Taking a punt

res ipsa

Could the government announce overnight that we are going back to the punt at a 1punt = 0.5euro and all bank accounts in the state would reflect the change with immediate effect?
I'm not asking should it be done, but could it be done?

Flamed Diving

No, we simply would not have the reserves to maintain a fixed exchange rate, or to defend against the inevitable currency attack. But we could change back to the Punt, or whatever we would want to call it. It wouldn't change the fact that all of our external debt is in Euro.

res ipsa

One euro = 2 punts implies a devaluation of some 36%, you think there would be a run on the currency even after that?
What would be the negative consequences of a run, apart from our external creditors having to "take a bath".
Sean Citizen and Mary Public might buy it because the number in their bank account would have doubled.

Mahatma coat

Sean Citizen and Mary Public might buy it because the number in their bank account would have doubled.

didnt work out all that well for the people of Zimbabwe, and theitr bank accounts have increased by factors of billions.

if more than one country decided to leave the eurozone at the same time then it might work, but ultimatley it'd be out of the fryin pan into the fire

Hasschu

Absolutely no doubt but it could be done. To make it stick the ratio should be 3 to 1 with the Irish gov't talking it down immediately after the devaluation. For people whose assets were in cash such as bank notes, bank deposits, Euro bonds issued by Irish institutions and anything liquid that was "Irish" it would be devastating. The middle and upper middle classes would be rioting in the streets the poor would be looking on in amazement. After the initial furore subsides there would be a rapid economic recovery lasting two to three years. Then the cycle of decline would start over and another devaluation would be necessary. Devaluation is as addictive as heroin and once tried is usually repeated. It is not likely to happen for two reasons the first being the turmoil in sthe streets and the second being the support available from the EU in the form of loans from the proposed EMF and credible threats of exspulsion from the EU. The threats being the other side of the loans coin or the carrot and the stick if you prefer. Any member of the monetary union that behaves responsibly will get support because the credibility of the currency depends on stability throughout the union. If the perception arose that Irish or Greek Euros are only as good as the Irish or Greek banks and gov'ts then that perception could spread to the other weak sisters and damage the currency as a whole. Frankfurt bankers understand these things, they also understand that it may become necessary to make an example of the most egregious offender. On that sobering note I will leave you.

Flamed Diving

res ipsa wrote: »

One euro = 2 punts implies a devaluation of some 36%, you think there would be a run on the currency even after that?

If the currency is any way over or undervalued, then the CB would struggle to maintain the fixed rate. They would have to get it just right, and that is no simple task. Your rate seems to be a arbitrary choice, and hence doomed to fail.

res ipsa wrote: »

What would be the negative consequences of a run, apart from our external creditors having to "take a bath".

I thought you weren't interested in implications? Let's take a step back. Your 36% devaluation would bankrupt many SMEs in Ireland. All in one swoop. Secondly, a run on what? Our currency? Do you mean if a hedge fund began dumping Punts and forced the Govt to float, which would expose the true value of the Punt? It would depend on which way it would go.

Up (vs Euro): Our exports collapse and MNCs start to flood out. Far quicker than now.

Down (vs Euro): Further devaluation causes more SMEs to go bankrupt.

We are a Small Open Economy. Those little guys shouldn't play around with their currencies, like that.

Even if the punts were re-introduced, i think euros would remain the de facto currency.