As reported by Mish on 2/21:
As a point of curiosity, the Greek 1-Year Bond Yield touched 682% today, now down to a mere 666%. Bloomberg quotes the open as 566%, if correct, the one year yield soared 116 percentage points from the open to the high.
Greece almost certainly will leave the Eurozone. When this occurs, a new currency will be adopted. Whether it is called the drachma or something else is irrelevant; it will be a new currency.
A new currency provides unusual opportunities for political predation. The initial conditions of exchange are set by politicians, not markets. Additional legislation generally accompanies such a change. This legislation can include forced payment of contracts in the new currency and a host of other mandates. Opportunities to redistribute wealth via the initial conversion terms and the accompanying new laws make politicians salivate. Such events may represent the ultimate in political theft.
Greece and Europe
This discussion will focus on Greece, although it is applicable to other European countries that may leave the Eurozone or any other country which issues a new currency. If the Euro ceases to exist, every European country would qualify. The United States is a special case, offering even greater possibilities for political chicanery as will be discussed in a later section.
What should the conversion rate be between the Euro and the new drachma? Markets will eventually determine the fair rate, but that will differ from the rate initially dictated by Greek political authorities. There are few precedents for such transitions and room for mistakes, either deliberate or otherwise. One advantage that Greece will have is a competing currency. Even after the change, Euros will presumably circulate freely within Greece. That provides a certain amount of protection for Greek citizens in that they can arbitrage between drachmas and Euros (Gresham’s Law) to use the more favorable one for transactions.
The greater risk is the legislation that accompanies