Printing money: How to create a currency
- 13 July 2012
- From the section Business
European officials may not like it, but the prospect of Greece leaving the euro is still a serious possibility.
June's election handed a narrow election victory to the pro-bailout New Democracy party, preserving the deal that guarantees the country access to vital eurozone funds.
But fears that Greece can stick to the exacting conditions of that deal remain.
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.
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.
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.
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.
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.
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.
"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.
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.
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.
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.
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.
"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
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.
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.
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 notes would have to be distributed to banks and a launch date set.
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.
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.
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."