Theoretically, the Punts Reintroduction

DavidAT · 13-04-2012 2:10am #1

Shoot me down, 'cos I know I'll have this ass about face, but, why not leave the eurozone and reintroduce the punt. On a completely simplistic view, what actually happend. I understand that the Punt Nua would be completely devalued and the economy would sink like a stone, but theres been recessions in this country an awful lot worse than we're in now.

In all honesty, all I have is a loose view, because I was too young to understand what was happening in 2002 when we got the euro; I was only just 6 at the time! But, If we reintroduce the punt, can the country get much more f*cked at this point (market wise, not price of living).

On another note, could all the TDs, ministers, Taoiseach and lets not forget the Hobbit, potentially help the situation by taking wage cuts, or is that not possible. Any explanations, views, suggestions etc welcome. I wanna learn as much as possible about this. Thanks

PS.. What is there to say that the Punt would plummet? What says the market won't take the country seriously and the Punt level the Euro, then everyone's laughing?

Brussels Sprout · 13-04-2012 1:07pm

DavidAT wrote: »

PS.. What is there to say that the Punt would plummet? What says the market won't take the country seriously and the Punt level the Euro, then everyone's laughing?

As far as I am aware the value of the new currency would be based on economic factors, including the size of the national debt, which for Ireland would all point toward it being significantly devalued in comparison to the Euro.

RichardAnd · 13-04-2012 3:49pm

One huge problem with a reintroduction of the punt would be the issue of personal debt. Consider this:

Person A owes 100k euro to a bank. The new punt is introduced at the rate of one euro to one punt-nua but, crucially, A's debt remains in euro. Now, if the punt suddenly devalued such that one punt-nua was worth only .50 cents euro, that would mean that A would have a debt of 200k punts. He still makes the same amount of punts as he did euros but they're just worth alot less.

In short, if you owe money in euro, servicing the debt with a different (probably unstable) currency is a dangerous situation to be in.

AlmightyCushion · 13-04-2012 3:52pm

RichardAnd wrote: »

One huge problem with a reintroduction of the punt would be the issue of personal debt. Consider this:

Person A owes 100k euro to a bank. The new punt is introduced at the rate of one euro to one punt-nua but, crucially, A's debt remains in euro. Now, if the punt suddenly devalued such that one punt-nua was worth only .50 cents euro, that would mean that A would have a debt of 150k punts. He still makes the same amount of punts as he did euros but they're just worth alot less.

In short, if you owe money in euro, servicing the debt with a different (probably unstable) currency is a dangerous situation to be in.

Your calculations are off. In that situation they'd owe 200k punts.

RichardAnd · 13-04-2012 3:59pm

AlmightyCushion wrote: »

Your calculations are off. In that situation they'd owe 200k punts.

You're quite correct sir. A few more slip ups like that and I'm on my way to a fruitful career in the Dept of Finance

beeftotheheels · 13-04-2012 4:00pm

In order to change the currency (leaving aside the EU angle) we'd need a referendum to change the flippin' constitution.

Imagine all the angry anti Government crowd rousing up the rabble to vote No!

AlmightyCushion · 13-04-2012 4:00pm

RichardAnd wrote: »

You're quite correct sir. A few more slip ups like that and I'm on my way to a fruitful career in the Dept of Finance

Was it you who lost the couple of billion down the couch a few months back?

Rabidlamb · 13-04-2012 4:03pm

RichardAnd wrote: »

One huge problem with a reintroduction of the punt would be the issue of personal debt. Consider this:

Person A owes 100k euro to a bank. The new punt is introduced at the rate of one euro to one punt-nua but, crucially, A's debt remains in euro. Now, if the punt suddenly devalued such that one punt-nua was worth only .50 cents euro, that would mean that A would have a debt of 200k punts. He still makes the same amount of punts as he did euros but they're just worth alot less.

In short, if you owe money in euro, servicing the debt with a different (probably unstable) currency is a dangerous situation to be in.

Could the Debt in Euros just not be converted to Punt @ 1:1 on Day 1

meglome · 13-04-2012 4:04pm

beeftotheheels wrote: »

In order to change the currency (leaving aside the EU angle) we'd need a referendum to change the flippin' constitution.

Imagine all the angry anti Government crowd rousing up the rabble to vote No!

The only thing is many on the hard left like that situation as it gives them an opportunity to trick people into their way of thinking.

beeftotheheels · 13-04-2012 4:10pm

meglome wrote: »

The only thing is many on the hard left like that situation as it gives them an opportunity to trick people into their way of thinking.

I'm really beginning to despair of this little country of ours.

No attention to detail, no original thought. Limited informed debate.

Unlimited disinformation campaigns. And a stooopid constitution that requires people to vote on things without requiring that they actually understand what it is they are voting on.

If only we had a properly equipped army we could do with a good coup, followed by the immediate internment of Vincent Browne, almost anyone who has ever appeared on his show, and the very many others involved in the disinformation campaign in the Curragh. Maybe we could put them making thimbles or something as a way of repaying their debt to society.

Oh and change the bunreacht so that you have to pass a quiz on the matter you're voting on before you're allowed to vote.

nursextreme · 13-04-2012 4:48pm

The other scenario is how it would impact on those fortunate to have money in the bank (a few nice lump sums there recently). Hypothetically speaking - wages and welfare would be paid in the New Punto 0.5 (Fiat Currency), some one more knowledgeable than myself can explain the consequences of that. My personal opinion is that if we are in a situation that we have to take on the Punto 0.5 there will be no Euro to compare it to anyway!

creedp · 13-04-2012 5:08pm

Rabidlamb wrote: »

Could the Debt in Euros just not be converted to Punt @ 1:1 on Day 1

Would this not be the case, i.e. all debt would convert to punts as would all savings. No loss there, in the sense that in the national context there would be no devaluation but of course in the international context serious devaluation would occur and the the banks/Govt would be hit hard in relation to what they owe ECB/international banks/bondholders as this debt would remain in curreny it was borrowed. Ultimately this debt would have to be paid by the taxpayer in punts which, in the absence of debt write-offs would effectively double our existing debt levels. Should I wake up from my day dream?

Farmer Pudsey · 13-04-2012 5:17pm

Rabidlamb wrote: »

Could the Debt in Euros just not be converted to Punt @ 1:1 on Day 1

Gennerally that is what is done the government announces that it is leaving the euro and that the new currancey will be the irish punt. It then announces that 1Punt=1Euro and allow's the currency to float it would float down to about 70 cent. So what happens

If you had 50,000 euro in the bank it is now worth 50,000 punts= 35,000 euro
If you have a mortagage of 150,000 euro in punts it is now 105,000euro

Technicaly our National debt is borrowed in Irish euro's which is now punts it is not a default. It would make little difference to Mulit-national Companies as they would import and export but their wage bill would be gone down by 30%. We would have inflation for 1-2 years however people importing to us would be under pressure while our exports would soar.

Irish people would have to holiday at home for 2-5 years and new cars would be out of the question. We would have to balance the budget very fast Our Agriculture, tourism and fishing industries would take off and the property market would begin to function as they would all have devalued by 30% and as inflation would be maybe 10% people with money would want to buy property or other assets as a shield against inflation. People with money would spend it as it would be worth less next year and as imported goods would be expensive Irish produce would benifit

The European Central Bank would fluster and bluster as British and American money flooded into the country. The biggest negative would be the EU comission would they create some type of saction against us because if we suceeded would Spain and Italy follow

nursextreme · 13-04-2012 5:42pm

Farmer Pudsey wrote: »

If you had 50,000 euro in the bank it is now worth 50,000 punts= 35,000 euro
If you have a mortagage of 150,000 euro in punts it is now 105,000euro

Shouldn't your mortgage be about 215'000 in Punts. But I agree with the rest of your post. Further borrowing on the International Markets would have to be curtailed even though Public Sector wage bill and Social welfare bill would have been automatically reduced effectively cutting them by 30% but not if we still have to borrow that money. One other major snag is OIL!

beeftotheheels · 13-04-2012 5:44pm

Farmer Pudsey wrote: »

The European Central Bank would fluster and bluster as British and American money flooded into the country. The biggest negative would be the EU comission would they create some type of saction against us because if we suceeded would Spain and Italy follow

In this scenario we wouldn't have to worry about the ECB or the European Commission, because we'll have left the EU.

Ooops. You missed that bit in painting this dreamy scenario didn't you? So no, the US and UK money won't come flooding in because we no longer have access to our biggest export market (EU incl UK).

Icepick · 13-04-2012 7:42pm

Everybody would be much poorer.

Farmer Pudsey wrote: »

If you have a mortagage of 150,000 euro in punts it is now 105,000euro

You would owe more, not less.

Farmer Pudsey wrote: »

Our Agriculture, tourism and fishing industries would take off

No, they wouldn't.

Nody · 13-04-2012 9:09pm

Farmer Pudsey wrote: »

Gennerally that is what is done the government announces that it is leaving the euro and that the new currancey will be the irish punt. It then announces that 1Punt=1Euro and allow's the currency to float it would float down to about 70 cent. So what happens

If you had 50,000 euro in the bank it is now worth 50,000 punts= 35,000 euro
If you have a mortagage of 150,000 euro in punts it is now 105,000euro

Nope, your mortgage would still be 150k EUR because that is what you originally borrowed. Of course the government can try to add legislation that all loans should be in punts but they would be challenged in court over it (and it would be a default event).

Technicaly our National debt is borrowed in Irish euro's which is now punts it is not a default. It would make little difference to Mulit-national Companies as they would import and export but their wage bill would be gone down by 30%. We would have inflation for 1-2 years however people importing to us would be under pressure while our exports would soar.

It would make a big difference for transfer pricing and the multinationals would not be happy. The import bill would also remain the same in EUR (and all suppliers would insist on being paid in EUR rather then my little pony money) but the local price would sky rocket far beyond the exchange rate (to take into account the expected fall of the currency yet to come).

Irish people would have to holiday at home for 2-5 years and new cars would be out of the question. We would have to balance the budget very fast Our Agriculture, tourism and fishing industries would take off and the property market would begin to function as they would all have devalued by 30% and as inflation would be maybe 10% people with money would want to buy property or other assets as a shield against inflation. People with money would spend it as it would be worth less next year and as imported goods would be expensive Irish produce would benifit

Except minor things such as fuel, gas and pretty much all other products tend to be imported which means the suppliers would ask for EUR payments rather then punts (as no one wants to hold a currency that is weak, see CHF rush for example). Agriculture rely on petrol products as does Fishing who require huge sums from EU (who'd be very unhappy on a one way change, i.e. penalty deductions).

In essence there is no reason to change to punts, if you want to go down that route just default instead and do it properly. At least that way you can reasonably wipe the slate clean rather then some sort of half default, half not default scenario (exactly as should have been done with the banks ironically, take them over and wipe out everyone or let them default, not some middle of the road with non existent benefits).

Farmer Pudsey · 13-04-2012 9:54pm

Countries all over the world have done this in some form or other technically it is not a default we print our own euro's it is just that they are the same value as German/Italian/French euro's. We have borrowed the money in Irish euro's not in German/Italian/French euro's. If we leave the euro it has nothing to do with our EU membership. I do not think that England or Poland have the Euro and if I am not mistaken they are still in the EU.
It would have little no effect on multi nationals as the one involved in Ireland Export a higher value product than they Importand in the long term they would like any other company they use financial instruments top product themselves against currencey movements. Most are American and they have to do it anyway.
If the government made 1 euro =1punt and the Greeks were treatening to do this 1 dracma=1euro but were bribed out of doing it the courts in Ireland would uphold it the European central bank would stand to lose what ever the Irish punt floated to as they are the major lender to the Irish banks. So the irish banks would not worry about you morgatage going from 150,000 euro's to 150,000 punts which would be worth around 100,000 euro. We would devalue by about 30%.
Yes Oil would go up in price and like I said we would have inflation for two years and then the economy would settle. People with money in cash in Irish banks would start to spend because of inflation and it would be spend in Ireland.
Yes the price of oil would effect farming/fishing/Tourism but a lot less than the euro is now we export 90% of our beef to other European countries. All accross the public Service health education social welfare there would be a 30% reduction in the cost due to devaluation.

Beef milk,lamb,fish etc we all export so when you transfer back to punts from euros a beef price of 4euro/kg= 5.7 punts/kg Tourism would take off as europeans and americans would find it cheaper to holiday here.

Yes european companies would insist on bein paid in euros they also in late 2010 before the IMF came in refused to accept Irish bank payments so what is new it would not be the end of the world.

beeftotheheels · 13-04-2012 10:12pm

Farmer Pudsey wrote: »

Countries all over the world have done this in some form or other technically it is not a default we print our own euro's it is just that they are the same value as German/Italian/French euro's. We have borrowed the money in Irish euro's not in German/Italian/French euro's. If we leave the euro it has nothing to do with our EU membership. I do not think that England or Poland have the Euro and if I am not mistaken they are still in the EU.

And this line gets trotted out so lets go through rebutting it again. This is not a criticism mind, even the FT was trotting out this line but the penny finally dropped in Wolfgang Manchau's lovely piece last week that you cannot go around ignoring the law all of the time.

We create our own currency. Everyone expects that it will tank. So everyone wants to get their cash out of the banks, and out of the country. In order to stop this happening i.e. all cash leaving the country, the Government has to introduce capital controls, stop people wiring money on the internet, stop people leaving with suitcases full of money.

Iceland did this.

But while you're an EU member you cannot pass such laws. They'd be unconstitutional.

So you'd have to leave the EU in order to stop all the cash fleeing the country.

Countries that never joined the euro and have kept their own currencies haven't needed capital controls.

Oh, and when you change sovereign debt from euros into our national currency that constitutes a default unless you're G7.

Even if we could get around the capital control issues (which we can't) our debts to our official creditors i.e. the ECB, EFSF/ EFSM/ IMF would remain in euro, a currency we have no source for and against which our currency is rapidly depreciating given all the cash leaving the country means that the Central Bank printing press is going non stop.

So suddenly our debt to GDP is 200% or 300% of GDP because GDP is in our falling currency and the debt is in Euro and there is nothing we can do to make it go away - unless we leave the EU!

But having left the EU our FDI will take flight, what between the capital controls stopping them getting their global cash home to the US and the fact we can no longer access the common market...

Bye bye export led recovery. Every one loves a farmer. Or a fisherman. Fishing would probably improve if we left the EU. Shame every one who's neither a farmer or a fisherman hasn't much chance of getting a job but boom time for the farmers and fishermen. Oh, and the turf cutters. Not only will the EU restriction on cutting fall away, but the increase in imported fuel costs associated with our depreciated currency means that turf demand will sky rocket. We could end up with an asset bubble in turbary rights.

RichardAnd · 14-04-2012 12:04am

Rabidlamb wrote: »

Could the Debt in Euros just not be converted to Punt @ 1:1 on Day 1

It could but I don't think that it would. To expand on the example I gave above, imagine that you were the lender that had given Person A 100k euro. If the debt was converted such that he owed you 100k punt nua then you would be liable to a serious loss if the new currency devalued.

If it the punt-nua fell to the value of .5 euro for one punt, you would need 200k punts to equal the 100k euro you gave A. Given the debt chain that seems to operate in the world today, it's likely that you borrowed that 100k from someone else thus, you wouldn't be able to pay back your loan because of the huge loss you just made though the debt to A. In turn, the guy that loaned you the money in the first place probably borrowed it too and like you, he wouldn't be able to pay off his debt. The line probably would stretch on after that.

johnnyskeleton · 14-04-2012 12:11am

DavidAT wrote: »

PS.. What is there to say that the Punt would plummet? What says the market won't take the country seriously and the Punt level the Euro, then everyone's laughing?

You have it backwards, why would we leave the euro an introduce a new currency if not for the purposes of an inflationary/devaluation policy?

The very purpose of a new currency would be to print our debts away, and this would cause the currency to devalue.

beeftotheheels · 14-04-2012 12:22am

johnnyskeleton wrote: »

You have it backwards, why would we leave the euro an introduce a new currency if not for the purposes of an inflationary/devaluation policy?

The very purpose of a new currency would be to print our debts away, and this would cause the currency to devalue.

Somewhat ironically in the public papers to date the suggestions are that in an orderly euro break up the euro is within 5-10% of being correctly priced for us.

Way too weak for Germany.

Way too strong for Greece and Portugal.

Yet about right for us. Absent the disastrous impact of the capital controls etc necessitated by leaving unilaterally FTW

Skopzz · 14-04-2012 1:16am

If we reintroduced the IEP, it would seemingly rise in value - according to Bank of America. The IEP was worth US$1.66 whereas the Euro buys just US$1.30. By adopting the Euro, we lost purchasing power during a time when we need it most. We need a strong currency to buy raw materials we don't have any to keep our industry working. Having a weaker currency pushes up inflation, manufacturing costs and loss of competitiveness. The only question is what to peg it to - certainly not the British Pound. Perhaps pegging it to the CHF.

Icepick · 14-04-2012 1:47am

beeftotheheels wrote: »

Every one loves a farmer. Or a fisherman. Fishing would probably improve if we left the EU. Shame every one who's neither a farmer or a fisherman hasn't much chance of getting a job but boom time for the farmers and fishermen.

Without subsidies, they would be worse off too.

meglome · 14-04-2012 2:03am

Skopzz wrote: »

If we reintroduced the IEP, it would seemingly rise in value - according to Bank of America. The IEP was worth US$1.66 whereas the Euro buys just US$1.30. By adopting the Euro, we lost purchasing power during a time when we need it most. We need a strong currency to buy raw materials we don't have any to keep our industry working. Having a weaker currency pushes up inflation, manufacturing costs and loss of competitiveness. The only question is what to peg it to - certainly not the British Pound. Perhaps pegging it to the CHF.

Rise in value, are you kidding me? With the state our finances are in. We're in tooth fairy territory again.

Farmer Pudsey · 14-04-2012 10:12am

The only reason you would leave the euro is to devalue sharply which would reduce personel and national debt. Technically it would not be a default. It would allow us to sort Anglo, the Irish Nationwade and the other banks. WE would not be popular in the EU but our membership is not dependant on euro membership. David McWiliams said it when he stated that Paddy's biggest problem is he wants to be liked.
Bankers care not who they lend to as long as they see that they will get the new money that they lend to you back.Companies go bust all the time and the owners/managers start again amd the banks lend to them again.
Six months ago I thaught that the euro would survive now I do not think so. Italy and Spain cannot and will not do the austerity that we are doing they are too big to bale out.
However we have proven that we do austerity if we left the euro and introduced a new currency lets call it the punt or what ever made it equal to the euro and floated it it would devalue by a percentage. WE would have to borrow in pounds or yen for a while until we proved that we were willing to tackle the remaining problems The main one would be that we allowed inflation to get control of public service pay and spending. The private sector could then begin to export.
It would have no effect on EU payments except to make them worth more ie if you are devalued 30% every euro is worth 1.42 punts.
In the last recession in the eighties we were net benificery of EU funds now we are paying back developers and bankers gambling debths to German banks due to politicians and central bankers (European and Irish) inability to control the european banking sector it is not just an Irish problem which Ollie Rehn and other EU bureaucrats consider.
I do not think it would be easy but two years and we would be up and running again when we started austerity in 2008 we were told 2013 would be the end then in 2010 it was 2015/16 now there are talking about 2028 the reality is that austerity by itself cannot solve our problems there has to be either a reality within the EU that all countries play there part or it is bye bye euro they have to stop kicking the can down the road or else we have to kick ass ourselves

Ps you do not need capital controls all you need to do is to do it suddenly and what money is traped in the country remains in the country we had capital controls in the Early 90's when we were forced to devalue by international speculators who just sold Irish pounds George Soras made a billion while Bertie didders for the first time

hognef · 14-04-2012 11:10am

RichardAnd wrote: »

Rabidlamb wrote: »

Could the Debt in Euros just not be converted to Punt @ 1:1 on Day 1

It could but I don't think that it would. To expand on the example I gave above, imagine that you were the lender that had given Person A 100k euro. If the debt was converted such that he owed you 100k punt nua then you would be liable to a serious loss if the new currency devalued.

If it the punt-nua fell to the value of .5 euro for one punt, you would need 200k punts to equal the 100k euro you gave A. Given the debt chain that seems to operate in the world today, it's likely that you borrowed that 100k from someone else thus, you wouldn't be able to pay back your loan because of the huge loss you just made though the debt to A. In turn, the guy that loaned you the money in the first place probably borrowed it too and like you, he wouldn't be able to pay off his debt. The line probably would stretch on after that.

Along with the high inflation mentioned by somebody else, wouldn't we be hit with higher interest rates? That would be the banks' way of recovering what would otherwise be their losses. Overall your mortgage would probably still cost roughly the same as before.

djk1000 · 14-04-2012 11:40am

I might be a bit of a cynic here, but putting aside monetary and fiscal debate, assume that the punt nua is the right way to go for the economy, I think two things would happen.

Unions, particularly public service unions, would be up in arms as their members have essentially taken a huge pay cut, there would be industrial unrest for years and FDI would be seriously undermined.

Governments are very very predictable in Ireland, without the troika looking over our shoulder, does anyone really trust an Irish Government to continue with good fiscal and monetary policy, particularly in the run up to elections?

ArmaniJeanss · 14-04-2012 12:55pm

Skopzz wrote: »

If we reintroduced the IEP, it would seemingly rise in value - according to Bank of America. The IEP was worth US$1.66 whereas the Euro buys just US$1.30. By adopting the Euro, we lost purchasing power during a time when we need it most.

Thats really not the way comparisons of the strength of currencies work.
Like a Euro gets you 100 Yen at the moment but that doesn't mean the Euro is 100 times stronger than the yen.

Joe 90 · 14-04-2012 4:37pm

beeftotheheels wrote: »

In this scenario we wouldn't have to worry about the ECB or the European Commission, because we'll have left the EU.

Ooops. You missed that bit in painting this dreamy scenario didn't you? So no, the US and UK money won't come flooding in because we no longer have access to our biggest export market (EU incl UK).

Leaving the Euro is not the same thing as leaving the EU.

WalterMitty · 14-04-2012 4:41pm

Simply changing to punt wouldnt affect foreign multinationals much by itself. they price things in dollars if they are american anyway or sterling or euro or one on big currencies regardless of local currency. They pay a local equivalent of a dollar amount determined by costs of skilled labour around the world so would pay higher wages in local currency if lcoal currency devalued significantly. Those paid by government, welfare and pensions and public sector would only get local currency which would be worth a lot less in purchasing power than euro.

Theoretically, the Punts Reintroduction

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