Leading economists in my country (Sweden) recommend and predict that (in the case of default) the Greek government will destroy all the euro bills in the country. Making holes in them and stamp them to become drachmer which are maybe 80% or 90% less valuable than they were. There seems to be about €80 billion (M0) in euro bills in Greece, about a third of one year's GDP.

What would the upside be with destroying this fortune? Wouldn't it be better to for example use those €80 bn to pay the debts? Do any prominent non-Swedish speaking economists give the same advice?

In Sweden former heads of the central bank, the highest government officials, economists at several financial firms and the publicly profiled academic economists (including professors in the committee which chooses so called Nobel prize winners in economics) all talk about destroying the cash euros as if it was some kind of solution. Have they all gone raving mad, or what am i missing? How could it even be done? How force people to destroy their own cash? And I think they have to cut away more than 1/3 of the bill to maculate it, or else they can be exchanged for new euro bills.

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    $\begingroup$ This question could be improved by providing a link to this proposal. $\endgroup$ – BKay Jun 30 '15 at 9:25
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    $\begingroup$ I don't find any in English, I don't really know what terms to search for. Some search results in Swedish:. $\endgroup$ – LocalFluff Jun 30 '15 at 10:03
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    $\begingroup$ I don't know what words to use, I'm literally speechless when I keep hearing about what obviously would be a catastrophic disaster in an already difficult situation. It's like suggesting that the solution is to sink all Greek ships. I don't think that even Krugman has suggested that, yet. $\endgroup$ – LocalFluff Jun 30 '15 at 10:37
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    $\begingroup$ Im giving you a -1 for the comment on Krugman - I have a hard time to see how it fits into a objective question / comment. $\endgroup$ – Thorst Jun 30 '15 at 10:54
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    $\begingroup$ @LocalFluff Please, do not run under the prior that other people are less intelligent than you are. If some people - even leading experts, as you call them - suggest some measures in a field you're not an expert in, start with the prior These are smart people, there must be a good reason why they suggest it, and not How can these guys be so stupid, it hurts my brain! Or is there any chance they may be right?. $\endgroup$ – FooBar Jul 3 '15 at 10:09

Using Google translate I have read some of the articles you referred. It seems to me that the problem the Swedish economists are talking about is that Greece will need its own currency (this is debatable). However it takes a long time to get currency in sufficient amounts.

Before the 2003 invasion of Iraq, citizens in many parts of the country began to ditch their own currency, believing that it would soon be worthless as all notes carried a depiction of Saddam Hussein, the country’s president. De La Rue, the world’s largest printer of banknotes, began work on new cash. “In the case of Iraq, the issues may not have been dramatically different from any other currency change; but the timescale was,” the company said. “Working out the details … is all very well when you have a year or two to think about it. Make that a month or two, and things start to get interesting.”


Hence the recommendation is to use what they have at hand: euro bills. But if their euros would be the same as other euros, then the exchange rate between a Greek euro and a 'normal' euro could not go over 1, because you could always take a Greek euro abroad and use it there. So if the government wants the exchange rate to change (this would increase competitiveness and this is the biggest advantage Greece could get out of a new currency) they will have to modify the existing euros they have. For example they can stamp holes in them. You can read about such speculation in more detail

During a “euro pause” the Greek Central Bank is granted a three-year licence by the European Central Bank to create euros that are non-exchangeable for other euros. The euros in Greek ATM machines have “GT” (Greek Transactions) stamped prominently on them. In Greece, these euros circulate normally but a Greek individual planning a transaction outside Greece will need to convert their GT euros to non-GT euros at a market rate.


It is debatable whether having a national currency two months ahead of time is worth the cost of 80 billion euros. However it might also be that the ECB will demand 80 billion euros from Greece if it leaves the Eurozone. (I am not sure whose property the cash allocated to Greece is.) In this case, stamping the euros may satisfy the ECB and give Greece their temporary currency.

  • $\begingroup$ "the exchange rate between a Greek euro and a 'normal' euro could not go over 1, because you could always take a Greek euro abroad and use it there." not really, that's what capital controls are for. $\endgroup$ – FooBar Jul 3 '15 at 8:30
  • $\begingroup$ @FooBar I don't understand your comment. This line of thought is about cash, so banknotes and coins. Do capital controls apply to those? Even if they do I don't think you could stop people from smuggling money out if the exchange rate was say 2 to 1. If you mean limiting the amount of money you can get from the ATM, at some exchange rate no one is going to spend any of that money in Greece, but instead they will spend it abroad. So the cash would slowly drain out of the country. $\endgroup$ – Giskard Jul 3 '15 at 9:02
  • $\begingroup$ Yes. You can be prevented from moving cash out of the country. $\endgroup$ – FooBar Jul 3 '15 at 10:05
  • $\begingroup$ @Foobar As I stated before I think this would be very hard to enforce if the exchange rate was 2 to 1. The gains are so big that smuggling would be extremely lucrative. $\endgroup$ – Giskard Jul 3 '15 at 12:13

In case you abandon the Euro you need a new currency quickly. You can't just order money to be printed by one of the usual suspects, because that will take time and it most likely will leak out. And leaking out that you're printing a new currency is quite detrimental.

So in essence, yes, it will be destruction of value, as the new currency/Drachme will have an exchange rate lower than 1, but it is the cheapest way of transitioning to a new currency.

Whether it is legal or not, I cannot judge. However, it is likely that the ECB would permit such measure.

See also my answer here, which elaborates on this idea [leaving/breaking up the currency union] in more detail.

Also, I'm not sure whether this is as expensive as it sounds. I suspect that cash in circulation / hands of people make up a small fraction of the Greek GDP. As @EnergyNumbers comments, this may actually have zero cost:

It would not be a destruction of value. Let's say the Greek Central Bank takes in €20bn in notes. ECB verifies it, and credits them €20bn; then the notes are hole-punched

  • $\begingroup$ The idea behind this came from an economist working for one of the largest banks, around 5 years ago. Having this as a source, I'd guess that it appears to be accepted at the banking / central banking establishment to be a standard way to deal with such scenarios (generate a new temporary currency quickly). $\endgroup$ – FooBar Jul 3 '15 at 8:51
  • $\begingroup$ @EnergyNumbers Sure, I didn't think of that timing. Even better. $\endgroup$ – FooBar Jul 3 '15 at 10:06
  • $\begingroup$ @EnergyNumbers, Yes €20bn seems more correct for the paper bills, €80bn is M1, which I suppose is similarly affected if capital flow regulations limits the use of M1 account money to piecemeal cash withdrawals. The people who gets their cash destroyed suffer. Those special interests which get €20bn credit from foreigners, profit. That tremendous and sudden redistribution of all money in the country, would obviously cause total chaos for all prices and for all economic planning. The small elite which gets the €20bn credit have all incentives to invest all of it outside of Greece. $\endgroup$ – LocalFluff Jul 3 '15 at 12:15

Having read the machine translations of the news articles, it seems to me that there is a misunderstanding about what is being proposed.

The proposal is not to destroy value. The proposal is to introduce notes for a new currency, very quickly, in a way that does not involve destroying value.

The cash economy needs tokens of exchange: notes and coins. A new currency normally has months or even years of preparation, to do the design, testing and massive-scale printing.

A New Drachma simply wouldn't have that time to come into existence. So, the problem to solve is: how to get a sufficient number of currency notes into circulation to keep the Greek cash economy moving? Greece already has lots of Euro notes, but a New Drachma would be a different currency with a floating (and in this case rapidly dropping) exchange rate.

So the proposal is to use existing notes, but to transform them with an irreversible process into New Drachma. This would be undertaken by the State. Every time a Euro note comes into a bank, the bank would get a digital Euro credit in exchange for the physical note. The note then gets transformed into a New Drachma note, and returned to circulation. The ECB gives a digital Euro credit to the Greek government for the total value of the notes so transformed.

Remember, physical currency has no intrinsic value: that's part of the reason it's so useful and so effective.

Let's break the process up into stages:

  1. Greeks deposit notes and coins with the bank, and in exchange gain a credit to their bank account to the same value in Euro. Has anyone lost value? No.
  2. Greek banks deposit the physical currency with the Greek Central Bank, and in exchange gain a credit to their account with the Greek Central Bank, to the same value in Euro. Has anyone lost value? No.
  3. The Greek Central Bank punches holes in all the notes, and in exchange gain a credit to their account at the European Central Bank, to the same value in Euro. Has anyone lost value? No.
  4. The Greek Central Bank now switches to the New Drachma, and reintroduces the New Drachma notes (Euro notes with holes in them) back into circulation. Has anyone lost value? No.

Only after the New Drachma becomes a floating currency against the Euro does anyone lose money. That will be caused by rapid devaluation of the New Drachma against the Euro, and it will affect the millions of Greeks who weren't rich enough to be able to move a large proportion of their assets abroad in the last few months. And if the ECB and Northern European states insist on keeping Greek national debt in Euro, rather than converting it to New Drachma, then you can expect catastrophe, as Germany puts Greece into the very situation that Germany itself was in, in the 1920s, 1930s. But punching holes in notes in order to give the New Drachma some physical currency quickly? No, there's no value lost, and it's not a catastrophe.

  • $\begingroup$ "Intrinsic" or not, euro paper bills do have value. I still fail to see how it would be a good idea for the Greek people to destroy this huge treasure. Why maculate the euro bills? Greece has lots of tourists, why not maculate the dollar bills instead? Or old newspapers or something. Why do the leading economists recommend the destruction of their wealth? And why don't people object to this disastrous proposal, are they blinded by stupid "authority"? Don't they see the emperor's new clothes (or rather, do they see them)? $\endgroup$ – LocalFluff Jul 5 '15 at 10:49
  • $\begingroup$ It's not a huge treasure, it's just a bit of paper with printing on it. The value is a convention assigned to it by society and the central bank. Those groups can choose to accept the value, and can choose to withdraw it. If €20bn in notes is withdrawn from circulation, and the ECB credits Greece with €20bn, no one is worse off. Notes get destroyed all the time - it's just part of the housekeeping of managing physical currency that central banks undertake: that's why we're not using ragged falling-apart notes that were printed decades ago. $\endgroup$ – 410 gone Jul 5 '15 at 10:59
  • $\begingroup$ @LocalFluff I've added an edit to the answer to try to explain why there is no loss of value. $\endgroup$ – 410 gone Jul 5 '15 at 11:08
  • $\begingroup$ I think we are talking past each other. The individual who "stamps" his euro bill to a drachmer indeed loses wealth. Agreed? Your arguments are maybe on an abstract collective level. And reality doesn't allow for magical collective policies, reality only exists in the form of individuals. And every individual loses by destroying his cash, so that won't happen. Why don't the leading macroeconomists understand this simple fact? $\endgroup$ – LocalFluff Jul 5 '15 at 11:19
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    $\begingroup$ @LocalFluff No individual will stamp their own euro bill. That would be silly. There's no proposal for that to happen. The currency conversion would be a purely central-bank operation. That's why in my first sentence I say that I think there's been a misunderstanding. I think you have misunderstood what the proposal is. $\endgroup$ – 410 gone Jul 5 '15 at 16:50

Somebody from Germany lends me late tonight 5 euros, while both Germany and Greece have as their official currency the euro. Tomorrow early morning, euro is no longer the official currency of Greece. I still owe the German guy 5 euros. And I still have in my hands a bank note of 5 euros. I can give it back to him, no problem. Euro is still legal tender for him, while it has become foreign currency reserve for me.

The fact that I owe the amount, does not change its international legal status: it is a bank note that the legal issuer, the European Central Bank, will accept. So it is a perfectly valid foreign currency reserve, if it is held by somebody whose official currency is not the euro. The fact that euro used to be the official currency of the holder, makes no difference in that respect.

So declaring that the legal and authentic bank note that writes on it "5 euros" should from now on be understood as meaning "5 drachmas", and undergo the corresponding change in purchasing power and/or value-stored, (by the help of a hole, say), while realistically assuming that the exchange rate will be abysmal, is indeed a bona fide destruction of value.

Now the question (and the special aspect of the situation) is "who holds these foreign currency reserves?" In normal situations, the private sector has a rather small amount of foreign currency reserves of a country under its ownership. In the situation that we are discussing, presumably a visible portion of these foreign currency reserves are legally and/or physically in the hands of the private sector (legally, if they are in private bank accounts, physically, if they are in their wallets or mattresses).

Why should the Greek state do anything to try to gain ownership over these foreign currency reserves? Well, for one thing, because the newly introduced drachma will be weak, and the state will think that the state's needs are above individuals' needs, as states always do. So if someone is to suffer, individuals have priority in the suffering. It is better to have foreign currency reserve in order to secure say imports of food, pharmaceuticals, or energy, than leave these foreign currency reserves at the hands of individuals to be used for private consumption needs (or even individual business needs). I am describing here, not assessing, evaluating or judging.

So we should consider as almost certain that the Greek state will think of various ways through which it will attempt to acquire these foreign currency reserves.

As regards bank deposits, the Greek Central bank could (forcibly, by law) buy the reserves in exchange for newly created drachmas. (I didn't say "printed" -we will return to that).
As regards bank notes held outside the banks, the Greek state could
a) Accept euros when the citizens have to pay taxes etc.,
b) declare illegal any physical transfer of euros outside the country (we will return to that and to smuggling),
c) declare illegal any transaction between individuals using euros.

So the only legal way to use your hand-held euros would be to give it to the state or to the banks (which will hand them over to the Greek CB).

Now, it is easy to bring up the issue of smuggling, illegal activities, defying the law etc. But everything is a matter of degree. If the state is serious about enforcing these laws, not much of the amount of euros outside the banks will eventually leave the country. It is also important to take into account the fact that these foreign currency reserves are scattered over the whole population. Coordinating smuggling operations given such dispersion, will be a real issue.

Finally, let's turn to the other very real issue that @FooBar discussed, the amount of time it takes to actually print the new money in sufficient quantities. Again, this is a matter of degree. How much actual paper money is needed, in the modern electronic banking/credit-card/commercial-credit environment? I should also mention that the Greek state has an active money-printing facility, since it has been printing euros all these time (as many eurozone states do).

So it is a matter of sitting down and measuring the time-table to print the new money in the quantities actually needed, assess the damage to economic activity because these new money will become available only gradually (while again, taking into account the ability to transact electronically/paperless-ly), and compare this damage to the damage done by outright destructing euro bank notes/foreign currency reserves, by punching holes in them, and count them as drachmas.

Once more, everything boils down to a cost-benefit analysis. And no - I will not venture any "impression" as to which cost is bigger.


1) I think it is not legal. Coins are produced by single countries; in theory Greece could destroy her own coins, but in Greece you may find not only Greek coins, but also coins from other EU countries, what do you do with this coins?

2) Paper bills are produced by the BCE, which --if I am not wrong-- has the property of these bills. This is the same in most of the countries: central banks have the property of the bills. (this is linked to the previous point, do central banks from single countries have the property of the coins they produce? if yes, can you destroy these coins?)

3) There could be retaliations of some kind. It is an act that would acquire potent meanings, that go beyond the simple material act of destroying coins and bills; Greece would destroy a symbol of the EU, which only a few years ago got the Nobel prize for peace. Sure, the "Euros destruction" would be charged with political negative meanings (e.g., Greeks reckless people enemies of the peace).

In conclusion, this solution is out of the realm of the possible things to do for Greece.

What I think that they advocate is not actually destruction of the euros, but their conversion. People would have to go to banks and convert the euros into drachmas. So, they would not destroy their own cash, but only convert into a new currency, like they did when they converted drachmas into euros some years ago.

But I see that ultimately the question would be similar to your original one. What could single banks do with the collected euros? Can they destroy it or put it back into the foreign market or use it as a currency reserve for trades with countries that still use the euros.

  • $\begingroup$ Replacing the euro bills means collecting them (somehow). But after the government has collected that €80bn, why destroy them by making holes in them? Couldn't gov instead use them to pay off the debt (only €50bn until 2020 I read), or as currency reserve to support their new drachma? Why destroy the bills? Are those suggesting it in the press somehow ill, or is their theory faulty? (One of them is maybe the most prominent Swedish economist, among other honors a member of the committee of ten which chooses the so called Nobel prize winner in economics, and author about European debt crises.) $\endgroup$ – LocalFluff Jul 2 '15 at 17:42
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    $\begingroup$ @Luca while looking for info on property rights of euro bills I have found that paper bills also have a country of origin. This does not invalidate your argument, I just found it interesting. blogs.thisismoney.co.uk/2012/05/… $\endgroup$ – Giskard Jul 2 '15 at 18:49

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