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GREEK MONETARY ECONOMICS IN RETROSPECT: THE ADVENTURES OF THE DRACHMA

Sophia Lazaretou

Bank of Greece, Economic Research Department

ABSTRACT

This paper enumerates the adventures of the drachma step by step, dividing its story into seven parts. Specifically, its main purpose is to present some historical perspective on the behaviour of the monetary and fiscal policies pursued in Greece during the period from the early 1830s until the introduction of the euro. For Greece and for the drachma, the lessons from the past are very important. Since the formation of the modern Greek State, government officials have striven – sometimes making hard efforts – to keep abreast of international monetary developments. This was because they understood that the participation of a peripheral, poor and inflation-prone country with a weak currency and an underdeveloped money market, like Greece of the time, in a monetary club of powerful economies could dramatically improve her international credit standing and imply important benefits in terms of exchange rate and monetary stability, and long-term foreign borrowing.

Keywords: fiscal disturbances, metallic monetary standards, fiat money.

JEL classification: F33; N23

This paper draws on the arguments presented in the book by G. Alogoskoufis and S. Lazaretou, The Drachma. From the Phoenix to the Euro (2002). An earlier draft of the paper has greatly benefited from the comments and suggestions of Marc Mazower. I would also like to acknowledge helpful discussions with George Tavlas. The views expressed in this paper are those of the author and should in no part be attributed to the Bank of Greece.

Correspondence:

Sophia Lazaretou,

Economic Research Department,

Bank of Greece, 21 El. Venizelou St.,

102 50 Athens, Greece,

Tel. +30210-320.2992, Fax +30210-3233025

Email: slazaretou@bankofgreece.gr


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