Tuesday, June 5, 2012

"If Europe Went Back to Its Old Currencies…"

From the WSJ's The Euro Crisis blog:
A drachma coin is seen on display.
If, over the weekend, euro-zone countries reverted to their national currencies, how would they move relative to each other?

We’ll assume they swap one for one. In other words one new old currency for one euro.
So what happens now?

Well, it’s a pretty simple assumption that the Deutschmark would appreciate while the drachma would drop like a stone. But by how much?

One rough and ready proxy could be the euro-zone central banks’ Target2 balances. Target2 balances are how national central banks within the single currency reconcile cross-border commercial banking payments....MORE