Greek Currency In Greece

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Early currency in Greece depended on monetary systems established in other countries. Previously, money transactions were completed through the use of Turkish coins and other foreign currencies, such as the Spanish distilo (Lazaretou 2005). There was no official Greek currency when the country was created in 1827. Like most countries, Greece depended on gold and silver as mediums for transactions; however, the national monetary system was dependent on the bimetallic system of France. Sophia Lazaretou states that, “the legal tender was the silver phoenix, the first currency of the modern Greek state” (p. 332). Greece established the country’s first modern currency in 1829. However, the government did not yet have the financial backing to support…show more content…
One of the reasons for the currency switch was the weight exchange between the phoenix and the drachma (Lazaretou 2005). The silver phoenix was underweight which led to the switch to the heavier drachma. The phoenix was originally created because of the overweight Spanish distilo, but the resulting coin was too light. Therefore, the drachma was made to replace both currencies as a perfect medium. However, a limited number of drachmas were made and put into circulation which brought back a reliance on foreign currencies. As a result, the coin became known as a ‘ghost currency’ and was solely used as an accountability unit for foreign currencies. Greece’s various currencies did not provide much purchasing power but this was changed once the country made the switch to the…show more content…
Dellas and Tavlas state that, “Greece’s entry was widely expected to mark a transformation in the country’s economic destiny” (p. 491). The euro’s value was considerably higher than the existing Greek drachma which provided a needed economic boost to the country’s economy. The country had been hit with high inflation rates, low growth rates, high fiscal deficits, and a series of exchange rate crises. Therefore, the euro was expected to produce a regularly rising inflation rate and lower interest rates that would lead to more private investment and economic growth. The value of the new euro was based on the average purchasing power throughout the currency zone (Morris 2015). The euro gave Greece the ability to borrow based on a currency overvalued relative to the country’s ability to pay. Most countries base currency on the amount of available backing power in the banks; however, the centralized euro allows the country to spend based on the average eurozone’s backing power. This allows Greece to enjoy a higher purchasing power than it previously was able to provide. “In the years immediately prior to and immediately after Greece’s entry into the Eurozone, nominal and real interest rates came down, sharply contributing to high real growth rates” (Dellas & Tavlas 2013). Greece saw a major economic boost as a result of the currency switch. Despite that, other major economic problems
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