IOUs It Is: Why Greece May Have A Problem Printing "Rogue" Euro Banknotes

Tyler Durden's picture

Previously we reported that in a heretofore unknown exchange, Varoufakis told Telegraph's Evans-Pritchard that "if necessary we will issue parallel liquidity and California-style IOU's, in an electronic form. We should have done it a week ago." Shortly thereafter, SocGen released a note in which it confirmed largely what the Greek finmin may have said, namely that "Greece is likely to issue a form of parallel currency."

Here is SocGen's argument:

Greece is likely to issue a form of parallel currency:

  • Indeed, the Greek government is already running a primary budget deficit and no other form of funding will be available in the coming weeks. It is worth noting that if the ECB was to decide to reduce or stop allowing Greek banks to roll-over Greek TBills, the issuance of IOUs would become even more crucial for the government.
  • On top of that, we believe that the IOUs may also be used to help alleviate the financial stresses on Greek banks, such as the issuance of promissory notes in IOU terms in return for the redenomination in IOUs of part of banks’ liabilities (including time deposits above a specified amount). In this case, the IOUs would most likely end up as the new Greek currency. Indeed, living with closed banks and frozen deposits cannot last long. The government would eventually offer (with a discount) the chance to convert blocked time-deposits in euros into cash deposits in IOUs. The government would just have to print new banknotes and coins to allow free deposit withdrawals.

The idea of a parallel currency is not uncommon. In particular, IOUs have been used during periods of financial and economic stress, with extreme examples as some US states and Argentina (the latter eventually ending up with a massive devaluation of the peso).


The academic literature presents several forms of parallel currency, with some creating a new form of securities, backed by the government’s ability to pay back its debt (e.g. California in 2009) and others backed by future taxes (similar to a tax credit).


Unlike the former, the second category would have the advantage of not increasing the amount of debt owed by the Greek government. For example, the Greek government could pay part (let’s say 30%) of civil servant wages, benefits and pensioners in IOUs and part in euros. The IOUs could become a sought after asset if they offered a discount on tax payments (let’s say 5%). The IOU would be used in the Greek territory only. It could be used to trade basic needs (food, health, education, public services). However, the implementation and legal risks implied by the introduction of IOUs are elevated:

  • The logistical organisation needs to be put in place swiftly and smoothly while social order needs to be maintained;
  • As seen in Argentina, introducing IOUs could risk backfiring into full force devaluation. In the case of Greece, creating a parallel currency could be seen as a first step to Grexit (even with a Yes vote) and not as a temporary solution as in California. Conversely, if the IOUs introduced fail to be seen as a credible means of exchange or do not offer attractive characteristics, they would rapidly disappear in the private sector (as was the case in the Canadian province of Alberta in 1936-37).
  • The IOUs would be at risk of breaching the EU Treaty. Indeed, Article 128 states that “the banknotes issues by the ECB and the NCBs shall be the only such notes to have the status of legal tender within the Union”. As long as Greece remains within the EU, the IOUs could be used as a medium of exchange but would not have the privilege of a legal currency (Regulation 974/98).

In this light, Greek IOUs now seem almost inevitable, especially since the other, "more nuclear" option, going rogue and printing Euro banknotes without the ECB's approval, appears quite limited even if purely logisically.

This is what the ECB says on the topic:

Since 2002, euro banknotes have been produced jointly by the national central banks (NCBs) of the euro area. Each NCB is responsible for, and bears the costs of, a proportion of the total annual production in one or more denominations.

The annual production of euro banknotes needs to be sufficient to meet expected increases in demand, such as seasonal peaks, and to replace unfit banknotes. It also has to be able to cope with unexpected surges in demand. Production volumes for the years ahead are calculated on the basis of forecasts provided by the NCBs and a central forecast made by the ECB, thus combining national expertise with a euro area-wide perspective. The figures calculated need to be approved by the Governing Council of the ECB.

And here is the biggest reason why if Greece relied on this plan it may have serious problems: per the ECB, the only dispensation the Greek currency printer has is for €10 bills.

Sadly, filling up holes worth tens of billions with "rogue" €10 bills would be problematic logistically, and we believe, Greece would run out of printing supplies long before it got to printing anywhere close to the required and desired amount, leaving aside all other questions of propriety and legality.

So IOUs it is. The only question is how these shall be named. Last time we checked (in June 2012), the New Drachma (aka XGD) was briefly taken...

... but after the summer of 2012 when the ECB was doing "whatever it takes" to show that the EUR is "irreversible" (only to prove three years later just how reversible it truly is) the XGD is once again available. Go for it Greece.

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F0ster's picture

If Greece writes down it's debts then it's banking system will only be bankrupted temporarily. Greece should initially issue IOUs and feasibly issue a new Drachma in accordance with the Chicago Plan and back the Drachma with hard assets leased from Russia, China and possibly Turkey. These leased assets (think Silver and Gold bullion - real money) would optically serve as a socially acceptable and trustworthy backing/collateral exchanged against future leases for Russian and Chinese navel bases, Silk Trade Route and South Stream Pipeline revenues. The Troika are the current managers of a structurally floored and politically abused fractional reserve banking system, which they must now accept the public are waking up to understand the fact that it is in it's terminal phase.

CaptainAmerika's picture
CaptainAmerika (not verified) F0ster Jul 5, 2015 7:28 PM

this reminds me of that one know, the one with that one guy, and then all that bullshit happens

CaptainAmerika's picture
CaptainAmerika (not verified) Pool Shark Jul 5, 2015 7:31 PM

that's the was right on the tip of my brain

Publicus's picture

Russia and China can suppy Greece with all the printing supply it will ever need. Enough to destroy the Euro.

SafelyGraze's picture

you ain't gotta actually *print* em, duh

you just credit them to various accounts

the alan and andrea mitchell-greenspans 

Pool Shark's picture



Exactly, the 'Reverse South Park Scenario:"


It goes from: "And,.. it's gone, it's all gone."

To: "And,.. it's back, it's all there."


disabledvet's picture



0b1knob's picture

 "Greece would run out of printing supplies long before it got to printing anywhere close to the required and desired amount, leaving aside all other questions of propriety and legality."



Anyway what's to stop them from paying for ink and paper with nice new crisp 10 Euro notes?

disabledvet's picture

Call up "Helicopter Ben"!


Go, Greece, Go!!!

Squid-puppets a-go-go's picture

Ten euro's only, huh?  Those flag selling merchants who did so well this weekend should now stock up on wheelbarrows

remain calm's picture

With all this printing and uncertainty gold is ripping up a buck. Fuck.

Sages wife's picture

Patience is severely underrated. Delayed gratification is sublime; the burr under the saddle of a crumbling empire. They are inconsolable, and dangerously desperate. Be aware and prepared. Long live ZeroHedge.

Boris Alatovkrap's picture

Fire up for printing press. Control-P, how are you say - bichez!

invisible touch's picture
invisible touch (not verified) Boris Alatovkrap Jul 6, 2015 2:16 AM

there is no greek primary budget deficit.... for fucking sake, they are in surplus if you remove debt from equation

Anasteus's picture

Greece would certainly not run out of printing supplies, especially, when all additional necessary supplies would be paid for with freshly printed notes provided the cost of supplies is far cheaper than nominal value of the bank note itself. And there is enough wood, paper and companies willing to help worldwide. Yes, it would be a pretty time and logistics consuming task but still a doable option.

Inspired by the current banking system, to speed up the whole process the Greek central bank could write the target amount, say 50bn in its books before the bank notes are actually printed out and label it as "a technical temporary borrowing" :-)

chisler's picture

Awww damn, people thought that they shipped millions of euros by container ship!

Buck Johnson's picture

Hey that is correct, they just credit them to the accounts.


Dostojevskij's picture

you mean snipers on the roofs? naaa... lets see if they can compete with russians ones...

moonstears's picture

I almost peed, laughing, good comment Capt! 

junction's picture

Greece should follow the example of Wall Street and start issuing derivatives in all shapes and forms: Greek MBS, CDO and CDS financial instruments that are backed by nothing.  Just like Wall Street. 

FrankDieter's picture

They can have Goldman Sucks issue this bogus garbage instrument.

philipat's picture

And, at the right price, S&P, Moody and Fitch would all give them the equivalent of a AAA Rating. Easy.......

Laowei Gweilo's picture

lol at China or Russia lending even remotely the amount of gold required to actually back an inpedendent currency


or Greek people welcoming foreign navy bases any more than welcoming foreign technocrats



and that's assuming China even would go that far. i know most of ZH don't know two-shits about china but most chinese people thing greece are a bunch of beggers. you have zero effing clue if you think china would lease out their gold against popular support precisely when they are trying to hoard their gold for THEIR OWN currency aspirations... seriously, lease out their gold? lol

old naughty's picture

China has only one goal at the moment: Entry into SDR.

They locked steps with Largarde (and G-sucks).

invisible touch's picture
invisible touch (not verified) Laowei Gweilo Jul 6, 2015 2:18 AM

most important thing to do now for greece is kick out of greece  all usa n.g.o and all americans, close nato bases and try to keep the carpet as clean as possible. to prevent a maidan 2.0

thesonandheir's picture

How come Greece can only print 10 euro note whilst Cyprus can print 50 notes?

gwar5's picture

Print baby print!

disabledvet's picture

Yeah, baby, yeah!






db51's picture

How much trouble could it be to alter the plates, seriously.

Pool Shark's picture



Even simpler: just add two extra zeroes to each note using a crayon...


Bananamerican's picture

pikers...just add an empty line after the 10...To the moon Alice!!

CHC's picture
CHC (not verified) Jul 5, 2015 7:32 PM

I say print IOUs for everybody - fuck 'em.  Except me. 

flash338's picture

Fuck us all. We already have iou's. They say Federal Reserve Note right at the top of them.

nmewn's picture

For a hamburger today I'll gladly pay you Tuesday.

BlindMonkey's picture

No problem.  The fed will buy the repo.  They love flooding their books with shit.

actionjacksonbrownie's picture

They need to hire Harry and Lloyd as consultants - they could get those IOUs printed up and into a suitcase PDQ.

usednabused's picture

The ECB needs a good fucking. Print away, fast as you can. And as much as you can.

jimfcarroll's picture

Revenge of Milton Friedman -

"I am very negative about the euro and I am very doubtful about how it will work out. However, I am less pessimistic about it now than I was earlier simply because I never expected that the various countries would display the kind of discipline that was required in order to qualify for the euro."

... guess he was right afterall.

Bazza McKenzie's picture

and the various countries didn't display the discipline, they just fudged the numbers.  You'd think Friedman would have been awake to that.

SubjectivObject's picture

What we get is misdirection, and that's all they intend to give us.

jimfcarroll's picture

Yes. I should have said "... right in the first place."

onewayticket2's picture

The IOUs 'identify' as legal tender.

Rachel Dolezar.

NoWayJose's picture

Huh? Why would the author think Greece would run out of ink printing 10 Euro notes - but NOT run out of ink printing an entirely new drachma currency in all denominations? And remember, less than 10 Euros is done via coins! And Greece doesn't need billions of paper Euros - as most of the 'big money' moves are all electronic.

TMLutas's picture

Just deem all of Greece's back taxes paid, increment the government's accounts for the owed sum, and pay the debts. It's helicopters, EU style.