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Balance sheets after the EMU : an assessment of the redenomination risk

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  • Cédric Durand

    (Université Paris 13)

  • Sébastien Villemot

    (Observatoire français des conjonctures économiques)

Abstract

The probability of a partial or complete break-up of the euro has risen over the last years. Such an event could create a balance sheet problem for economic agents, if the redenomination process introduced significant currency mismatches between the asset and liability sides. We propose a new assessment of this redenomination risk, by country and by main institutional sector, for two scenarios: a single country exit and a complete break-up. Our main conclusion is that, even though the problem has to be taken seriously, its order of magnitude should not be exaggerated. Only a few sectors are at significant risk: public debts of Greece and Portugal, financial sectors of Greece, Ireland and Luxembourg. In particular, the balance sheet exposure of the non-financial private sector to the redenomination risk appears to be limited.

Suggested Citation

  • Cédric Durand & Sébastien Villemot, 2018. "Balance sheets after the EMU : an assessment of the redenomination risk," Sciences Po publications info:hdl:2441/2bjp23jrbs9, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/2bjp23jrbs9kordke7ja90v1oq
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    References listed on IDEAS

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    1. Gelos, R. Gaston & Sahay, Ratna & Sandleris, Guido, 2011. "Sovereign borrowing by developing countries: What determines market access?," Journal of International Economics, Elsevier, vol. 83(2), pages 243-254, March.
    2. Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2010. "Exchange Rate Misalignments at World and European Levels: a FEER Approach," International Economics, CEPII research center, issue 121, pages 25-58.
    3. Stephen Cecchetti & Robert McCauley & Patrick McGuire, 2012. "Interpreting TARGET2 balances," BIS Working Papers 393, Bank for International Settlements.
    4. Towbin, Pascal & Weber, Sebastian, 2013. "Limits of floating exchange rates: The role of foreign currency debt and import structure," Journal of Development Economics, Elsevier, vol. 101(C), pages 179-194.
    5. Hoyt Bleakley & Kevin Cowan, 2008. "Corporate Dollar Debt and Depreciations: Much Ado About Nothing?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 612-626, November.
    6. Whittaker, John, 2011. "Eurosystem debts, Greece, and the role of banknotes," MPRA Paper 38406, University Library of Munich, Germany.
    7. Branimir Gruic & Philip Wooldridge, 2012. "Enhancements to the BIS debt securities statistics," BIS Quarterly Review, Bank for International Settlements, December.
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    Cited by:

    1. repec:eee:ecmode:v:64:y:2017:i:c:p:524-538 is not listed on IDEAS
    2. Sergio Cesaratto, 2017. "The nature of the eurocrisis. A reply to Febrero, Uxò and Bermejo," Department of Economics University of Siena 752, Department of Economics, University of Siena.
    3. repec:ces:ifodic:v:16:y:2018:i:3:p:50000000003758 is not listed on IDEAS
    4. Sergio Cesaratto, 2017. "Beyond the traditional monetary circuit: endogenous money, finance and the theory of long-period effective demand," Department of Economics University of Siena 757, Department of Economics, University of Siena.
    5. repec:ces:ifodic:v:16:y:2018:i:03:p:31-34 is not listed on IDEAS

    More about this item

    Keywords

    Financial aspects of economic integration;

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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