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Dual Currency System as a Solution to the Eurozone Crisis

Author

Listed:
  • Adam Koronowski

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.

Suggested Citation

  • Adam Koronowski, 2014. "Dual Currency System as a Solution to the Eurozone Crisis," Gospodarka Narodowa, Warsaw School of Economics, issue 2, pages 5-23.
  • Handle: RePEc:sgh:gosnar:y:2014:i:2:p:5-23
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    File URL: http://gospodarkanarodowa.sgh.waw.pl/p/gospodarka_narodowa_2014_02_01.pdf
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    References listed on IDEAS

    as
    1. Hans-Werner Sinn, 2012. "Target Losses in Case of a Euro Breakup," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(4), pages 51-58, December.
    2. May Y Khamis, 1996. "Credit and Exchange Rate-Based Stabilization," IMF Working Papers 96/51, International Monetary Fund.
    3. Kiguel, Miguel A & Liviatan, Nissan, 1992. "The Business Cycle Associated.with Exchange Rate-Based Stabilizations," World Bank Economic Review, World Bank Group, vol. 6(2), pages 279-305, May.
    4. Julio A. Santaella & Abraham Everardo Vela, 1996. "The 1987 Mexican Disinflation Program; An Exchange-Rate-Based Stabilization?," IMF Working Papers 96/24, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Dual Currency System as a Solution to the Eurozone Crisis
      by brianmlucey in Brian M. Lucey on 2015-06-28 00:09:49

    More about this item

    Keywords

    euro area; monetary integration; dual currency system;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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