Hold some cash in case of euro breakup

One other option of course that is not mentioned is having a stash of cash in the safe.
That is not a viable option with Euro. What if the Euro collapses completely? Your bank notes will become worthless.
Hi Swyper

Like PolkaDot , I just can't see any reason for doing this, so I did not include it as an option worth considering.

It only protects against a bank going bust. I think that the loss of interest and the security risk comfortably outweigh this.

If there is an argument to be made for it, you might start a new thread and I will link to it from here, so as to keep this thread in overview mode.
 

Swyper

Frequent Poster
That is not a viable option with Euro. What if the Euro collapses completely? Your bank notes will become worthless.
That is true. But if the euro doesn't *completely* collapse then it is a hedge against a breakup of certain peripheral countries leaving and devaluing.

In the event that euro notes cease overnight to become legal tender then you should probably be more worried about the looters than the purchasing power of your cash.

Personally, I think holding cash is part of a sensible strategy. If Ireland leaves the euro, you can be sure that it will be hard to access your bank account for a while. It would be foolhardy in the extreme to hold your entire life savings in a safe.
 
Are we not one of the leading candidates for leaving and devaluing?

So do we check our notes and hold on to the German ones and get rid of the Greek and Irish ones?
 
Z

z107

Guest
I believe that this is a sensible option. Maybe not hold your entire savings in cash, but at least some of it.

Two reasons I can see:
1. As mentioned, a bank collapse. Well the banks have already collapsed so it doesn't take a huge leap of the imagination for the rug to be pulled and depositors lose out. Certainly wouldn't be the first time this has happened!

2. It's harder for the government to help themselves to your savings. Look what they did to pensions earlier in this year. Deposit accounts could easily be next.
 

Swyper

Frequent Poster
Are we not one of the leading candidates for leaving and devaluing?

So do we check our notes and hold on to the German ones and get rid of the Greek and Irish ones?
If there was some process put in place to revoke the legal tender of notes based on their serial number, then the idea of a common currency would be dead for good. There is good faith there right now that a German note can be spent in Italy and vice versa. If they started doing this (i.e. revoking legal tender for some notes), then there is going to be a de facto market scenario created with a non-1:1 FX rate on euro notes even in the countries which are left in the Eurozone. No German retailer is going to accept anything other than German notes due to the risk that the authorities would do the same to French notes etc. So, if the central European powers want to keep any kind of monetary union they would have to honour the legal tender of Irish and Greek euro notes, even post-exit.

Again, I think this scenario comes under the "worry more about the looters" situation. And rather than worry about the value of your cash, you should be more worried about the best before date on your stocks of tinned spam, and whether your gunpowder is dry. Not *there's* another hedge!
 

horusd

Frequent Poster
I think the cash option would only apply in a case of catastrophic collapse, which is highly unlikely. If certain countries decouple from the Euro it is likely this will be done over time for all sorts of very practical reasons from parking metres to money printing. I assume it would be something like a fixed rate of exchange, a deadline date and a gradual replacement of the Euro. These would be necc. to prevent panic, but how any gov't would prevent capital flight to other zone countries is beyond me. The difficulties this would all create means there isn't an easy non-catastrophic option other than to hold the Euro together.
 
Z

z107

Guest
I think the cash option would only apply in a case of catastrophic collapse, which is highly unlikely.
Why do you think this would be highly unlikely? All we seem to be hearing about recently is the impending collapse of the Euro.
Looking at the astronomical figures involved and the steps made so far to shore up the Euro, I would say its collapse would be at least 50/50.
 

Swyper

Frequent Poster
I think the cash option would only apply in a case of catastrophic collapse, which is highly unlikely. If certain countries decouple from the Euro it is likely this will be done over time for all sorts of very practical reasons from parking metres to money printing. I assume it would be something like a fixed rate of exchange, a deadline date and a gradual replacement of the Euro. These would be necc. to prevent panic, but how any gov't would prevent capital flight to other zone countries is beyond me. The difficulties this would all create means there isn't an easy non-catastrophic option other than to hold the Euro together.
How can you have a "fixed rate of exchange" that nobody would believe in? We would quickly see a black market rate of exchange as sellers look for much more in punts than they would accept in euros. Everyone would know the devaluation was on the way and so would not accept punts at the "official" rate. This is different to the way we entered the euro, where people had confidence in the new currency.

The only way to get around people's reluctance to convert to a pre-devalued punt would be to forcibly convert money. That's easy to do with bank accounts. It's much more difficult to do with cash, which is why I suggest holding a limited amount of cash is a good idea. During the "few weeks" you talk about above, you can expect banks to be closed, cash machines to be out of operation and a general unavailability of hard currency. It would have to be accompanied by capital controls.

The euro is a train heading to a brick wall. The train can go left or right to avoid the wall, but there are 17 drivers and they can't agree which track to take. In the meantime, it's straight ahead.

I think the mutually-assured-destruction scenario means that we will get a combination of ECB backstopping, eurobonds, significant debt write-off for at least Greece, and intrusive budgetary oversight. I think those in power know that this is where we will end up, but they all need to posture for their own electorates.
 

capilano

Registered User
I think the mutually-assured-destruction scenario means that we will get a combination of ECB backstopping, eurobonds, significant debt write-off for at least Greece, and intrusive budgetary oversight. I think those in power know that this is where we will end up, but they all need to posture for their own electorates.
SWYPER,


If we get the above, would that not mean that the euro would continue as a currency for all but would devalue against other currencies?
 
I think the cash option would only apply in a case of catastrophic collapse, which is highly unlikely. If certain countries decouple from the Euro it is likely this will be done over time for all sorts of very practical reasons from parking metres to money printing. I assume it would be something like a fixed rate of exchange, a deadline date and a gradual replacement of the Euro. These would be necc. to prevent panic, but how any gov't would prevent capital flight to other zone countries is beyond me. The difficulties this would all create means there isn't an easy non-catastrophic option other than to hold the Euro together.
Good post.

We are back to barter if there any attempt to suddenly break to EUR up in a snap.

There has 10 years of planning that went into the conversion from IRP to EUR. There will need to be planning and time frames around the conversion from EUR to the new European currencies.

That been said, contingency planning by individuals who want to protect their deposits against the conversion to the new currency makes sense.
 

horusd

Frequent Poster
Swyper, the thrust of my post was that its next to impossible for an orderly decoupling from the Euro.The idea of a fixed exchange rate has occurred before, but you are right, it would entail serious problems, not least the one's you mention. However, most money is held electronically in the form of debt, particularly Govt. debt, or other electronic means, so setting a fixed exchange rate is not theoretically impossible.

And there may be advantages to this decoupling, a debt transferred in punt nua would also immediately devalue, assuming 1:1 transfer, inflation would rise, exports would rise, imports would fall. Despite this I still think its impossible - some British tycoon is offering big bucks for someone to come up with a way of leaving the Euro. I think he will be holding onto his money.
 

Swyper

Frequent Poster
If we get the above, would that not mean that the euro would continue as a currency for all but would devalue against other currencies?
In theory, yes, but the reality is a lot more complex. The US is likely to have to engage in a bit more QE, the Chinese are adept at manipulating their currency, etc. The injection of confidence when European leaders finally sort this thing out may well relieve the current downward pressure on the Euro by repairing demand for Euro assets. Anyone who thinks they can predict how that will turn out is very foolish.
 

Swyper

Frequent Poster
Swyper, the thrust of my post was that its next to impossible for an orderly decoupling from the Euro.
No disagreement there. That doesn't mean that break-up is impossible or that even a partial break-up is impossible. To get this back on thread, in the event of a break-up where one or more countries continue with Euro as legal tender, having a small reserve of Euro cash makes sense. In the case of abandonment of legal tender, all bets are off. Shart shooting looters.

The idea of a fixed exchange rate has occurred before, but you are right, it would entail serious problems, not least the one's you mention. However, most money is held electronically in the form of debt, particularly Govt. debt, or other electronic means, so setting a fixed exchange rate is not theoretically impossible.
Exactly. So holding some wealth which is not electronic makes sense, as it is difficult for governments to forcibly convert it at a false rate at a point in time.

And there may be advantages to this decoupling, a debt transferred in punt nua would also immediately devalue, assuming 1:1 transfer, inflation would rise, exports would rise, imports would fall. Despite this I still think its impossible - some British tycoon is offering big bucks for someone to come up with a way of leaving the Euro. I think he will be holding onto his money.
We, in Ireland, have a very good option here - though one that would make the armchair patriots choke on their Lucky Charms. If we wanted to leave, all we would need to do is make Sterling legal tender along with Euro. Because sterling is an existing, trusted currency (unlike punt nua), it would not instantly devalue. But I suspect that is a topic for a different thread.
 
I have included a link to this post in the Key Post on the topic.

Is the following text a reasonable summary?

Hold some actual euro notes
This is discussed in more detail in this thread.

The reasoning is:
If Ireland leaves the euro, deposits in Irish banks will be converted to punt nuas which will be worth less than the euros.
It will not be possible to convert actual notes to punt nuas at some devalued exchange rate.
So any euro notes you have will retain their value.

Cons
The security risk of keeping euro notes in your home, even if you have a safe.
The lack of interest on notes.
 

Pope John 11

Frequent Poster
I have included a link to this post in the Key Post on the topic.

Is the following text a reasonable summary?
Cons
Your stashed euro in the safe, under the mattress or in the USA biscuit tin hidden underneath the floor boards becomes worthless in the event of a euro breakup.
 

Gervan

Frequent Poster
Your stashed euro in the safe, under the mattress or in the USA biscuit tin hidden underneath the floor boards becomes worthless in the event of a euro breakup.
This surely can't be true. All the current euro countries would be changing their euro into their new/old currency, so surely we could just pick which currency we wanted our stashed euro to become.
 
OK, I have added the following line.

If the euro completely collapses, then your notes will be worthless. However, so would any deposits in a German bank.
The heading of the original post is "Protecting against a collapse in the Euro". Maybe it needs to be changed to something else?

brendan
 
We, in Ireland, have a very good option here - though one that would make the armchair patriots choke on their Lucky Charms. If we wanted to leave, all we would need to do is make Sterling legal tender along with Euro. Because sterling is an existing, trusted currency (unlike punt nua), it would not instantly devalue.
+1. A conversion to GBP would make most short term sense and cause the least panic. Perhaps, this is in Noonans' contingency plan.
 
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