At this crucial crossroads for the Greek economy and Greece, there are five currency options in case the country ends up leaving the common currency bloc, according to a CNBC analysis written by Kalyeena Makortoff.
Keep the euro
Greece could unilaterally “adopt” the euro, even if it left the Eurozone. This is the currency countries like Monaco, Andorra, San Marino and Vatican City use their national currency, despite not being Eurozone member states.
The European Commission allows these countries to issue limited amounts of euro coins, but they’re not allowed to print their own banknotes. Only the European Central Bank can authorize the issuing of euro banknotes. Greece must pay its debts to the ECB in order to qualify, but the decision is up to the ECB, according to Jane Foley of Radobank.
Develop a parallel currency
If the ECB stops providing Greek banks with emergency funding, the central bank could begin printing another currency without giving up the euro to meet its obligations such as welfare payments. The value of the new currency could likely fall rapidly against the euro, which could seriously impact Greeks’ spending power.
This inflation would give Greeks an incentive to prefer using the euro, entrenching a dual currency. It could effectively create a two-speed economy, with the euro dominating in sectors like tourism, Foley said.
Return to the drachma
Roger Bootle of Capital Economics said: “The key thing is that (Greece) has to redenominate deposits and debts into a new currency… which is the easy thing to do… The trickier thing to do is in terms of supplying notes — initially there won’t be any notes available.”
The government might issue IOUs in the interim. Stamps, for example, could be quickly printed in large volumes and used in place of bills, Bootle said.
However, adoption of any new currency — whether or not it’s the drachma — would result in further defaults, according to Foley.
A new currency would inevitably be weaker than the euro, increasing the weight of the country’s euro-denominated debt. “Greece needs to be able to issue their own currency and need the devaluation that comes with running your own currency,” Bootle said, adding that the transition would be difficult.
Many countries regulate their currencies by linking them to the euro. Adopting a pegged currency, however, requires either a stable economy able to ward off speculative attack, or significant currency reserves.
Bulgaria, for example, had enough reserves to introduce a currency board. This means it is committed to converting its currency — the lev — for euros on demand. However, Greece is unlikely to drum up enough currency stockpiles to use this option.
There have been suggestions that Greece could adopt a digital currency like bitcoin, avoiding the messy practicalities of a new currency or paper IOUs.
However, Foley and Bootle say, this is very unlikely since the Greek economy heavily relies on cash and Greeks probably could not function without physical bills and coins.