Europe

Greek debt crisis: How easy is it to swap currencies?

A graphic imagining how Greece could create a new currency

The euro was meant to cast the Greek drachma into the book of obsolete currencies, a note somewhere between the Rhodesian dollar and the brass dupondius coins used in ancient Rome.

Yet as the Greek government battles to satisfy its creditors, and avoid exiting the single currency, its citizens face the very real possibility that the drachma - or an alternative - could return.

While there have been high-profile cases of countries switching currencies, in many ways Greece's situation is unique. Here are some things Athens has to consider.

Secrecy is everything

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Image caption The drachma and euro - will it be out with the new, in with the old in Greece?

We do not know what plans, if any, Greece has to replace the euro. But nor would we expect to.

A mere hint from any government that the money in their citizen's pockets will soon become worthless would send people rushing to the banks.

If the Syriza-led government is preparing an alternative currency, such plans will have been worked out in secret. This might involve a foreign firm creating the new notes.

A precedent is post-war Germany. In 1948, confidence in the currency had collapsed.

The allies, keen to restore economic stability, printed billions of Deutsche marks, as the new currency was called, and in a matter of days distributed it around the country. It was quickly accepted.

Whether Greece has the capacity for such a dramatic move is unclear, but the German case shows how decisive action can work.

Cash flows must be halted

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Image caption Greece already has capital controls in place - which can be a precursor to a new currency

Another example of a successful currency switch came in 1993 after Czechoslovakia spilt.

A currency union between the new Czech and Slovak nations lasted just 38 days, when it became clear the faltering Slovakian economy could not keep pace with its neighbour.

As in Germany, notes were printed in secret and distributed around the country with the help of the army.

But also important were the capital controls and bans on cross-border transfers, which kept money in state banks and prevented speculative flows between the two nations.

Greece already has capital controls, and its banks are closed, so in theory it has a head start, were it to introduce a new currency.

Plan the transition

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Image caption After the "Velvet Revolution" of 1989, Czechoslovakia had an amicable "Velvet Divorce", including a currency split

So you have printed wads of new notes and have your bank system on a tight leash. You now need to find a way to introduce the new currency, and phase out the old.

This is where it gets tricky. It took years of planning and careful transition to introduce the euro, yet Greece would have to bring a new currency in days.

Greece might run its new money side-by-side with the old, meaning shops for a period would accept both.

Citizens could only be allowed to swap a set amount of euros for cash, and be forced to deposit the rest, as the Czechs and Slovaks were compelled too.

The government would have to decide on an exchange rate to convert balances into the new currency. But would foreign buyers of Greek goods want to be paid in drachma?

IOUs are an alternative

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Image caption California was hard hit by the financial crisis and paid contractors with IOUs

In an interview with Britain's the Daily Telegraph, former Greek finance minister Yanis Varoufakis suggested his country could issue "California-style IOUs" as a way of introducing liquidity into a system thirsty for cash.

He was referring to California in 2009, when the US state, reeling from the financial crisis and unable to meet its bills, gave IOUs to contractors in lieu of payments.

This is not as outlandish as it sounds - the European Central Bank reportedly examined a scenario where the Greek state paid civil servants in IOUs.

The move would buy Greece time, and could ease the way to a formal new currency.

But unless such notes can easily be exchanged for goods, this would not help ordinary Greeks such as pensioners who rely on cash.

Or stick with the old currency

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Image caption Greece already has the capacity to make euros

Greece already has the means to print more euros at its press in Holargos, a suburb of Athens, which once pumped out drachma.

Developing new banknotes is expensive, and difficult - the notes must be secure and be able to be recognised by cash machines - so such a scenario has appeal.

But this would not be the euro, but rather a "euro" - a parallel Greek version of the currency that is likely to devalue rapidly.

Greece could also look to its Balkan neighbours Kosovo and Montenegro if it fails to reach a deal. Despite the objections of the European authorities, both have unilaterally adopted the euro.

Such a move would give Greece a stable, internationally-recognised currency - but one in which they had no say.

It could be a success

Image caption Estonia has seen economic success since leaving the rouble

Slovakia's economy may have been struggling when it abandoned its currency union with the Czech Republic, but it bounced back and later qualified for eurozone membership.

Estonia was the first to leave the Soviet rouble. Although the new currency was unstable at first, its adoption helped the country towards a successful free-market economy.

And having your own currency is not just a financial decision, but a point of national pride.

South Sudan introduced a new currency after it split from the north four years ago. Inflation has been a problem ever since, but for many in South Sudan it was an important way of asserting their new sovereignty.

Long-term damage

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Image caption The East German economy still lags behind the west

East Germany is arguably still paying the price for adopting the Deutsche mark after reunification.

East Germans were able to exchange their eastern marks one to one - great for individuals, but industry was unable to compete with the advanced West German economy.

Introducing a new currency is possible - former Czech Republic President Vaclav Klaus called it "a simple administrative thing to do" but its success depends on more than technical considerations.

Anything can be used as money, so long as there is confidence in it - it seems bizarre to think that Chinese traders once used cowrie shells, but imagine what they would make of Bitcoins.

A Greek break with the euro is unlikely to be clean, as its former currency will remain in circulation. It is unclear how readily a Greek society already divided over the euro would take to something new.