Thursday, May 31, 2012

Local Currency Chatter

The level of chatter about a local currency in Greece has increased, and the talk is becoming more specific. How will the new money originate, where will it be used, how will the banks survive? Some economists are suggesting Argentina as an example to follow, though with Argentina giving all the appearances of a new currency crisis of its own, it may be more of a cautionary example. Some of the talk of a local currency is being directed toward Spain too, after a tentative political deal yesterday that would seem to pave the road for Spain’s euro exit, perhaps simultaneous with Greece.

In spite of all the complexities, I believe local currency rather than euro exit is the right answer for the flight of money from places like Greece and Spain. It may temporarily be necessary for all wages, interest, and real estate payments to be made in the local currency. This is still better than a complete or permanent ban on commerce in euros.