Monday, June 23, 2008

Gresham's Law is Alive and Well in the Euro Area

In response to my posting on Gresham's Law and reserve currency status, a reader directed me to the below article that shows not all Euros are considered equal. Apparently, Germans are hoarding German-issued Euros and dumping Southern-issued Euros en masse.
Support for Euro in Doubt as Germans Reject Latin Bloc Notes, By Ambrose Evans-Pritchard (The Telegraph)
Germany's Handelsblatt newspaper says bankers have detected a curious pattern where customers are withdrawing cash directly from branches, screening the notes to determine the origin of issue. They ask for paper from the southern states to be exchanged for German notes.

Each country prints its own notes according to its economic weight, under strict guidelines from the European Central Bank in Frankfurt. The German notes have an "X"' at the start of the serial numbers, showing that they come from the Bundesdruckerei in Berlin.

Italian notes have an "S" from the Instituto Poligrafico in Rome, and Spanish notes have a "V" from the Fabrica Nacional de Moneda in Madrid. The notes are entirely interchangeable and circulate freely through the eurozone and, indeed, beyond. People clearly suspect that southern notes may lose value in a crisis, or if the eurozone breaks apart… "The scurrilous idea behind this is that if the eurozone should succumb to growing divergences, then it is best to cling to most stable countries," said the Handelsblatt.


Many [Germans] have kept a stash of D-Marks hidden in mattresses to this day. A recent IPOS poll showed that 59pc of Germany now had serious doubts about the euro.

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