The Central Bank and printing the Punt Nua

And once again the rumor goes around that “ they are printing punts in the mint”.   this rumor is usually sourced by somebody who met somebody in a pub whose sister knows somebody that they met in the hairdresser  who has a   friend going out with a guy whose uncle works for the mint.

It is almost certainly complete Tosh. There are several reasons why I don’t believe this is happening.

Firstly, the idea that any branch of the Irish government could carry out a massive, clandestinely, secret commercially sensitive operation would seem to fly in the face of all that we have learned over the last three years.  That’s not to say they couldn’t do it, it’s just that in this country I suspect that something more than “duirt bean liom gur duirt bean lei” would emerge.

Secondly, it would be pointless.  There is ample evidence about how currency unions break up. In fact we’ve some experience of it what is now the European Union, when the Czech and Slovak republics parted terms in the early 90s. We’ve also seen how the breakup of the ruble zone happened, and there are break-ups of currency zones such as the breakup of the Austro-Hungarian currency union after World War I and go back further in time.  While none of these took place in quite the same globalized capital system that we have now to parameters are constant. Firstly you don’t need to print new currency. All you need to do is actually provide a mechanism whereby the banking, or post office, system rubberstamps the existing currency. This gives time for the currency producers to get the printing presses up and running. Anyhow, the main bottleneck in modern note production isn’t the presses or plates – it’s the paper stock.

Secondly you have to institute massive capital controls. You need physical controls to stop people taking money offshore (or to newry…good luck with sealing the border, that worked so well before)… You need to stop money flowing electronically offshore.  This is where it gets tricky in the Irish context.  The objective, I presume,  in leaving the euro would be to try and gain some degree of competitive (beggar thy neighbor?) devaluation. A quick glance at the Central bank of Ireland statistics size tells us that the problem is not about the currency printed on paper, it’s about the currency printed on electrons. As of July 2011 there were, very approximately,  €12 billion outstanding in euro notes and coins issued from the central bank of Ireland. Now, that is not by any means the whole of the currency outstanding in Ireland.  A quick look in ones pockets will show currency from various parts of the Eurozone. One can tell the origin of currencies from this table. However, it pales into insignificance against the amount on deposit, overnight (81b) or otherwise (78b). It is this electronic money that is the issue. Stopping that flowing offshore at the first hint of a real threat will require unplugging the country from the net while they are redenominated. And again, if we can get streaming video from inside Iran or Syria, how easy is that going to be?

Third, there is a minor problem of a law, the European Monetary Union Act 1998, section 6 of which says the Euro is our currency. So, that would have to be amended.

Printing punts is fine, if one wants to do that, but that will not redenominate the electronic money. And, the reality is that at the first whiff of a move from the euro to the NoonyMoney this money would flee. What company or person in their right mind would take the chance of a 20-40% fall in value? A bank run ofgargantuan proportions would ensure. And then there would, truly, be no money in the ATM’s beyond the few tens of billions that have been restamped.So, no,they aren’t printing punts.  It may be that we are driven out of the euro by a combination of events, but we cantreally leave ourselves. For more on the technical issues, see this paper by Barry Eichengreen.

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2 thoughts on “The Central Bank and printing the Punt Nua

  1. Pingback: Is Ireland printing punts? - Page 12

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