Dual Currency System as a Solution to the Eurozone Crisis

 

Abstract

The paper discusses the role of a dual currency system as a solution to problems experienced by some eurozone countries, especially Greece. The dual currency system as suggested by the author would consist of the euro and a reintroduced national currency, referred to as the “new drachma”. The concept originates from an analysis of the roots of the present crisis, which include a severe loss of international competitiveness by countries hardest hit by the crisis. The analysis leads to the conclusion that devaluation (as opposed to “internal devaluation”) may be crucial to dealing with the problems at hand. Devaluation is impossible without a national currency and – as far as the literature claims – without a redenomination of assets and liabilities, the author says. However, reintroducing a national currency combined with redenomination would produce many legal, political and economic problems, Koronowski says. He investigates these problems and concludes that an exit from the Economic and Monetary Union (EMU) would have disastrous consequences for the European Union. Meanwhile, a model based on reintroducing a national currency without leaving the EMU would make it possible to minimize, if not completely avoid, these problems, the author says. The article offers an outline of such a model.

via Dual Currency System as a Solution to the Eurozone Crisis.

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One thought on “Dual Currency System as a Solution to the Eurozone Crisis

  1. hadmoetenzeggen

    Would a secondary currency for the entire euro zone, issued by a central bank that follows a monetary policy that supports weaker economies, also be – theoretically – a possibility?

    Reply

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