Dead Bling

A look at monies that once ruled sovereign states

[deadbling]

Bohemian and Moravian koruna (1939-1945) - Also known as the Protectorate koruna, this currency was the legal tender of the Protectorate of Bohemia and Moravia - a rump state directly controlled by Nazi Germany following the partition and occupation of Czechoslovakia. Naturally, the story of this currency’s birth is closely tied to the political drama leading up to the Second World War - 

In September 1938, Great Britain and France compromised Czechoslovakia’s territorial integrity by forcing Prague to cede Sudetenland to satiate Hitler’s naked bid for expansion. With the intention of further weakening Czechoslovakia, Germany initiated the Vienna Award in November 1938, ceding territory in Slovakia to Hungary.  By January 1939, Berlin was intent on going to war with Poland and felt the need to secure its southeastern frontier by completely subduing Czechoslovakia. To this end, Hitler agitated the autonomous government of Slovakia to declare independence and intimidated Prague with threats of invasion. The government in Prague opted to capitulate. On March 15 1939, Hitler announced the formation of the Protectorate of Bohemia and Moravia.

Alongside these infamously familiar political developments, there was also a high-stake attempt by the central bank of Czechoslovakia to save its country.

Assessing Austria’s recent decision to repatriate a significant portion of its gold reserves held in the Bank of England, Zero Hedge published an interesting article detailing the drama that unfolded around Czechoslovakia’s gold reserves held in the BoE in 1939. Ahead of its dismemberment, the central bank of Czechoslovakia prudently moved most of its gold abroad, particularly to London. The article explains:

The Czechoslovak reserves, like those of Republican Spain, were an expression of nationhood... the governor of the national bank, and his fellow Czechs believed that, even as the Nazis’ dismembered their homeland, if the national gold was safe, then something of the country’s independence would endure.

Following the Wehrmacht into Prague, Reichsbank officials ordered the National Bank of Czechoslovakia directors to move Czechoslovak gold from its current Bank of International Settlement (BIS) account in the Bank of England to the Reichsbank BIS account, also at the BoE. While the Czech central bank issued the order, Governor Josef Malik hoped that the evident duress they faced (the threat of death) would disqualify his instructions from being carried out. However, Bank of England Governor Montagu Norman was adamant that political considerations should not affect BIS transactions, eagerly handing over the last vestige of Czechoslovak independence to the Nazis. This quickly paved the way for the collapse of the sovereign tender and the issuance of the Protectorate koruna under occupation.

The domination of Nazi Germany over the people of the newly established Protectorate of Bohemia and Moravia was made explicitly clear by the act of stamping old Czechoslovak bills with the seal of the puppet government. To further assert its dominance, the newly printed bills prominently featured the German language on the banknotes before Czech. While significant portions of the Czech population spoke German, this served as a powerful symbol of control that underscored who had issued the nominal store of value and, consequently, whom the conquered people ought consider as the ultimate arbiter of faith.   

With Germany’s defeat 6 years later, the protectorate was abolished by the victorious Allied forces and the reincarnated state of Czechoslovakia revived its old koruna. 

The symbol for the currency was K and its subunit was the haler (1 koruna = 100 haleru).

[deadbling]

Argentine Austral (1985-1991) - Following the defeat in the Falklands War, the discredited Argentine military junta relinquished its authority and allowed political parties to stand in a free election. Elected amidst economic instability and political confusion, President Raul Alfonsin was tasked with not only rebuilding Argentina’s democratic institution but also managing the country’s debt crisis and restoring its fiscal health.

Unable to service the growing public debt, the central bank had resolved to engage in monetary expansion. By early 1985, prices were increasing at a rate of 6000% per annum with no signs of slowing down. It became clear to the nascent democratic government that something had to be done.

Alongside plans to control wages, exchange rates, and prices, Finance Minister Juan Vital Sourrouille forwarded the austral as the new sovereign tender to fight inflation. On June 15, 1985, the peso argentino was replaced by the austral at a rate of 1000 to 1.

In the spirit of restoring democratic governance, the new austral bank notes featured early presidents of the Argentine Confederation and Republic.   

However, despite budget cuts and wage freezes, inflation continued to accelerate. Meanwhile industrial unrest and capital flight exacerbated the fiscal health of the Argentine government. To make matters worse, the World Bank suspended all financing in Argentina in 1989. By 1990, 500,000 austral notes were being printed for circulation. 

With the austral completely debased as a store of value in the eyes of Argentine citizens and international lenders, the failed currency was finally replaced by the Argentine peso in 1991 at a rate of 10,000 australes for 1 peso. 

Under the Menem government, Buenos Aires attempted to control inflation by forcibly upholding the new peso’s 1:1 exchange rate with the US dollar. This for a short while slowed inflation, but proved to be the cause of an even greater financial turmoil.

The ISO 4217 code for the Argentine austral was ARA and it was often symbolized by ₳. Its subunit was the centavo (100 centavos = 1 austral)

[deadbling]

The Economist reported on April 11 that three private Argentine banking organisations penned a letter to the Central Bank of Argentina asking for the issuance of higher denomination bills to deal with the ever-growing volumes of cash.

The article notes

ATM machines are hard to keep stocked, since their capacities have remained the same even as the average withdrawal has increased from 380 pesos in 2008 to 1,500 pesos today... the volume of pesos needed to buy even a small apartment cannot be carried on foot... Counting the cash [to purchase the said apartment] can take up to four hours. For commercial deals it can take even longer.

Despite the inconvenience to consumers and merchants alike, the state is unwilling to issue bills with denomination higher than 100 pesos because it would be an explicit admission of the government’s failure to deal with inflation.

This partly stems from the government’s experience with the short-lived Austral (see further below). The denominations of the doomed Austral bills had been allowed to grow in tandem with inflation - as a result, the currency acted as an open catalog for the declining value of the sovereign tender. With the Kirchner government currently easing the money supply to finance subsidies and distorting inflation data, permitting the issuance of higher denomination bills could be politically toxic, particularly ahead of the October presidential elections. 

To contain inflation, the central bank is issuing short-term securities (called Lebac) and has doubled the interest rates payable to these debts in the past two years to incentivize purchases. The hope is that this measure will soak up excess liquidity and also facilitate the government’s financing of welfare programs. 

However, according to Reuters

Between January 1 and April 1 the central bank issued “Lebacs” worth 310.70 billion pesos, compared with 261.45 billion pesos worth in the whole of 2014.

The massive supply of securities increases the balance sheet of the central bank and leaves the next administration, whichever party it may be controlled by, with less resources to pay for government services. Therefore, these measures may be largely self-defeating in the long-run, especially when the government cannot fall back on high economic growth or access to the international financial market. 

In these dire times, Buenos Aires should take a deep breath and rethink its long-term monetary strategy. This is not to suggest that the government should immediately engage in an austerity program either - the failed Austral was subject to hyperinflation despite being circulated alongside government budget cuts and wage freezes. A solution appropriate for Argentina’s particular condition must be found.

[fyeah-history]

1923-issue 50 million mark banknote. Worth approximately US$1 when printed, this sum would have been worth approximately US$12 million, nine years earlier. The note was practically worthless a few weeks later, because of continued inflation

[deadbling]

See more of the infamous German papiermark notes from the hyperinflation of the 1920s here

[rosiefujizare]

With the Italian ordinance of 1976, in the old banknote of 10 mila lire there was printed Machiavelli’s face on it.

I didn’t found any source for a properly explanation, only a lot of auctions on ebay for buy the banknote.

I NEED that banknote

[deadbling]

class

Check out some of the other lira notes here

[wikipics-blog]

Two banknotes for Confederate States of America dollars, in five (top) and 100 dollar (bottom) amounts. The notes were first issued just before the outbreak of the Civil War by the Confederacy. They were not backed by hard assets, but simply by a promise to pay the bearer after Confederate victory. By the end of the war, the notes were worthless. Today, the “Greybacks” are prized as collector’s items.

Restoration: Michael Holley

[deadbling]

check out the Bygone Blings post on the CSA dollar here

[chailatteplease]

Republic of Hawaii Banknote for 20 gold dollars, 1895.

[chailatteplease]

Hawaiian Islands Banknote for 10 silver dollars, circa 1860s - 1880s.

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The Ecuadorian sucre (1884-2000): Taking its name from one of Simon Bolivar’s closest confidants and supporters, Antonio Jose de Sucre (the “Grand Marshal of Ayacucho”), this former Ecuadorian currency replaced the Ecuadorian peso in 1884. It was initially pegged at 22.5 g of fine silver but switched to 732.224 mg of fine gold in 1898 to offset the falling value of silver. 

Having exited the global gold standard at the start of the First World War, Ecuador re-entered the exchange standard in 1927 with the sucre equal to 300.933 mg fine gold or 5 sucres per US$. However, this was suspended in 1932 in favor of a fixed exchange of 5.95 sucres/US$. This rate too did not hold for long and the exchange rate fell to 14.77 sucres/US$ by 1940.

Entering the Bretton Woods period, Ecuador registered its parity with the IMF in 1946 at 13.5 sucres/US$, but successive devaluations in 1950, 1961, and 1970 brought the exchange rate down to 25 sucres/US$.

There was relative monetary stability in the 1970s as the export of hydrocarbons from new petroleum fields in the country’s eastern regions and natural gas deposits in the Gulf of Guayaquil brought valuable foreign exchange to the country. During this boom period, net foreign exchange earnings grew from US$43 million in 1971 to over US$350 million in 1974.

However, the economy’s dependence on oil and gas exports created its own risks for the historically-troubled sovereign tender. The gradual erosion of oil prices in the early 1980s and major disruptions in the agricultural sector due to El Nino heavily affected the country’s balance of payments. Ultimately, the Central Bank of Ecuador was forced to devalue the sucre twice in the early 1980s, bringing its value down to 42 sucres/US$ by 1983.

The devaluations alongside major austerity measures created some space for Quito to renegotiate its debts and receive a 107 million US$ assistance from the IMF, both which were critical factors that allowed the country to narrowly avoid a default. 

But conditions continued to deteriorate as a dip in the oil prices in 1985 and an earthquake in 1987 further damaged Ecuador’s economic position. The country’s external debt at the end of 1987 reached US$9.6 billion, an eye-watering level for a country’s who’s GDP was US$10.6 billion. Successive economic and monetary reform policies failed to jumpstart growth or halt the devaluation and the sucre fell to 800 sucre/US$ by 1990.

The 1990s saw worsening conditions and the currency fell further to nearly 3000 sucre/US$ in 1995. Then the financial crisis in 1999 marked the beginning of the end for the sucre. Quito attempted to bail out failing banks by providing massive amounts of liquidity which induced hyperinflation in the economy. By January 7, 2000, the exchange rate had fallen to 25,000 sucre/US$. 

Taking into account the impossible monetary conditions and the central bank’s inability to restore confidence in the sovereign banknotes, President Jamil Mahuad announced on January 9, 2000 that the US dollar would be adopted as Ecuador’s official currency. On March 13, the American greenback became legal tender in Ecuador.

Although a humiliating turn of events, some economists believe that Quito had made the right decision in killing the sucre:

The remarkable contribution dollarization has made to the Ecuadorian economy is worth noting. A 2010 study published by Ecuador’s central bank (BCE) analyzed the first decade of the absence of independent monetary policy and found that average GDP growth increased from -6.3 percent during the 1990s to 4.4 percent during the 2000s; annual inflation decreased from a high of 90 percent in September of 2000 to single digits within a year, and has averaged 3 percent since 2004. Additionally, interest rates went down immediately, thereby reducing the cost of capital. According to the World Bank, the percentage of Ecuadorians living on less than $2 a day (PPP) decreased from 37.7 percent in 2000 to 10.6 percent in 2009.

Nonetheless, on top of the significant psychological burden of not having one’s own currency, the government’s inability increase the monetary supply does place significant limitations on what kind of policies the state can implement. Of course, many see this as the objective of dollarization because it prevents Quito from using monetary policies in political gamesmanship. 

But with public debt at 25% of the nation’s GDP, President Rafael Correa wants more flexibility to pay off debts and more aggressively extend credit to the country’s poor. This has led to the startling recent news that the Central Bank of Ecuador will issue the world’s first sovereign cryptocurrency in December of this year.

However, many fear this may lead to the return of monetary instability that was rampant in the country prior to dollarization:

Ecuador’s dollarization did not address systemic economic issues like corruption, lack of political stability and the government’s huge spending problem. And it is Ecuador’s spending problem that has caused them to seek a digital currency solution.

With massive budget deficits, dwindling oil reserves, and high borrowing increasing Ecuador’s sovereign risk, it might be good for Quito to review the history of the sucre.

The ISO 4217 code for the Ecuadorian Sucre was ECS and it was often symbolized by S/. Its subunit was the centavo (100 centavos = 1 sucre)

[deadbling]

On Valentine's Day (or I presume in the days preceding depending on the global average of couples' preparedness - a seriously under-investigated figure), chocolate consumption in the West and elsewhere will show a noticeable increase.

Celebrating this day dedicated to one of the more beloved byproduct of the Columbian exchange (and, oh yes, love), a recent NPR Planet Money episode on Ecuador's chocolate industry prompted me to revisit my previous post on the late Ecuadorian sucre.

Chocolate production, pivotal to Ecuador's economy, has been seriously dampened by a disease known as Witch's Broom, which first appeared in the country around 1921. The decline in production and the resulting fall in export revenue severely disrupted the socio-economic order of the country. The economic trials after 1927 can be easily seen in the rapidly collapsing exchange rate value of the sucre through the 1930s and 1940s (Read my brief narrative on Ecuador's erstwhile sovereign tender further down). 

A solution was eventually found in the 1970s by a scientist named Homer U. Castro in the form of CCN-51, a hardier cocoa crop resistant to the Witch's Broom. Despite problems with its taste, which led to the country's cocoa being downgraded from 100% fine aroma to 75% in 2005 when producers began mixing the CCN-51 into the traditional Nacional crop, the invention of this new crop has allowed Ecuador's chocolate production to bounce back. Facing growing global demand and equally suffering from diseases attacking their own cocoa crops, other chocolate producing countries like Costa Rica (which is fighting against the disease Frosty Pod, first introduced in 1978) and Brazil (which is also combating Witch's Broom, first appearing in 1989) are also developing new strains.

While Planet Money marks the invention of CCN-51 as a bittersweet victory for chocolate lovers around the world, it is worth mulling over the implications of these economies continuing to place such high value on cocoa production. Ecuador in particular had been burnt by volatility in the commodity market time and time again. In the 1980s, El Nino and the erosion of oil prices devastated Ecuador's agricultural sector and hydrocarbon industry, leading to economic collapse and the rapid devaluation of the sucre, which ended with Quito's decision to adopt the U.S. dollar in 2000. The lesson here is that the lack of diversification left Ecuador vulnerable to sudden market shocks. Beyond the market's pursuit of short-term gains when demand for these particular commodities are rising, diversification is hindered largely by systemic economic issues such as corruption, lack of political stability, and the government’s spending problems. Given these problems, what Ecuador needs more desperately is not a tastier strain of cocoa, but trust-worthy institutions governing the market. 

At the end of the day, it is an indisputable fact that, despite many people's admission that they would not be able to survive without chocolate on their OK Cupid profiles and the cultural significance placed on this commodity, sweet sweet chocolate is a dispensable good. On the other hand, for Ecuador and other exporting economies that rely on cocoa exports, consumption of chocolate abroad is a much more important matter. This transfers significant degree of political and economic leverage to importing countries like the United States. 

To be fair, the combination of coffee and cocoa currently constitutes around 4% of Ecuador's exports. However, this figure is skewed by the fact that 58% of the country's exports are dominated by crude oil. With global oil prices volatile, increasing weight it going to be placed on exporting other commodities, including fruit, fish, and flowers (it appears a part of Ecuador's economy practically lives off of Valentine's Day).

A broader, macro view of Ecuador's historical and ongoing economic struggles is summarized in my previous post on the turbulent rise and fall of the sucre: 

[deadbling]

Back in 2011, during the first bout of the Euro crisis, Lord Wolfson of Aspley Guise held a contest offering a $400,000 prize for figuring out how to dismantle the European common currency. Reporting on the Wolfson Prize, NPR Planet Money touched on an interesting precedence set by the breakup of the Austro-Hungarian monetary union after the conclusion of the First World War.

The Austro-Hungarian Bank began issuing krone banknotes in 1892 as part of Minister of Finance Sándor Werkerle’s plan for the empire adopting the gold standard. By 1900 it became the sole legal tender of the multi-national Habsburg state, replacing the previous silver-backed currency, the Gulden. 

But our story truly begins in 1919 when representatives from the triumphant Allied powers congregated at the French city of St. Germain-en-Laye to dismantle the defeated Austro-Hungarian Empire. At this point, Hungary had already formally terminated its union with Austria and the remaining Austrian portion of the empire sought to join the newly formed German Republic. However, the treaty forbade Austria from joining a larger German state. Furthermore, the treaty created Czechoslovakia while also ceding vast portions of the empire to Serbia (soon to be Yugoslavia) and the revived state of Poland. Because reparations were advanced as an important component of the punishment to the defeated powers, the issue of the empire’s common currency was intricately tied to the political discussion. Reflecting its importance, Article 206 of the Treaty of St. Germain-en-Laye was entirely dedicated to dealing with the krone.

Alongside liquidating the Austro-Hungarian Bank, the empire’s central bank, the treaty, signed on September 10, 1919, mandated the dismantlement of the currency union through the following measures:  

Article 206 (highlights) 1. Within two months of the coming into force of the present Treaty, each one of the States to which territory of the former Austro-Hungarian Monarchy is transferred, and each one of the States arising from the dismemberment of that Monarchy, including Austria and the present Hungary, shall, if it has not already done so, stamp with the stamp of its own Government the currency notes of the Austro-Hungarian Bank existing in its territory. 2. Within twelve months of the coming into force of the present Treaty, each one of the States to which territory of the former Austro-Hungarian Monarchy is transferred, and each one of the States arising from the dismemberment of that Monarchy, including Austria and the present Hungary, shall replace, as it may think fit, the stamped notes referred to above by its own or a new currency... 10. The securities deposited by the Austrian and Hungarian Governments, both former and existing, with the bank as security for the currency notes issued on or prior to 27 October 1918, shall be cancelled in so far as they represent the notes converted in the territory of the former Austro-Hungarian Monarchy as it existed on 28 July 1914 by States to which territory of that Monarchy is transferred or by States arising from the dismemberment of that Monarchy, including Austria and the present Hungary... 13. All securities deposited by the Austrian and Hungarian Governments, both former and existing, with the bank as security for currency note issues and which are maintained in force shall be the obligations respectively of the Governments of Austria and the present Hungary only and not of any other States. 14. The holders of currency notes of the Austro-Hungarian Bank shall have no recourse against the Governments of Austria or the present Hungary or any other Government in respect of any loss which they may suffer as the result of the liquidation of the bank. Annex [to Article 206] 2. The Reparation Commission, after examining the records, shall deliver to the [respective] Governments separate certificates stating the total amount of currency notes which the Governments have converted… These certificates will entitle the bearer to lodge a claim with the receivers of the bank for currency notes thus converted which are entitled to share in the assets of the bank... 4. No notes issued on or prior to 27 October 1918, wherever they may be held, will rank as claims against the bank unless they are presented through the Government of the country in which they are held.

The monetary chaos resulting from the conclusion of this treaty was immense. Because the treaty required the old currency to be stamped by the empire’s successor states to retain any value, people rushed to move their banknotes to the country they thought would carry the strongest currency. According to economist Michael Spencer, “boxcar loads of currency” were moving across borders. The bank runs paralyzed the economies of the former Austro-Hungarian empire and many people resorted to bartering.

The banknotes used by the new Republic of Austria with the stamp “Deutchösterreich” (German Austria) fell victim to hyperinflation with the money supply increasing from 12 to 30 billion krone in 1920, then to approximately 147 billion krone by the end of 1921. To deal with this unsustainable collapse in value, the Austrian National Bank was established in January 1923 and authorized the issue of silver coins in December of the same year. These new silver coins became the basis for the new national currency, the schilling. On December 20, 1924, when Vienna officially adopted the schilling as its sovereign tender, the exchange rate was at 10,000 krone to 1 schilling.

Hungary too suffered from high inflation as Hungarian stamps were overused in marking the old krone. Then the new Hungarian korona, which was adopted at par value with the old krone, experienced crippling devaluations due to external and internal crises that followed the empire’s breakup. Refusing the new borders imposed by the Allied powers and promising to restore territories lost to Czechoslovakia and Romania, communists took control of the country, forming the Hungarian Soviet Republic in 1919. However, the brief war with Czechoslovakia and Romania ended with the collapse of the communist regime and Budapest's acceptance of the Treaty of Trianon in June 1920, which formally ceded more than 2/3 of the pre-war territory of Hungary. The resulting loss of economic assets and the ongoing political disorder caused by the policies accompanying the revolution (nationalization and the "Red Terror") and counterrevolution (purges under the "White Terror") exacerbated the economic chaos. When the currency was replaced by the pengő on January 21, 1927, the exchange rate stood at 12,500 korona to 1 pengő.

Meanwhile, Czechoslovakia and the Kingdom of the Serbs, Croats and Slovenes (Yugoslavia) replaced the krone with their respective sovereign currencies in 1920 as directed in the treaty of St. Germain-en-Laye. In the short-lived Free State of Fiume, which existed in legal ambiguity until the Treaty of Rapallo in 1920 ensured its "complete freedom and independence," the over-stamped krone was also circulated as its official currency. In 1920, the occupying Italian forces issued the Italian lira as the new official currency, replacing the Fiume krone at 2.5 krone for one lira. Nonetheless, the currency continued to be circulated until the official annexation of the free state by Italy in February 1924 when an official decree set the final conversion date to April 30, 1924.

The moral of the story for modern readers is that, in an era of free movement of capital, the breakup of the Euro may be even more painful than the Austro-Hungarian case study. 

While the examination of the krone originally came about in 2011 with the Wolfson Prize topic and initial concerns about the future of the European Monetary Union, the issue is worth re-studying with the return of the Grexit fears.

The symbol of the Austro-Hungarian krone was its abbreviation, K. or sometimes Kr. Its subunit was the heller (100 heller = 1 krone)

On a side note, if you are interested in reading about the paper that won Lord Wolfson’s prize, you can find the winning submission, “Leaving the euro: A practical guide,” by the London-based economic research consultancy Capital Economics: here

[archaicwonder]

Tetradrachm of Antigonus III (r. 229-221) from Amphipolis, Macedon, struck c. 228-227 BC

Obverse: The head of Poseidon wearing a seaweed wreath; dotted border. Reverse: Apollo holding a bow while seated on a ship’s prow; the inscription ΒΑΣΙΛΕΩΣ ΑΝΤΙΓΟΝΟΥ on the prow and a monogram below.

Antigonus III Doson was the king of Macedon from 229 BC to 221 BC. He was a member of the Antigonid dynasty and the son of Demetrius the Fair. As king, Antigonus III proved to be as much a master of tactical diplomacy as of military strategy. In less than a decade of rule he not only secured the borders of his nation, he also reestablished Macedon as the dominant power in the region. Unlike previous Macedonian rulers who attempted direct dominion over their fiercely independent neighbors to the West and South, he formed alliances with Epirus and the Achaean League. When Sparta, under Cleomenes III, attempted to establish hegemony over the whole Peloponnese, Aratus of Sicyon - long the leader of Greek opposition to Macedonian domination - invited Antigonus to intervene (226 BC). Establishing his base on the heights above Corinth, Antigonus reconstituted a broad-based Hellenic league (224 BC) under his leadership before launching his attack on Sparta. The Spartan forces, outmatched by the larger, better equipped Macedonian army, were so overwhelmed in the battle of Sellasia (222 BC) that Cleomenes only managed to escape with a few horsemen, and ultimately had to seek refuge in Egypt. However, in a magnanimous gesture, Antigonus restrained his soldiers from plundering Sparta, saying it was Cleomenes, not Sparta, that was his enemy.

Antigonus did not long survive this victory. For, while his forces were campaigning in the southern Peloponnese, Illyrians invaded Macedonia from the north. Antigonus had to rush north to repel this new threat. On his way, Antigonus passed through Tegea and Argos, his arrival at the latter coinciding with the beginning of the Nemean Games, where he was honoured by the Achaean League and various other cities. His death occurred soon after, when he returned to Macedon and engaged the Illyian army; for though Macedonian forces were once again victorious, the commander became sick during the battle (possibly though not necessarily as a result of a ruptured blood vessel) and died.

[deadbling]

The Third Modern Greek Drachma (1954-2002) - Established to control inflation that rocked the country after WWII, the new drachma was initially pegged at 30 drachmae for 1 US dollar. However, with the collapse of the Bretton Woods System in 1973 and the turbulence that accompanied the country’s transition to democracy, the exchange rate of the drachma fell, eventually reaching 400 drachmae for 1 US dollar. Despite the sliding value of the drachma, Greece entered the European Exchange Rate Mechanism in March 1998 and finally switched to the Euro in 2002 at a rate of 340.750 drachmae for 1 Euro.

The drachma then dramatically reentered the public discourse during the 2009 debt crisis when many believed that Greece would exit the Eurozone and devalue its sovereign currency to resolve its debts. Many Eurosceptics like Britain’s Michael Portillo advocated for the hypothetical “Grexit.” But so far the Euro remains popular in Greece and despite the difficulties resulting from the monetary restrictions, PM Antonis Samaras has made staying in the Eurozone his government’s top priority.

The ISO 4217 currency code for the modern Greek drachma was GRD and often symbolized by ₯ before the numerals. Its subunit was the lepton (1 drachma = 100 leptons)

[deadbling]

Ahead of the Greek parliamentary elections on January 25, 2015, with fear of Grexit once again surfacing in the news, I thought it would be timely to look back on Greece's former sovereign currency.

A quick brief on the current situation: Greek PM Antonis Samaras called for an early presidential election, but failed to rally the necessary support for the government-nominated candidate in the three rounds of voting in the Greek parliament. As a result, a snap election has been called. Currently, a party called Syriza, led by MP Alexis Tsipras, is in the lead. Unlike the incumbent New Democracy government, Syriza calls for the renegotiation of the austerity measures imposed by the troika (European commission, ECB, and the IMF) on Athens as a prerequisite for assistance in debt refinancing. In response to the likely Syriza victory, there are growing concerns that the new left-leaning government's attempt to reverse Athen's austerity measures will lead to Greece exiting the Eurozone. 

It is unclear how radical Syriza will be once it is in government. For his part, Tsipras has reassured the European community that he wishes for Greece to remain in the monetary union. Nonetheless, fears persisted, fueled on by comments from members of the ruling New Democracy party and some German officials.

Indeed, ahead of the ECB's sovereign bond purchasing program that was announced on January 22, there were many in the ECB executive board who expressed their preference for not including Greek bonds in the program - an indication of their loss of confidence in the anticipated Syriza government. Ultimately Mario Draghi announced that there would be no special rule for Greece; nonetheless, the ECB head still stipulated that Athens had to stick by the terms outlined by the troika to qualify for the program.  

So how likely is Grexit? It appears most experts are agreed that it is highly unlikely - 

Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics, highlights two very interesting points:

First, Kirkegaard believes that talk of "Grexit" foments a sense of crisis and fear, which help rally votes for the beleaguered New Democracy government of PM Samaras. But he is convinced that the threat is not real. Mark Weisbrot at the Center for Economic and Policy Research (CEPR) also believes that talk of exiting the Euro is an intimidation tactic to keep the Greek public committed to a program that is increasingly failing to show results.

Second, Kirkegard notes that the majority of Greeks don't want Grexit, thus Syriza would not engage in policies that would invite monetary secession. 

Nonetheless, it is very clear that Syriza intends to upend the increasingly intolerable situation in Greece under the austerity program. Former Greek finance minister Yannos Papantoniou observes:

Pensions have been reduced by 40%, on average, while the middle class is suffering under the weight of crippling new property taxes. As a result, Greece has fallen into a deep and prolonged recession, with output down 25% from pre-crisis levels. Worse, unemployment stands at nearly 26% – and more than 50% among young people. Yet most unemployment benefits are now being eliminated after 12 months, with the long-term unemployed often losing access to the state health-care system. Add to this a 30% increase in prices for prescription drugs, and it is easy to see why Greek society is unraveling. Of course, these sacrifices might be worthwhile were they helping Greece reduce its public debt to manageable levels. But, at the end of 2014, public debt amounted to 175% of GDP, having increased from its 2009 level of 127%. Servicing that debt would require primary budget surpluses equal to at least 4% of GDP until 2022 – an outcome that would require a surge in growth. Under the weight of relentless fiscal austerity, however, such growth is out of the question.

In response, Syriza has proposed the following programs:

Free electricity and food coupons for the poor

Restoration of the state pensions to pre-crisis levels

Tax hike for high-income earners and large property owners

Increase in minimum wage

These promises reveal why Syriza is set to win the upcoming snap elections over Samaras' government despite the doom and gloom of a possible Grexit. However, Syriza faces its own problems - it has to engage in fiscal consolidation and structural reforms somehow to improve the country's long-term fiscal health and it is unclear how they will do so while maintaining both its populist platform and staying in the common currency union. 

Lastly, there is this - 

Recently, the IFO Institute suggested that Grexit would be cheaper for Germany by €1.3 billion than if Athens defaulted. A very dangerous suggestion, one which has a number that both Euro-skeptics and anti-bailout factions can rally around together. 

European think tank Bruegel responded to this suggestion by pointing out that the IFO had not taken into account several variables, including the secondary impact from the unprecedented exit of a member state from the monetary union. However, even Bruegel's brave defense admits that, while it is likely that the cost of Grexit would be greater than if Greece remains, it is difficult to quantify the exact losses.  

The lack of a conclusive quantifiable answer punts the crisis into the realm of political dispute, leaving the citizens of Greece and wider Southern Europe slaves to numbers in more ways than one. Stay tuned for the Greek vote. 

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Today another sovereign currency passes into history -  

The Second Lithuanian litas (1993-2015): Much like its Baltic neighbor Latvia, Lithuania introduced an intermediate currency to deal with immediate monetary issues following its secession from the Soviet Union. Although an independent currency was both conceived and prepared for prior to independence, Lithuania felt it needed another medium to ease transition as the country’s trade remained heavily reliant on the Soviet Union. After a mangled effort to simultaneously use both Soviet rubles and a temporary currency called the talonas (which acted at first as a coupon, then an independent currency on par value with the ruble), Lithuania became the last Baltic republic to abandon the ruble on October 1, 1992 and retained the reformed talonas. Although inflation in Lithuania remained lower than that in Russia, it still stood at eye-watering 409% in 1993. In addition, the Latvian people were reluctant to utilize the talonas banknotes, which were printed on low quality paper (an issue that was also delaying the introduction of the new litas as well). This led to people preferring to carry U.S. dollars instead of the volatile talonas. Amidst a crisis of economic confidence and acting on long-delayed plans to circulate a more permanent currency, the litas was finally introduced at a rate of 1 litas = 100 talonas on June 25, 1993. 

Named after the first Lithuanian litas, which was circulated by the first Lithuanian republic between 1922 and 1941, the new currency had a rocky start. The government’s attempt to show confidence by exchanging unlimited amounts of talonai to the new tender without having to show the source of the income led to massive money laundering by criminal elements. Indeed, the litas continued to be plagued by issues such as counterfeiting that hurt its credibility.

 Although the litas fell in value from 4.5 litai/USD to 4 litai/USD by August 1993 (when the litas became the sole legal tender), it soon stabilized around 3.9 litai/USD. To further instill confidence in the new monetary regime and following the recommendation of the IMF, Lithuania pegged its currency at 4 litai/USD between April 1, 1994 and February 1, 2002. 

On February 2, 2002, the litas changed its peg to the European common currency at a rate of 3.4528 litai/euro. Officially entering the EU Exchange Rate Mechanism in 2004, Lithuania pushed to meet the convergence criteria for entry into the Eurozone, working to curb inflation and close the budget deficit. As a result of the sustained discipline and overcoming the shock of the global financial crisis, Lithuania will become the last Baltic republic to join the euro on January 1, 2015.

Of course with the ongoing recession and deflation (not to mention the revival of Grexit threat), there are questions on what Lithuania will exactly gain from joining the besieged monetary union.

The Economist presented the following reasons for Lithuania’s entry:

First, Lithuania is required to join – all members of the European Union, with the exception of Denmark and Great Britain, are required to adopt the single currency.

Second, the euro adoption will signal greater monetary stability to investors and reduce the cost of borrowing (a 0.8 percentage-point fall in the government’s average interest rate, according to the Bank of Lithuania). Indeed, Lithuania sold 1 billion euros ($1.24 billion) of 12-year bonds, its longest-ever maturity, at record-low yields of 100 basis points above the benchmark swap rate on October 22.

Third, closer integration with the European Union, many Lithuanians believe, will protect the country from Russian aggression. Moreover, it reduces the Russian leverage as Moscow has issued sanctions against Lithuanian exports to Russia, approximately 30% of the Baltic republic’s total exports. Joining the Eurozone will allow Lithuania bolster trade relations within the economic community. Indeed, the central bank expects 5-10% growth in foreign trade and a 2% rise in real GDP as a result of joining the single currency.

Although public opinion remains largely in favor of joining the euro (63%), these are certainly hard times for the Eurozone and Lithuania is shackling itself to the collective economic fate of the common market. A bold move - which hopefully will be worthy of the country finally letting go of its hard-earned, hard-labored sovereign currency.

The ISO 4217 code for the Lithuanian litas was LTL and it was often symbolized by Lt. Its subunit was the centas (100 centai = 1 lita)

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A short overview of Lithuania's formal accession into the Eurozone, its hopes and concern, alongside prospects for euro adoption in Poland.

Indeed, the most immediate concern hinted at by the Lithuanian PM and evident when compared to Poland is the Baltic republic's lagging productivity. Lithuanian industry could probably perform better if it maintains a more competitive currency in relation to its Eurozone trade partners. And economic growth is paramount in these uncertain times.

While the advantages derived from the common currency such as reduced cost of borrowing and increased investments are real, there is no doubt that these benefits cited by policymakers were, to use perhaps a hyperbolic example, also considered by their Greek counterparts when they forwarded the circulation of the European common currency. There are real risks to entering the euro-fetters.

Lithuania enters a brave new world tomorrow.

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The Second Latvian Lats (1993-2013) - For a short while after its independence from the Soviet Union on August 21, 1991, Latvia continued circulating Russian rubles. However, when the country was beset by first inflation, then a cash shortage, Riga was determined to secure its monetary independence from Moscow. Endowed with the authority to issue bank notes, the Bank of Latvia introduced the Latvian rublis on May 7, 1992 as a temporary currency set at equal value to the Russian ruble. In 1993, Latvia replaced the rublis with the lat (Second lat, to differentiate from the First lat which was circulated between 1922 and 1940) at a rate of 200 rublis to 1 lat.

In 2005, Latvia joined the European Exchange Rate Mechanism (ERM), pegging its currency at 0.702804 lats for 1 Euro (or 1 lat = 1.43 Euros). And on January 1, 2014, Latvia became the eighteenth country to adopt the Euro, retiring the lat from circulation (but not without doubt and resentment).

Prior to the end of its circulation, the Latvian lat was the fourth highest valued currency unit and the 500-latu note was the third most valuable bank note in the world.

The ISO 4217 currency code for the Latvian lat was LVL and often symbolized by Ls before the numerals. Its subunit was the santim (1 lat = 100 santimu) 

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Preparing the grounds for a post on Lithuania's soon-to-be-history litas, a repost on the Latvian lat seems appropriate.  

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On January 1, 2014, Latvia joined the Eurozone and ended the circulation of the Latvian Lat. Here’s a look back on the world’s most recently deceased sovereign currency

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Nearly a year ago, Latvia let its sovereign tender pass into history and it inspired me to start this blog. In preparation for Lithuania's entry into the Eurozone on January 1, 2015, a look back on the Latvian lat. 

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Uncirculated, unofficial banknotes featuring Grace’s image and the Palais Princier de Monaco.

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20 Czechoslovak koruna (1949)