THE DRACHMA, FOREIGN CREDITORS AND THE INTERNATIONAL MONETARY SYSTEM: TALES OF A CURRENCY DURING THE 19th AND THE EARLY 20th CENTURY
Sophia Lazaretou
Bank of Greece, Economic Research Department
ABSTRACT
Fixed exchange rate regimes can be regarded as a “rule with escape clauses”, allowing the monetary authorities to temporarily suspend convertibility and enact a discretionary policy only under well-understood contingencies, such as wartime emergencies and financial panics. Seen from this perspective, adherence to the specie convertibility rule enables peripheral countries to establish credibility of the nation’s economic policy and, thus, to obtain access to the core countries’ capital markets. The evidence assembled in the paper, both historical and empirical, supports the conclusion that Greece seems to have tried very hard to adhere to “good housekeeping rules”.
Keywords: specie standards, foreign borrowing, peripheral country.
JEL classification: F33; N23.
I am grateful to Maurice Obstfeld and Alan Taylor for kindly providing the time series for Greek bond spreads, as well as to Heather Gibson, Panayiotis Kapopoulos, George Kostelenos, Nicos Pantelakis and George Tavlas for helpful comments and suggestions on previous versions of the paper. However, the responsibility of any remaining errors or omissions is mine alone. The views expressed herein are those of the author and not necessarily those of the Bank of Greece. The paper is adapted from an earlier paper entitled “The drachma on the metallic monetary standards: lessons from the past”, Economic Bulletin, Bank of Greece, 1999.
Correspondence: Sophia Lazaretou,
Economic Research Department
Bank of Greece, 21 El. Venizelou St.
102 50 Athens, Greece
Tel. +30210-320 2992, Fax +30210-323 3025
Email: slazaretou@bankofgreece.gr