The new Irish Punt? Very artistic pound notes!

patslatt

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If the international banking crisis isn't resolved soon,it is possible that the EU economies most vulnerable to massive credit crunches and massive,destructive recessions-Ireland,Italy and Spain-could be forced to leave the Eurozone. It is doubtful that the European Central Bank will adopt a sufficiently expansionery monetary policy to accomodate the needs of these three countries for fear of reviving Germany's historic fear of inflation. If monetary expansion were perceived as excessive,Germany would credibly threaten to leave the Euro and restore the beloved Deutchmark.

The credit crunch is a great challenge to business and government as usual.In Ireland's case,the country has been governed too long for the benefit of strong vested interests-mostly in the public sector-which need to be tackled,and there are too many barriers to competition,eg:

[]Overpaid public sector workers with gold plated pensions and pay far superior to the private sector's
[]Public sector unions with a 1970s mentality which drag out any attempt to reform work processes (eg Cork electricians' monopoly on changing light bulbs in hospitals)
[]ESB's stranglehold on power generation through its ownership of a large part of the power distribution grid which should have been transferred to Eirgrid years ago
[]The mushrooming of hundreds of dubious Quangos,a new form of jobs for the boys
[]Irresponsible train drivers who strike at the drop of a hat and inconvenience tens of thousands
[]The useless giant bureaucracy at the HSE which needs to be replaced by one of the successful models of health care on the Continent eg Holland's
[]Uncompetitive market restrictions in law,medicine and dentistry
[]Speculative property developers and their irresponsible bankers
[]Excessively legalistic and slow planning systems

If the government doesn't reform the above,economic recovery could be delayed for years. It is even possible that a decade of economic growth could be lost as in the case of Japan since the late 1980s.

Rather than engage in bruising confrontations with vested interests,it could be tempting for the government to abandon the Euro and restore the Irish Punt with a view to inflating the economy.Inflation would reduce the burden of mortgages on householders and developers and increase property prices in punts.This would reduce the bad debt writeoffs of banks. Inflation would also increase the assets of banks in business loans and improve bank profits,helping to recapitalise banks. It would make it easier to reduce the wide gap between public sector and private sector pay. And until wage earners woke up to the implications of inflation,it would restore competitiveness to exports.

The disadvantages of inflation would be a very sharp rise in living costs in our import dependant economy and possibly a catastrophic rise in living costs together with a big jump in interest rates if the new punt was valued too low in foreign exchange markets. To avoid undervaluation of the punt,the government could commit to holding its value to a trade weighted mix of the British pound,the Euro and other major currencies.

So one morning we could wake up to discover that our bank accounts are again full of those very artistic pound notes!
 


20000miles

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How about we just kick government out of the money production business and let the people decide what money should and should not be.

And your inflation suggestion is quite frankly rubbish. You first list a few so-called "benefits" then go on to say that there would be catastrophic results as well.

Inflation steals from the poor and redistributes wealth upwards. Period.
 

patslatt

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How about we just kick government out of the money production business and let the people decide what money should and should not be.

And your inflation suggestion is quite frankly rubbish. You first list a few so-called "benefits" then go on to say that there would be catastrophic results as well.

Inflation steals from the poor and redistributes wealth upwards. Period.
I don't recommend inflation through a restored punt. Inflation can be very destabilising to a society as you infer.

I'm suggesting that if the government fails to engage in strenuous reforms of vested interests,as is quite possible or even likely,economic recovery could be delayed for many years. In that event,the government could well be tempted to restore the Irish punt in order to inflate the way out of recession.
 

youngdan

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How about we just kick government out of the money production business and let the people decide what money should and should not be.

And your inflation suggestion is quite frankly rubbish. You first list a few so-called "benefits" then go on to say that there would be catastrophic results as well.

Inflation steals from the poor and redistributes wealth upwards. Period.

Not very complicated but the poor, and even worse young socialists, can't figure it out
 

wombat

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Let me try and follow your reasoning. The govt. has given a gaurantee to the banks but the bank shares are falling because investors believe that the govt. will have to buy shares in the banks. The govt. don't want to do this because it doesn't have the cash. The govt. introduces a budget which raises taxes on everyone except property speculators. Unemployment is rising - soon it may rise exponentially. You think the govt. will introduce new colourful currency with a picture of Bertie on it so we'll know there's loads of sterling & dollars to back it.
 

patslatt

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Let me try and follow your reasoning. The govt. has given a gaurantee to the banks but the bank shares are falling because investors believe that the govt. will have to buy shares in the banks. The govt. don't want to do this because it doesn't have the cash. The govt. introduces a budget which raises taxes on everyone except property speculators. Unemployment is rising - soon it may rise exponentially. You think the govt. will introduce new colourful currency with a picture of Bertie on it so we'll know there's loads of sterling & dollars to back it.
If international stock markets are predictive (they usually are but there is a joke that the US stock market predicted 9 out of the last 4 recessions),the world economy is facing the longest recession since the 1970s or even the 1930s. In this situation, our vastly overpriced property bubble leaves Ireland very vulnerable as mortgage credit destruction decapitalises the banking system and starves business of credit.In this credit crunched recessionary environment,the drastic government reforms outlined in my post are needed for reasonable economic performance.

If reforms are shirked,the economic scenarios are all gloomy:

[]Economic stagnation,mass unemployment and emigration as in the 1980s
[]The ECB and the EU Commission call in the IMF to dictate drastic cuts in government spending,which could be very damaging to the economy in a recession,especially if cuts heavily impact stimulative and necessary infrastructural projects
[]To avoid bruising political reforms of vested interests and to avoid the humiliation of an IMF dictated recovery programme,Ireland abandons the Euro.

Restoration of the Punt would enable the government to restore competitiveness through devaluation and to reduce the public sector's excessive cost burden through inflation.

But in the present international financial panic,this would be a high risk strategy given the aversion to developing country debt and presumably debt of small countries . Without access to international debt at reasonable interest rates and exchange rates,the value of the punt could collapse.This would wreck our standard of living and disrupt businesses dependant on imports as import prices rocketed. The government guarantees on the loans from abroad to Irish banks would then be very difficult to repay. This is the Argentine scenario.

As for recapitalising the banks, the government could do that by guaranteeing a reasonable return to investors in shareholder rights issues who hold for say seven years. That would buy time for the banks to work through bad loans and would be relatively easy for the government to finance compared to direct government purchases of shares now. Seven years hence,recapitalised bank shares could recover strongly and the government may even have to pay little if anything for its guarantee. One caveat,though: the govenment should not guarantee rights issues of certain smaller zombie banks sunk by loans to zombie developers,since it is necessary to ration scarce capital in this credit crunch.
 

blucey

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Restoration of the Punt would enable the government to restore competitiveness through devaluation and to reduce the public sector's excessive cost burden through inflation.

But in the present international financial panic,this would be a high risk strategy given the aversion to developing country debt and presumably debt of small countries . Without access to international debt at reasonable interest rates and exchange rates,the value of the punt could collapse.This would wreck our standard of living and disrupt businesses dependant on imports as import prices rocketed. The government guarantees on the loans from abroad to Irish banks would then be very difficult to repay. This is the Argentine scenario.
.
Replace could with would and would with will

Which is why it cant happen...not even FF are that thick...are they?
 

SJL4277

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And until wage earners woke up to the implications of inflation,it would restore competitiveness to exports.
??? how long do you think that'd take...5, maybe 10 minutes?? Half the country spend their whole lives complaining about the cost of living
 

patslatt

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With flying pigs swooping thru the dewy air...
Tell me, apart from "what will this be backed with" have you actually thought for more than a nanosecond on the practicalities of this?
If you havent, try this
http://www.econ.berkeley.edu/~eichengr/breakup_euro_area.pdf
Given another year of international credit crunch and recession,our economic situation may become desperate enough to force the government into the option of leaving the euro,however impractical that looks now. I would put a 20% probability on it.

At the bottom of page 6 of the study linked above,there is an economic scenario,somewhat similar to mine,of what happens to countries with formerly high interest rates when the benefits of low euro interest rates and capital inflows in the early euro years become played out:

"Unless the increase in capital stock significantly raises labour productivity (which is unlikely insofar as much of the preceding period's investment took the form of residential construction),the result is a loss of cost competitiveness. The country then faces slow growth,chronic high unemployment and grinding deflation,as weak labour market conditions force wages to fall relative to those elsewhere in the euro. The temptation then is to leave the euro zone so that monetary policy can be used to reverse the erosion of competitiveness with a "healthy" dose of inflation."

Note the phrase "grinding deflation". I hear block layers are now quoting prices per block of about a third of the prices in the boom.
 

wombat

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Note the phrase "grinding deflation". I hear block layers are now quoting prices per block of about a third of the prices in the boom.
I'm surprised anyone is laying blocks. Our problem is lack of competitiveness among our exporters due to the inflation in labour rates during the property bubble. We are infinitely better placed to survive the present bust than we were in the 80's. We have a decent sized industrial sector which is unaffected by the property bubble. Expansion and investment of existing plants will be easier to justify because construction costs are lower. We will never know how many projects were lost because of the strong euro and high construction costs. There are companies who developed export markets during the boom, piggy backing on full domestic orders. We have enough problems without taking on defending a currency against speculators - leaving the euro is a non starter
 

patslatt

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I'm surprised anyone is laying blocks. Our problem is lack of competitiveness among our exporters due to the inflation in labour rates during the property bubble. We are infinitely better placed to survive the present bust than we were in the 80's. We have a decent sized industrial sector which is unaffected by the property bubble. Expansion and investment of existing plants will be easier to justify because construction costs are lower. We will never know how many projects were lost because of the strong euro and high construction costs. There are companies who developed export markets during the boom, piggy backing on full domestic orders. We have enough problems without taking on defending a currency against speculators - leaving the euro is a non starter
The euro lacks the institutional powers of the US Federal Reserve and may prove too inflexible if the international financial panic causes a massive recession. What many don't realise is that the US Fed's loaning of hundreds of billions to the ECB was a favour that won't necessarily be repeated if the EU countries don't cooperate in increasing the institutional powers of the ECB.

Italy and other financially weak economies like Belgium's may be forced out of the euro by massive surges in unemployment that are politically destabilising.
 

dermo88

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Very good point, and something I got information on last week, since I collect banknotes as a hobby. Just remember something.

1. Was there any prior knowledge that the Central Bank of Ireland was going to issue the Daniel O Connell 20 Pound note on 20th November 1992?
2. Was there any prior knowledge of the new Banknotes and their designs.

No. Hardly anyone knew that the Central Bank planned a new series.

Let me assure you, Banknote printers and mints are notoriously secretive. They have to be. And there is a reserve series of designs on hold, and it takes less than 2 years to get a full set of plates designed. The reserve series, and the runner up prize to Robert Ballagh for the Series C notes was Jim Fitzpatrick (the designs were prepared in the early 1990's). The planned new series of Irish Pounds will initially tarriff at 1 for 2 against the Euro, allowing a slow devaluation back to the old rate. It will circulate as a parralel currency to the Euro. Initially it won't be legal tender, but it will be regarded as acceptable as a medium of payment for taxes, goods and services, along the lines of current Northern Irish and Scottish Banknotes.

You ask "What will back it"

It will be backed by property, commodities, bonds, stocks, on a 110% basis. Something like the German Rentenmark after the Weimar crisis, which was also not legal tender, but was readily accepted by the public. Do you accept and use Dunnes Stores and Eason vouchers as gifts at Christmas time for example. If so, they are more or less the same, and we need to ask what really constitutes money, and realise that for more than two generations, we've forgotten what it actually was. Money was never bits of paper 100 years ago. It was precious metal, and the banknotes were a promise to pay in precious metal (Sovereigns, Half Sovereigns, etc). It won't be issued by a Central Bank on the same basis as the Central Bank, but by a Currency Board, along the Bulgarian and Estonian lines, which might not suit the needs of a modern economy like Ireland, but by that stage, the consensus will be "we need to get out of the straitjacket"

Meanwhile, look at the timescale I've given, the old designs need to have modern security features added, such as holograms, latent images, etc, so the original designs needs to be "stretched" by an extra centimetre in length to accomodate updated features. The Bank Guarantee expires in 2010. Thats enough time to have new designs ready. They are also considering issuing the lower denominations in plastic, and its likely that Note Printing Australia will get an experimental contract, based on the experience that low value notes in Ireland were treated very badly, and had a short circulation life, and thats for the 5 and 10. Consideration was given to have a 2 Pound note, but abandoned due to its low value, and the fact that coins are preferred in Ireland anyway.

The designs, when I glanced at them were more attractive than the Ballagh series, but the Printers at Giesecke and Devrient in Germany said it was "not practical" due to the complexity of the design, and that a lot of spoilage would result using the Jim Fitzpatrick designed series in terms of printing errors. They resemble Swiss Francs or the new version of Bank of Scotland notes, except horizonal format on the front, except on the back, where vertical format is used. The watermark, unusually is to the right hand side, unlike Euro. The portraits are in the centre The hologram feature uses Lady Lavery in a repeating format on the right side, except on the plastic versions, where she is in a transparent window. Colours follow the A series format, Brown 5, Blue 10, Red 20, Mauve 50, Green 100. St Brigid replaces Catherine Mc Auley on the 5, Granuaile replaces Joyce on the 10, so that the new series features 2 women, 3 men,

Dual circulation will be messy for a while, but Northern Ireland manages it.

Will it be a way out of the crisis?

Its actually a resurrection of John Majors original idea for the Euro or the Ecu as it was then known.

How do I know?

I make it my business to know, so I can get my hands on low numbered serials, replacement code banknotes, matching serial notes, so I can then trade them with other collectors and make a profit.
 
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Clanrickard

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With flying pigs swooping thru the dewy air...
Tell me, apart from "what will this be backed with" have you actually thought for more than a nanosecond on the practicalities of this?
If you havent, try this
http://www.econ.berkeley.edu/~eichengr/breakup_euro_area.pdf
That paper you quoted starts off by saying there is no provision for exit. Lisbon provides it. The rest of the paper is speculation. You will find economists who say the opposite.
 

Clanrickard

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