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IOUs It Is: Why Greece May Have A Problem Printing "Rogue" Euro Banknotes
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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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.
this reminds me of that one movie...you know, the one with that one guy, and then all that bullshit happens
"That's as good as money;... those are IOU's..."
https://www.youtube.com/watch?v=7GSXbgfKFWg
that's the one....it was right on the tip of my brain
Russia and China can suppy Greece with all the printing supply it will ever need. Enough to destroy the Euro.
you ain't gotta actually *print* em, duh
you just credit them to various accounts
hugs,
the alan and andrea mitchell-greenspans
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."
ANGRY ATM'S ACROSS THE HELISPOT!
VERY ANGRY ATM'S "SPEWING FORTH EURO's WITH BUT A PIN"!!!!
"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."
Amateurs.
Anyway what's to stop them from paying for ink and paper with nice new crisp 10 Euro notes?
Call up "Helicopter Ben"!
"OUR EURO YOUR PROBLEM!"
Go, Greece, Go!!!
Ten euro's only, huh? Those flag selling merchants who did so well this weekend should now stock up on wheelbarrows
With all this printing and uncertainty gold is ripping up a buck. Fuck.
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.
Fire up for printing press. Control-P, how are you say - bichez!
there is no greek primary budget deficit.... for fucking sake, they are in surplus if you remove debt from equation
http://www.amna.gr/english/articleview.php?id=8270
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" :-)
Awww damn, people thought that they shipped millions of euros by container ship!
Hey that is correct, they just credit them to the accounts.
you mean snipers on the roofs? naaa... lets see if they can compete with russians ones...
I almost peed, laughing, good comment Capt!
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.
They can have Goldman Sucks issue this bogus garbage instrument.
And, at the right price, S&P, Moody and Fitch would all give them the equivalent of a AAA Rating. Easy.......
Frank, they already did and that's part of the problem.
http://wallstreetonparade.com/2015/06/goldman-sachs-doesnt-have-clean-ha...
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
China has only one goal at the moment: Entry into SDR.
They locked steps with Largarde (and G-sucks).
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
Whatever next - it'll be without Varoufakis!!!
http://yanisvaroufakis.eu/2015/07/06/minister-no-more/
Breaking news!
How come Greece can only print 10 euro note whilst Cyprus can print 50 notes?
Print baby print!
Yeah, baby, yeah!
TAKE THAT YOU FUCKING HUN!
THE GREEK SHIP IS COMING IN!
THE EURO's STILL POUR FORTH!
TWENTY PERCENT INTEREST!
YEAH, BABY, YEAH!
How much trouble could it be to alter the plates, seriously.
Even simpler: just add two extra zeroes to each note using a crayon...
pikers...just add an empty line after the 10...To the moon Alice!!
I say print IOUs for everybody - fuck 'em. Except me.
Fuck us all. We already have iou's. They say Federal Reserve Note right at the top of them.
For a hamburger today I'll gladly pay you Tuesday.
No problem. The fed will buy the repo. They love flooding their books with shit.
They need to hire Harry and Lloyd as consultants - they could get those IOUs printed up and into a suitcase PDQ.
Our word is our bond
american version? https://www.youtube.com/watch?v=-DT7bX-B1Mg my bad...couldn't resist
The ECB needs a good fucking. Print away, fast as you can. And as much as you can.
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.
and the various countries didn't display the discipline, they just fudged the numbers. You'd think Friedman would have been awake to that.
What we get is misdirection, and that's all they intend to give us.
Yes. I should have said "... right in the first place."
The IOUs 'identify' as legal tender.
Best
Rachel Dolezar.
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.
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.
Go Zimbabwe - print up a few $100 billion EUR bills - problem solved
Good idea.
CC to :
Porta Rico
Spain
Italy
Mexico
Portugal
and a few other where the penny has yet to drop.
The US has the answer!
http://www.washingtonpost.com/blogs/the-fix/wp/2013/01/09/trillion-dolla...
We'll have Kerry fly in on the G650 tomorrow with a few ounces of platnum, they can mint some trillion-drachma coins, toast with Ouzo, and problam solved!
Printing up Euros in a garage is surprisingly easy.
Just remember that the proper ink takes four days to dry in a vacuum. Otherwise it smears easily.
Easy-peasy.
That's why I cure all my freshly printed Euros in Paul Krugman's cranium.
So we are now discussing the default of Greek debt and our solution is IOUs?
HAHAHAHAHA!
IOUs, isn't that a charming Greek holiday island?
Talk about California DREAMIN!
No way can they print "IOU's."
Given the vote I would advise COUNTERFEITING MASSIVELY.
Seriously...and I mean "who the hell knows how this will turn out"...
HOWEVER...
I'm no "geo-politico" BUT
Romania and Bulgaria look like HUGE winners here.because they might now have acces to "the Free Port of Thessoloniki."
In fact if Greece descends into total chaos here...that could become the BULGARIAN Port of Thessolonikki actually...
But but but Greece has 122 tonns of gold somewhere. That should be a start. Time for an audit.
"Send gold to New York...tell New York send paper and ink."
Greece pay in Euro...print euro like Madmen...New York win!
Deal?
Bye Bye EU Banking scum.
Troika have them IOU's bundled up rehypothecated and sold in no time flat. BTFD.
Considering Saddam's success in counterfeiting US banknotes...
Every Greek should be able to create their own money in accordance to each individuals needs.
Skip the middle men.
In Greek olives I trust and a sketch of any naked God will do.
What is the difference?
IOUs (i.e. more government debt) and extra euro notes are not mutually exclusive.
Euro notes are actually the best option for individuals, since it is just a continuation of what they withdraw from banks and use anyway.
Debt instruments are more appropriate for large government purchases.
The fact that the ECB has rules limiting the production of more euros becomes moot when the ECB refuses to behave like a proper central bank. You don't let your enemy dictate the rules.
Even Mr. Tsipras does not know how it will turn out.
Until that is he arrives in Ufa on Tuesday evening or Wednesday morning for a little education.
It's time to list the Acropolis on airbnb. Every little bit helps.
Whatever Greece does, it will not be as ridiculous as what USrael did in accepting the Federal Reserve Bank as the center of its financial system in 1913. We USraelis are no better than lemmings. We have no reason to feel superior to the Greeks.
You can say that again
Whatever Greece does, it will not be as ridiculous as what USrael did in accepting the Federal Reserve Bank as the center of its financial system in 1913. We USraelis are no better than lemmings. We have no reason to feel superior to the Greeks.
Whatever Greece does, it will not be as ridiculous as what USrael did in accepting the Federal Reserve Bank as the center of its financial system in 1913. We USraelis are no better than lemmings. We have no reason to feel superior to the Greeks.
Get North Korea on it....they print some nice 100's
Was not the reportage that NK was being discrete and going for the 20's?
Well, technically they aren't kicked out of the Euro.
So
The Greek Euros not being accepted as cash for international trade would pretty much be like the ECB rejecting its own currency.
How can nations have trust in a central bank if they can change their mind at any moment and push that country into chaos?
It makes nations question if they should also leave while they are still able to intact.
Greece just did what secretly all other nations in the Euro zone want to do anyway and pulled it off with great success.
The amount of counterfeit Euros hitting the streets in Greece must be staggering.
Pallets by the hour.
Even as far back as the 1990s, we estimated that Shanghai alone had $1 billion US currency (counterfeit and real) in its grey and black markets.
If I was Russian I would be printing 100 billion in fake euros just to stick it to Europe like the Nazis and the Pound during WW2.
No doubt all that phoney money is making its way to Greece at break neck speed.
Does the Bank of Greece actually print 10 euro notes in Greece?
No wonder these control freaks want to ban non-electric "money."
What will happen in Italy, Spain and Portugal next year?
Little electronic 1s and 0s are just as evil, or more so in this context.
Just sell some debt to Japan. The BOJ is the buyer of last resort for everything that's not bolted down.
Start printing billions of Euros and cause a Eurocrat calamity.
Panic in Euroland.
Winning game theory.
What's all the fuss about? Euros, US dollars, Yuan, Rouble, and all other fiat currencies are nothing more than IOU notes from their central banks, so there's essentially no difference between Euros and newly issued Greek government IOUs.
I regret that I have but one upvote to give.
Some IOUs are more Equal than Others
The article is wrong. The author only looked at the 2015 tab. If you look at other years, you will see that GR has produced 20's in the past.
https://www.ecb.europa.eu/stats/euro/production/html/index.en.html
If they print 20's, they might have to put a 2013 date on them, though.
Greece has never produced 50's or higher.
In terms of circulation, the largest value circulating is in 50's and 500's. Next down is 100's. The value circulating in 10's is tiny in comparison, and even 20's are apparently not all that popular. Apparently, 50's are the main circulating banknote in the EU.
https://www.ecb.europa.eu/stats/euro/circulation/html/index.en.html
No disrespect. Who cares? It's all paper..
For that matter, they could print a novel denomination. eu 10k notes, for example. or simply declare a 1k:1 split. marvelous, it is, the power of the sovereign.
Euro countries are allowed to mint Euro coins of irregular denomination for collectors, and these coins are only legal tender inside the issuing country. Greece could mint E20 E 50 and E100 collector coins instead of IOU's and use them to pay depositors. They would be Euros, but only valid in Greece.
OR, they could http://www.washingtonpost.com/blogs/the-fix/wp/2013/01/09/trillion-dolla...
"US Trillion dollar platinum coin: The new nuclear option"
We'll have Kerry hop in the G650 and be there by Monday morning, fresh from Vienna or Tehran or wherever the hell his broke-leg ass is hiding out.
Who decides if you are trustworthy enough to print money?
This made me laugh:
Greeks… pay taxes? No, they evade taxes. In the aggregate, they only pay about half the taxes that are owed. An IOU for something that you're just going to skip paying (especially if the tax collectors themselves get paid in worthless IOUs and get upset or even strike over it) isn't worth much.
Only 10 euro notes?
Wheelbarrows could be used.
And again, how history rhymes.
No need to print anything. Just automagically add numbers to Greek bank accounts. The perfect reason for a cashless society.
Doesn't anybody listen to Krugman? All they have to do is mint a one trillion euro coin...
In some places they already had their own local currency that can only be spend locally and people are also engaged in barter.
Follwing the John C Dvorak Law of Economics, this means that in Greece "The worse the economy, not only do the hookers get better looking, but they get cheaper."
http://www.urbandictionary.com/define.php?term=Dvorak%27s+law
I checked 18 20 euro notes last week spit out by ATMs, they were all "Y" serial.
I think Greece could work with the EURO supplies from ECB provided it nationalizes its private banking sector and makes the banks subsidiaries of the National Bank of Greece in which case I assume the ECB is obliged to provide the needed liquidity in EURO bank notes.
If Greece starts printing, ECB will change the 10€ banknote design in a New York minute and before that take the old one out of circulation. So any left will be forgeries. The Greek people will get to know that soon enough so " the Greek Euros" will be nothing but a Monopoly Money, and thus worthless. Don't you think they are so stupid not to be prepared for an occasion like this? So these proposals are nothing but moronic.
How about some actual help for the people of Greece.
Some are starving.
The Indiegogo fund.
Via Paypal.
Please take a look and pass it along.
https://www.indiegogo.com/greek-bailout-fund.html
waste of time....you would be better served sending food parcels than sending Euros - if you really want to help
New Goldman Sachs Vice Chair Varoufoukuckedus reportedly was seen entering 200 west Street via a Helicopter drop into the east river