Re-Introducing the Punt

jimmycrackcorm

One of our key problems in addressing the recession is that we have no fiscal control over our currency. I.e. we cannot devalue for competitiveness.

David McWilliams has suggested that we leave the Euro and return to the punt but that would introduce possibly more problems that it solves as we would have a weak basis for undersigning our own currency.

However a possible solution might be to revert back to the introduction of the the Euro where we had a period of a fixed conversion between the punt and the euro. That way we could devalue without dealing with the consequences of currency fluctuations and speculation. At appropriate points we could re-negotiate the exchange rate with the ECB.

Taking it further we could even introduce it internally ourselves, without the assistance of the ECB, by fixing the exchange rate at our central bank level. I.e. the government could introduce the punt as an internal currency and use it for public services transactions. that would provide a re-balancing mechanism between the cost of the public services and the income raised from private enterprise. As the balance drew closer then so would the effective exchange rate.

Cookie_Monster

jimmycrackcorm wrote: »

One of our key problems in addressing the recession is that we have no fiscal control over our currency. I.e. we cannot devalue for competitiveness.

David McWilliams has suggested that we leave the Euro and return to the punt but that would introduce possibly more problems that it solves as we would have a weak basis for undersigning our own currency.

However a possible solution might be to revert back to the introduction of the the Euro where we had a period of a fixed conversion between the punt and the euro. That way we could devalue without dealing with the consequences of currency fluctuations and speculation. At appropriate points we could re-negotiate the exchange rate with the ECB.

no other country is going to agree to fix our currency against the euro were that to happen

DJCR

Unfortunately all our debt is in euros so any devaluation of what then be an "Irish version of the euro" would increase the cost of our debt as interest rates would go up seen as we would be seen as a risk.

I would imagine it would be very messy.

Our exports would be cheaper, but our imports would be really really expensive and as a country the imports a lot of our foodstuffs it would make day to day shopping really expensive as well.

Don't know how keen the ECB would be on having a two tierd Euro as well.

jimmycrackcorm

Cookie_Monster wrote: »

no other country is going to agree to fix our currency against the euro were that to happen

Only the ECB would have to agree otherwise an internal currency managed by our central bank does not require the agreement of anyone else. We would still be a member of the euro, trading externally via euros but internally with our own managed currency.

ardmacha

This has been done to death on this forum. If there is any suggestion of devaluation everyone will move their money to other Euro countries immediately, removing what money is left in the banking system. And as noted above government debt is in Euros, so the public finances would not be improved by this, but uncertainty would further raise the interest rate payable by the government.

jimmycrackcorm

DJCR wrote: »

Unfortunately all our debt is in euros so any devaluation of what then be an "Irish version of the euro" would increase the cost of our debt as interest rates would go up seen as we would be seen as a risk.

We could still be a euro based with an internal currency.

I would imagine it would be very messy.

Yes but not as messy as our future prospects without the devaluation sword.

Our exports would be cheaper, but our imports would be really really expensive and as a country the imports a lot of our foodstuffs it would make day to day shopping really expensive as well.

You mean it would make potoatoes from Cyprus more expensive than Irish potatoes? Surely not a bad thing?

Don't know how keen the ECB would be on having a two tiered Euro as well.

Probably not but the current crisis's of Ireland and Greece show that the single Euro has a weakness in divergent economies and having a regulated internal currency could be a beneficial economic tool. The danger of course is of every country looking to do the same so it would have to be as exceptional as negotiating an aid package such as that for Greece. The principal benefit over the Greek package is that it can fundamentally address the underlying problems instead of throwing more money in without solving this.

By having an internal currency you can get the advantages of having both a fixed and a dynamic currency.

DJCR

jimmycrackcorm wrote: »

We could still be a euro based with an internal currency..

I really don't understand how this could work... yuor takling about a devaluation of the currency and everything will remain the same... everyone continues trading as normal... except our exports get far cheaper than our Euro trading partners?

jimmycrackcorm wrote: »

You mean it would make potoatoes from Cyprus more expensive than Irish potatoes? Surely not a bad thing?

Serious question... could we produce enough spuds to feed our population? As much as I like a good spud though i wouldn't want to be subjected only to eating them for dinner.


Could you explain the proposal a bit better... sorry I think i'm just not getting it.

jimmycrackcorm

ardmacha wrote: »

This has been done to death on this forum. If there is any suggestion of devaluation everyone will move their money to other Euro countries immediately, removing what money is left in the banking system. And as noted above government debt is in Euros, so the public finances would not be improved by this, but uncertainty would further raise the interest rate payable by the government.

What has been done to death is a single devaluation not a dual currency scenario. Real revenue ( i.e. that raised via export activities ) would still be euro denominated. Pretend revenue (i.e. taxes that the Public sector pays ) would not be - but that doesn't pay for government debt anyway does it?

No-one would need to remove any money as we would still be euro based. We would have a two tier economy where some people would be primarily punt based and others primarily euro based. But, he it's preferable to the current two tier economy.

It would be like going back to the euro introduction where the rates were fixed but the difference would be the ability to actually have both simultaneously.

fontanalis

Do people think Ireland was some bastion of prosperity during the punt? Fair enough there was good growth right before the Euro but how much EU money was pumped in at that stage?

SkepticOne

So if you're going for a new mortgage or some other loan, would this be in the new punts or in euros?

If it is still in Euros then many of the problems associated with Euro membership would still remain as far as I can see.

Max Power1

jimmycrackcorm wrote: »

What has been done to death is a single devaluation not a dual currency scenario. Real revenue ( i.e. that raised via export activities ) would still be euro denominated. Pretend revenue (i.e. taxes that the Public sector pays ) would not be - but that doesn't pay for government debt anyway does it?

No-one would need to remove any money as we would still be euro based. We would have a two tier economy where some people would be primarily punt based and others primarily euro based. But, he it's preferable to the current two tier economy.

It would be like going back to the euro introduction where the rates were fixed but the difference would be the ability to actually have both simultaneously.

Maybe Im having a later than usual 3pm slump, but does that sound like total nonsense to anyone else? One of the saving graces to our economy is the euro. Do you think we would stand any chance of borrowing at a sensible rate in an external currency? Or worse, a two tiered euro, which doesnt even work in theory let alone in practice

ei.sdraob

jimmycrackcorm wrote: »

David McWilliams has suggested

I stopped reading there

jimmycrackcorm

jimmycrackcorm wrote: »

We would have a two tier economy where some people would be primarily punt based and others primarily euro based. But, he it's preferable to the current two tier economy.

It would be like going back to the euro introduction where the rates were fixed but the difference would be the ability to actually have both simultaneously.

I'll take my pay in euro thanks.

Keeping it fixed v the euro would mean that it is directly convertible.

Using the old rates of €1 = IE£0.787564 someone earning say €500 per week would now be earning £393.78 - it is still the exact same amount just counted differently.

I don't see the point of making things more awkward for no benefit.

Dannyboy83

I asked this before about a two tier currency.
One for the strong economies and one for the PIIGS (could invite the UK to join, PIIGUKS)

The brief answer I got, was that nobody would want to bother with the weak currency, it would still have most of the limitations of the EMU and none of the advantages.
It would quickly crumble.

jimmycrackcorm

Dannyboy83 wrote: »

I asked this before about a two tier currency.
One for the strong economies and one for the PIIGS (could invite the UK to join, PIIGUKS)

The brief answer I got, was that nobody would want to bother with the weak currency, it would still have most of the limitations of the EMU and none of the advantages.
It would quickly crumble.

That's not the same thing - you are describing a country having a seperate currency - actually you are describing the UK. I'm talking about a dual currency that's only used internally for government expenditure.

A hypothetical example with some historical reference might make it clearer. Suppose we had introduced the punt a few years back as a currency and linked it 1-1 with the Euro. Then the government came along and said to NTR that we will buy out the M50 from you at a cost of €500m - but we will pay you in punts at €50m/yr over ten years. Flash forward and the economy is shot and tax revenue is unbalanced and the government decides to alter the exchange rate between the punt and the euro to reduce the real value of the annual payment so for example. No other country is involved as it is the Irish central bank that is guaranteeing the exchange and so it's not subject to external fluctuations.

Now put that in the context of public pay where the government pays in punts. Tax revenue drops - the government makes adjustments in the rate to balance the books. It's a much simpler mechanism than say - introducing a pension levy and it's a much fairer way of balancing our public expenditure against our income (though not necessarily ruling out borrowing either).

AS we would still a Euro denominated currency there would still be Euro based tax payments from non-government sources.

Maybe Im having a later than usual 3pm slump, but does that sound like total nonsense to anyone else? One of the saving graces to our economy is the euro. Do you think we would stand any chance of borrowing at a sensible rate in an external currency? Or worse, a two tiered euro, which doesnt even work in theory let alone in practice

It was the cheap credit availablity from Euro membership that gave us our construction boom and Name. Saving Grace - I don't think so...

We had a two tiered currency when the rate between the punt and the Euro was fixed prior and during the introduction of the Euro.

We wouldn't be borrowing at an external currency rate - we'd be doing exactly as we are now as part of the Euro currency.

I stopped reading there

I didn't state I agreed with DMW - he proposed leaving the Euro completely which would be catastrophic.

So if you're going for a new mortgage or some other loan, would this be in the new punts or in euros?

If it is still in Euros then many of the problems associated with Euro membership would still remain as far as I can see.

Had we had mandated some 8-10 years ago that all mortgages would be denominated in a punt currency we could have used internal rate adjustments to manage the construction growth and we wouldn't have been facing almost daily rises in house prices of 1000's of Euros, crippling mortgages for people who couldn't afford them and no Nama.

jimmycrackcorm

jimmycrackcorm wrote: »

Suppose we had introduced the punt a few years back as a currency and linked it 1-1 with the Euro. Then the government came along and said to NTR that we will buy out the M50 from you at a cost of €500m - but we will pay you in punts at €50m/yr over ten years. Flash forward and the economy is shot and tax revenue is unbalanced and the government decides to alter the exchange rate between the punt and the euro to reduce the real value of the annual payment so for example. No other country is involved as it is the Irish central bank that is guaranteeing the exchange and so it's not subject to external fluctuations.

This currency would be ignored precisely for this reason.

Why would anyone deal in Punts if they thought it could be revalued at a whim.

Have a look for an article on inflation in Zimbabwe.

Would there be particular cronies that could buy currency at the government rate and sell at the market rate enriching themselves like in ZanuPF land?

baalthor

jimmycrackcorm wrote: »

A hypothetical example with some historical reference might make it clearer. Suppose we had introduced the punt a few years back as a currency and linked it 1-1 with the Euro. Then the government came along and said to NTR that we will buy out the M50 from you at a cost of €500m - but we will pay you in punts at €50m/yr over ten years. Flash forward and the economy is shot and tax revenue is unbalanced and the government decides to alter the exchange rate between the punt and the euro to reduce the real value of the annual payment so for example. No other country is involved as it is the Irish central bank that is guaranteeing the exchange and so it's not subject to external fluctuations.

This would only work if NTR was run by morons and we know NTR is definitely not run by morons.

Now put that in the context of public pay where the government pays in punts. Tax revenue drops - the government makes adjustments in the rate to balance the books. It's a much simpler mechanism than say - introducing a pension levy and it's a much fairer way of balancing our public expenditure against our income (though not necessarily ruling out borrowing either).

How do you think the public servants will feel about being paid in monopoly money?

We had a two tiered currency when the rate between the punt and the Euro was fixed prior and during the introduction of the Euro.

We wouldn't be borrowing at an external currency rate - we'd be doing exactly as we are now as part of the Euro currency.

We didn't have a dual currency. The euro was introduced in 1999 but didn't appear in physical form until 2002. The punt effectively ceased to exist as a currency on December 31 1998.

Had we had mandated some 8-10 years ago that all mortgages would be denominated in a punt currency we could have used internal rate adjustments to manage the construction growth and we wouldn't have been facing almost daily rises in house prices of 1000's of Euros, crippling mortgages for people who couldn't afford them and no Nama.

Say I had a house for sale in 2005 and someone offered me €1million for it. If your system was in place what would I do next?

Drumpot

Ah Mr McWilliams . . . A backseat driver if ever there was one . . Just throws out random thoughts without DISCUSSING the potential pitfalls to his quirky idea's . .

I have an idea. . . Why dont we -

• tell all the countries we owe money to, to feck off and not pay them back
• get more loans and increase public spenditure, dont worry we will buy them a drink and they will gladly part with their money
• lower taxes
• Get a country backed loan to buy the country of Iceland (Im sure we could get it cheap)
• After that, we could claim ownership of Iceland, the supermarket chain, sell that to the highest bidder

And Hey presto, our problems are solved, we own another country and we are all rich . . It really is that simple and there will be no knock on affects . . The international community will just laugh at us Paddies for being such cheeky little monkeys, but all will be forgiven . .

Seriously, I should apply for a piece in the business section of the Indo . . My idea's would be no less credible then the stupid ones that McWilliams spits out, but all the more interesting to read . . :rolleyes:

ClayDavis

This sounds a bit like the situation in Cuba with cuban pesos and convertable pesos and if ever there was an economic model to follow then its Cuba, right? :rolleyes:

ei.sdraob

ClayDavis wrote: »

This sounds a bit like the situation in Cuba with cuban pesos and convertable pesos and if ever there was an economic model to follow then its Cuba, right? :rolleyes:

at least they have the weather there

M cebee

he's a controversialist- mcwilliams ,that's how he makes money

supermonkey

Portugal, Ireland, Italy, Greece, Spain, Poland, Latvia, Lithuania, Estonia, Slovakia, Slovenia, Bulgaria and Romania should try to change the ECB rules to encourage devaluation. We have to get the 'good boys' out of the Euro.

Germany could set up its own 'strong euro' with France, Austria, Hungary, The Czech Republic (needs a better name), Luxembourg, Belgium, Cyprus, Malta, Holland ,Finland and Sweden.

Our external and internal debts would be Euro denominated and as the Euro would collapse in value this would allow us all to devalue in practice.