Nomura Raises the Euro Redenomination Issue
FT Alphaville has written an excellent post in response to Nomura research on what happens to Euro denominated debts in countries that leave the eurozone:
Let’s say the Greek parliament passes legislation — call it the Drachma Conversion Law, whatever — on 31 March 2012, ruling that the New Drachma will become Greece’s sole domestic currency from midnight, 1 April 2012. (It’s a weekend! Much easier to go round the ATMs with technicians, train border guards to spot suitcases stuffed with cash, and so on.) Euro-denominated obligations in Greece will be converted to New Drachma at so-and-so a statutory conversion rate, the legislation further provides.The reason that this is such a big deal is that converting a Euro-denominated obligation to new drachma would instantly and significantly devalue it.
Be sure to look at the table of redenomination risk on eurozone assets.
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