If Greece should have its own currency, why not U.S. states?
blogs.law.harvard.edu
blogs.law.harvard.edu
Basically, having your own currency allows you to print however much money you want to print. By issuing more currency, you as the state get to take resources from people without having to tax them. As the number of dollars increases, the value of each dollar decreases.* If you do this too much, you get hyperinflation. Because you are printing so much money, the value of that money drops at a ridiculous rate. I actually had an econ professor in college from Peru who said that during the worst days, a shopkeeper would close shop to get sales into the bank because if they waited until the end of the day, they would have lost so much value. Car companies would want to not sell cars, because the cars held their value more than currency did - so much for losing money when you drive it off the lot.
It is really hard to break out of a cycle of high inflation. Once the trust in the system is lost, it can be really hard to get it back. Many countries, in order to rid themselves of this hyperinflation, start using the currencies of other countries that manage their currency properly. For example, Panama, Equador, and El Salvador all use the US Dollar as their currency. Zimbabwe has started using a mixture of foreign currencies for trade. That eliminates the chance for them to print more money when they need and they have to rely on any loans they might get - which would be minimal given their credit ratings.
A devaluation of your currency and the inflation that come with it like that isn't good. It does allow you to get out of certain debts more easily, but it also means that investors don't want to invest or lend to you. If you have a history of using a trick to get out of your obligations, lenders don't want to lend to you. For most intents and purposes, such a huge devaluation is a sovereign default - which is what people are worried about with Greece. If you were able to pay back a fraction of your mortgage (say, 10%) through some devaluation, it wouldn't be a default, but it would mean that the bank was getting back a fraction of the money they had given you - even if the nominal value was the same. So, from the bank's perspective, it means they didn't get paid back even if they nominally did. (And if there were a way for individuals to do this, banks would treat it as harshly as a bankruptcy when making future credit decisions).
So, this wouldn't even be good for Greece. It might have meant that Greece would have seen inflation of 20%, 50%, 1000% per year for the past decade and their economy would have faltered along the way rather than them being able to hide the debt through funky accounting, but it wouldn't be a good option. Likewise, being able to print extra money isn't a boon for states either. Government revenue should come from taxes. A little can come from money printing in a way that is ok,* but taxes need to be the real source of government revenue. If you spend much more than you take in (a certain amount of debt for investment can be quite wise), you're going to get into trouble whether you can print your own money or not.
* In a manner of speaking. If the number of dollars increases at the rate of economic increase, the value of each dollar stays exactly the same (and helps protect against deflation). It's a smaller fraction of the pie (economy), but the pie is now larger.
Of course, one may argue that printing any new money is a source of seigniorage income. Sometimes that income flows directly to the government, but usually it gets into the banking system first and foremost.
It's about responsibility, not a magic bullet.
Furthermore, if Greece had stayed on the drachma and let it weaken against the euro, then Greek exports to the eurozone would have been cheaper, and imports from the eurozone would have been more expensive, so Greece would have had less of a trade deficit.
Maybe Greece has some of those problems, but the key problem that Greece is facing right now is created by the fact that they don't have their own currency.
Imagine a village with two people, one is a baker by trade and the other is a butcher. Both are unemployed: the butcher does not have money to pay for bread, and therefore the baker does not have an income. Because of this, the baker does not have money to pay for meat, and therefore the butcher does not have an income. Because of this, the butcher does not have money to pay for bread...
Of course, the grid lock would be obvious in this simple situation, and the baker and butcher would soon get rid of the old social construct that is money and payment, and create a new social construct, effectively introducing their own currency.
The above is very much a simplification, but it describes the gist of the situation that Greece is in: double digit unemployment and youth unemployment around 40% - a staggering inefficiency! - all because of a social construct (money) being handled in an utterly stupid way.
If only somebody were to start spending money, the cycle could be broken. If the Greek government were monetarily sovereign, they would be able to fix the situation.
Greece would not face inflation as you claim if they reintroduced their own currency. Certainly, that currency would drop significantly in value initially. This affects the cost of imports, and that will in turn affect inflation. But you wouldn't see anything like the free-fall you claim. After all, Greece did okay (not perfectly, but okay) before the Euro as well.
I think he's illustrating the absurdity of the situation with another absurdity while managing to be half serious.
Besides long story short, inter state trade would be severely burdened by different currencies. One of the primary reasons for Euro was to facilitate trade.
The eurozone has the worst of both worlds: Greece can’t devalue its currency to alleviate its fiscal problems and there’s no Europe-wide social safety net to assist Greek people who are being screwed.
By the way, this is also the reason that the gold standard failed. The gold standard was essentially a currency shared by the entire world. This had some advantages for international trade, namely no or reduced exchange rate risks.
However, differences in how productivity developed in different countries ultimately led to countries being squeezed out of money to the point where politicians either had to default or rule by violence against their own citizens.
A currency cannot survive for very long unless there is a significantly sized central authority that balances inequalities and acts in the interest of all citizens of the currency zone.
Seems to me it's more to subsidize poorer regions than anything else.
Of course for a large multinational dealing with these issues comes naturally. But for a small to medium business dealing with different currencies is going to cause a lot of friction.
See: http://en.wikipedia.org/wiki/Budget_of_the_European_Union#St...
This table shows the net contributions over the period 2007-2013. As you can see France, Germany and Britain will each contribute an average of over €60Bn over that period where as others like Poland are big recipients, receiving a net benefit of some €65Bn. I can't immediately find the numbers, but I am guessing this is at least comparable to the US inter-state subsidies.
US Constitution, Article 1, Section 10 - Powers prohibited of States: "No State shall ... coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts ..."
The states are sovereign entities, and one of the most important features of the Constitution is that it preserved their sovereignty even as it subsumed them into a single nation. That is what the word "federal" means: a single nation made up of many sovereign states.
Monetary policy (i.e. the interest rate) is just such a blunt tool, and its effects are really not that well understood.
1)It will add a big cost to the economy of doing business. Every time you try and do business between states you will have to change money and some banker will take a small cut on the transaction. And this will add up large amounts it cost the economy. This is a large reason why Europe went to the euro.
2) We have seen how some states manage their affairs. If they are in control of currency they have the potential to make an even bigger mess of things. Bad management will end up with a Zimbabwe type hyper inflation. This risk is reduced in a larger centralised organization... though arguably the US gov is doing this too much right now...
3) It is symbolic of unity.
A much harder question, though, to ask is what, after all, is currency?
pro tip: we already had a war over this.