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| Version 1 | Version 2 |
|---|---|
| Printing money: How to create a currency | Printing money: How to create a currency |
| (3 days later) | |
| By Ben Morris Business reporter, BBC News | By Ben Morris Business reporter, BBC News |
| European officials may not like it, but the prospect of Greece leaving the euro is still a serious possibility. | |
| On Sunday, Greek voters handed a narrow election victory to the pro-bailout New Democracy party, preserving the deal that guarantees the country access to vital euorozone funds. | |
| But investors' jubilation was short-lived, as market gloom soon set in once again, pushing share prices down and bond yields up. | |
| If the European Union and IMF-backed reform programme falters in future, then Greece might still have to look for a new currency. | |
| It would not be a simple case of resurrecting Greece's old currency, the drachma. | It would not be a simple case of resurrecting Greece's old currency, the drachma. |
| Changing currency is a complicated process that would take at least six months and probably much longer. | Changing currency is a complicated process that would take at least six months and probably much longer. |
| Over the last 20 years at the International Monetary Fund, Warren Coats has advised numerous countries on how to create currencies. | |
| His clients have included nations that emerged from the Soviet Union including Kyrgyzstan and Kazakhstan. | His clients have included nations that emerged from the Soviet Union including Kyrgyzstan and Kazakhstan. |
| Mr Coats has also helped Iraq and Afghanistan and, most recently, Southern Sudan to launch new money. | Mr Coats has also helped Iraq and Afghanistan and, most recently, Southern Sudan to launch new money. |
| He says there are three phases to the process. | He says there are three phases to the process. |
Currency design and production | Currency design and production |
| "Deciding what and who appears on a nation's currency might sound trivial, but it is highly political," said Mr Coats. | "Deciding what and who appears on a nation's currency might sound trivial, but it is highly political," said Mr Coats. |
| Bosnia-Hercegovina is a good example of how difficult the situation can be. | Bosnia-Hercegovina is a good example of how difficult the situation can be. |
| In the late 1990s after a bloody war for independence, the nation had to form a new currency. | In the late 1990s after a bloody war for independence, the nation had to form a new currency. |
| But the three groups that make up the population, Bosniaks, Croats and Serbs, could not agree on who to put on the notes - even when the choice was limited to literary and artistic figures. | But the three groups that make up the population, Bosniaks, Croats and Serbs, could not agree on who to put on the notes - even when the choice was limited to literary and artistic figures. |
| "Usually two would agree, one would disagree," said Mr Coats. | "Usually two would agree, one would disagree," said Mr Coats. |
| "This went on for many months. And in the end, there was never an agreement," he said. | "This went on for many months. And in the end, there was never an agreement," he said. |
| The head of the central bank, Peter Nicholl, who was a New Zealander appointed by the IMF, decided what went on the currency. | The head of the central bank, Peter Nicholl, who was a New Zealander appointed by the IMF, decided what went on the currency. |
| In Greece's case, the situation is much less fraught. It can draw on the images and figureheads used on its previous currency, the drachma. | In Greece's case, the situation is much less fraught. It can draw on the images and figureheads used on its previous currency, the drachma. |
| It may, though, have to decide on how many denominations of note there will be and what they will be worth. | It may, though, have to decide on how many denominations of note there will be and what they will be worth. |
| There is a useful rule of thumb to help with that. | There is a useful rule of thumb to help with that. |
| Experts say the largest coin should be worth about 2% of the average day's wage and the smallest note should be worth 5% of the average day's wage. | Experts say the largest coin should be worth about 2% of the average day's wage and the smallest note should be worth 5% of the average day's wage. |
| Once those details are sorted out, the notes will have to be printed, which is usually done by a specialist printing firm. | Once those details are sorted out, the notes will have to be printed, which is usually done by a specialist printing firm. |
| It is estimated that for a country the size of Greece, that would cost $50m-$60m. | It is estimated that for a country the size of Greece, that would cost $50m-$60m. |
| There are not many firms that can handle a contract of that size and if they are busy, then Greece might have to wait for its new currency. | There are not many firms that can handle a contract of that size and if they are busy, then Greece might have to wait for its new currency. |
| Analysts say there is no chance of a new currency before the end of this year. | Analysts say there is no chance of a new currency before the end of this year. |
| "If this was a serious consideration for 2012, the presses would have to be running already. And there are no credible rumours that that is happening," said Paul Jones an analyst at Panmure Capital. | "If this was a serious consideration for 2012, the presses would have to be running already. And there are no credible rumours that that is happening," said Paul Jones an analyst at Panmure Capital. |
Preparing rules for exchange | Preparing rules for exchange |
| Getting the new currency printed is just the start of the process. | Getting the new currency printed is just the start of the process. |
| Greek officials would then have to work out how to get that new currency into the system. | Greek officials would then have to work out how to get that new currency into the system. |
| The problem for Greece is that the population is unlikely to want to exchange their euros for the new currency. | The problem for Greece is that the population is unlikely to want to exchange their euros for the new currency. |
| Rules may have to be put in place to prevent large amounts of euros leaving the country. | Rules may have to be put in place to prevent large amounts of euros leaving the country. |
| There would have to be an information campaign to make sure the population understood how the process would work. | There would have to be an information campaign to make sure the population understood how the process would work. |
| The question of timing also has to be addressed at this stage. Ideally, banks and other businesses would need enough time to adapt their systems. | The question of timing also has to be addressed at this stage. Ideally, banks and other businesses would need enough time to adapt their systems. |
| The notes would have to be distributed to banks and a launch date set. | The notes would have to be distributed to banks and a launch date set. |
Legal issues | Legal issues |
| Notes and coins are just pieces of paper and bits of metal until they have the status of legal tender. | Notes and coins are just pieces of paper and bits of metal until they have the status of legal tender. |
| That requires laws which define and control the use of a currency. | That requires laws which define and control the use of a currency. |
| When swapping a currency, these have to be adapted and laws will have to be approved in parliament. | When swapping a currency, these have to be adapted and laws will have to be approved in parliament. |
| Business will have to look closely at the new legislation to see if contracts priced in the old currency are still valid or need renegotiation. | Business will have to look closely at the new legislation to see if contracts priced in the old currency are still valid or need renegotiation. |
| So should Greece embark on such a lengthy and expensive process? | So should Greece embark on such a lengthy and expensive process? |
| Mr Coats has this final thought: "The majority of Greeks want to keep the euro because they don't trust their government and central bank to do better with a new currency of their own than they did with the old one." | Mr Coats has this final thought: "The majority of Greeks want to keep the euro because they don't trust their government and central bank to do better with a new currency of their own than they did with the old one." |