, and would likely increase in size as the new money is likely to devalue against the old. Greece would also be unable to print new money to pay it, as its creditors would not accept payment in drachma.
What are the other options?
A parallel currency
This would be circulated alongside the euro inside Greece to pay for taxes, food and clothing, freeing up euros to pay for debt and create growth. The money would be an IOU issued by the Greek government that could be passed from one person to another.
People would, in theory, be willing to accept the money because it could be used to pay taxes, and Greece would exist in a grey area between Grexit and eurozone. But this is all in theory - Greeks would naturally be suspicious of such money.
At the height of the Greek crisis of 2010, the Greek government issued a form of domestic bonds to medical suppliers in the absence of cash.
These “pharma-bonds”, as they were known, acted as IOUs from the government and resembled a form of “quasi-drachmas”, according to economists at UBS.
These bonds behaved much like a traded currency and could be deposited at banks as collateral for cash.
Much easier to design and distribute – but difficult in practice. Many Greeks don’t have a bank account, let alone a bank card. The economy is very cash-based, part of the reason why so many were able to evade taxes. But if Grexit were to come in a decade’s time – who knows?