It is becoming increasingly clear that moves out of the euro will be done furtively, sometimes gradually, and most of all non-transparently. At some point we’ll start arguing over whether “the euro” is a “rigid designator.”
First Cyprus has capital controls and now Portugal may be making a different kind of plunge:
The Portuguese government is considering a plan to pay public workers and pensioners one month of their salary in treasury bills rather than cash after a high court ruled out wage cuts…
Of course these “treasury bills” (is that a rigid designator?) will have a floating price with respect to the euro, with respect to the “euro trapped in a Portuguese bank” (eventually), and other Portuguese treasury securities for that matter. Which will be the real money of Portugal?
If indeed this happens (one government spokesperson has denied the report) and perhaps then continues, at what point do we conclude that the Portuguese have opted for a dual currency?
Would the new scrip currency push out the euro or vice versa or can they coexist? One central question is at what rate the government would accept the new scrip for payments and taxes or otherwise offer to redeem or convert it.
Another question is banking confidence. If the new scrip goes badly, that may lower confidence in the Portuguese banking system. If the new scrip goes well…that may also lower confidence in the Portuguese banking system. The government will issue more of it and it will come closer to a dual currency. Bank accounts denominated in euros may become less credible in terms of their underlying protection. Once a new alternative currency is up and running, Portugal can leave the euro much more easily, converting bank deposits into the new currency along the way to ease their fiscal crunch. After the Cyprus episode, they are probably counting less on help from others.
Ideally the Portuguese government would like to be in a position of promising that the new script will be retired/repurchased within a month or some other very short time frame.
That’s not usually how it ends up working.