Tag Archives: Currency Swap

Adios Pesetas: A look back at adoption of the Euro in Spain

3/18/2013 Portland, Oregon – Pop in your mints…

The following is an essay written by a dear friend of ours, Tom Baker, in February of 2002.  Tom and his wife have lived in the region of Catalunya for a number of years.  His observations regarding the currency transition which was about to take place in Spain from pesetas to the full adoption of the Euro may prove timely if and when a similar event takes place in your locale.  Enjoy!

Adios pesetas

A major milestone has come to Europe with the introduction of the common currency known as euros.  Actually the Economic Union of 12 countries (Trivia question–can you name the 12 countries? answer below) has been on the euro standard for the last 2 years, with exchange rates fixed permanently between the currencies of the member countries.  Everyone was really using euros, but they just looked different in each country.

Now in the last month, the last major hurdle has been addressed with the withdrawal of all local currencies from circulation, and their replacement with euro coins and bills.  Think of the problems involved in changing the currency of 12 countries (approximately the size of the US) with 12 different monetary systems simultaneously.

Prices for goods have been posted in both pesetas and euros in the larger stores for the last year to accustom people to thinking in euros.  It isn’t easy-we have gotten used to valuing items in pesetas, and even though the euro is close to a dollar in value, that hasn’t helped much.  So it must be worse for those that have lived with pesetas all their lives.

Spanish FlagThe schedule is for 2 months of dual circulation, with only euros after that.  Now for some details of the tactics used.  Most cash registers are electronic and have been reprogrammed to handle both currencies.  Banks had kits of euro coins available in December for their customers so people could start getting used to the feel and appearance, but they could not be used until Jan 1.

The big change-over day (Jan 1) was of course very quiet, the major change being that most cash machines only dispensed euro bills.  Then the tactic to force the change-over was that customers could pay in either currency, but always received their change in euros.  So all the stores were sucking pesetas out of circulation.

It was a bit chaotic in the first week, with small merchants having to do the conversions on calculators.  Lots of mistakes were made, lots of people were confused, but the pesetas were disappearing briskly.  A few operations had problems with machines that accept coins, especially the toll roads.  So they decided to shut down the automatic coin machines until the conversion period is over, giving them time to convert them to euros.  If you want to pay cash, you have to give it to a human operator, otherwise use a credit card for automatic payment.EU-flag

The use of credit cards in general was encouraged to reduce the demand for change initially.  There were some shortages of coins, especially when the big traditional sales kicked in on Jan 8.  Now after a month of usage, the euros are seeming more natural and the prices are starting to make sense.  Pesetas have disappeared-all transactions are in euros now.

[A cartoon that I saw showed a bank robber at the counter, and the cashier asked if the transaction would be in pesetas or euros].

In our house, and I’m sure in most others, there was a sweep to collect all the pesetas and get them spent.  Then you find another coat pocket with a handful of coins, plus an envelope with French francs, another with Italian lira, etc.  There are cans with slots in all the banks for those last few stray pesetas to help children around the world.  We’re going to haul our francs to France for one last meal there before the pumpkin-hour.  The lira we sent with friends that are visiting Italy.

If you are holding on to European currency, send it to me immediately :-).  No, just kidding, but you do need to change it.  Bills you should be able to change at major banks until March 1 when all local currencies will disappear; after that you will have to change the money at the state bank in the country of the currency.  They predict that at least a third of the currencies will never be turned in.  That is pure gravy for the governments.

A side effect of the change-over is its effect on black money.  Spain and other areas of Europe have a sizeable underground economy, with all transactions in cash, not reported to the government for tax purposes.  Now some people are stuck with bundles of currency that will soon be unusable.  So the sales of luxury items skyrocketed in December, especially expensive cars.

Also there seemed to be a lot of money being poured into new construction, and housing prices have risen dramatically in the last year.  We will see if they subside in the coming year.  The government has promised to look into suspicious purchases of luxury items.  There were reports of Germans hauling carloads of marks into Switzerland.

On your next trip to Europe, you will find things much easier, with only one currency to carry unless you visit England, Switzerland, Denmark, Sweden, or Norway.  I wonder how much this will affect tourism into these countries?

The last thought is the number of colloquial sayings that will disappear from the language.  “No vale ni un peseta” = “It’s not worth even a peseta”.  The common words used for money were duros (5 pesetas, or like a nickel), and pelas (1 peseta).  These will disappear.

Euro coins:

1, 2, 5 Cents, Centims, Centimos-Copper colored
10, 20, 50  Cents-Gold colored
1, 2 Euros-Gold outer band, silver inner section

The “front” side of each coin is unique to each country, while the “back” side is common to all.

Euro Bills: 5, 10, 20, 50, 100, 200, 500

Euro countries:  Spain, Portugal, Ireland, France, Germany, Austria, Italy, Greece, Holland, Luxemburg, Belgium, Finland

We wish to thank Tom for allowing us to share his essay with you, our fellow taxpayers.  It is both an interesting, first hand look at a significant event in the history of world currencies as well as an instructive guide as to how one may prepare and what to expect should the monetary authorities in your locale choose to swap their existing national currencies for some flavor of supranational currency, such as the Euro.

At the time the Euro was adopted, it appeared to have a number of benefits for the adherents despite the minor inconveniences and sometimes painful price adjustments (we are told that the typical café, which before the Euro went for 100 pelas (see above) was immediately repriced up to a round 1 Euro (roughly 162 pesetas), an instant 62% increase) that were experienced in its adoption.

Now, some eleven years later, five of the countries on the above list have experienced significant economic distress, while others teeter on the fine line between growth and solvency.

It is important to note, however, that the countries that are now in distress experienced substantial economic booms related to the Euro adoption.  Their governments were allowed to borrow at rates which were aided by the strength of their European neighbor’s finances and, as Tom pointed out, the Central Banks made a windfall profit on the quasi confiscation of nearly 1/3 of the currency in circulation.

Was it worth it?  In terms of currency history, 11 years is a bit too soon to make a call, but either way, we have a feeling that a similar sort of currency “consolidation” awaits many in the not too distant future.  It will not be some sort of conspiracy, as many believe, but simply an attempt by the desperate governments of the world to shore up their ailing finances.

It will ultimately fail, but that time may be farther off than it seems.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for March 18, 2013

Copper Price per Lb: $3.51
Oil Price per Barrel:  $93.21
Corn Price per Bushel:  $7.16
10 Yr US Treasury Bond:  2.01%
FED Target Rate:  0.14%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,596 THE GOLD RUSH IS STILL ON!
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.7%
Inflation Rate (CPI):  0.7%
Dow Jones Industrial Average:  14,496
M1 Monetary Base:  $2,466,100,000,000 LOTS OF DOUGH ON THE STREET!
M2 Monetary Base:  $10,499,300,000,000

Central Banks Coordinate USD Funding actions, the final act of currency homogenization is underway

11/30/2011 Portland, Oregon – Pop in your mints…

Living on the West Coast, there are two things which we take for granted here at The Mint.  First, that viewing Twitter is the quickest way to take a pulse of what is going on in the financial world.  Second, that we are, by virtue of our location, jumping into the financial news of the day when it is half over in New York and finished in Europe, allowing us not only to see the news but also the effect of the news on these markets.

With these two givens, we often pen our thoughts as a sort of digestion (or indigestion, as the case may be) of the events which are currently unfolding.  Such is the case today.

The Final Act

We’d barely had time to collect our scattered thoughts as news came that the final act of the tragedy that is the world’s financial system circa 2011 appears to be underway.  This morning, numerous tweets announcing that coordinated action amongst western central banks, specifically the Federal Reserve and its counterparts in Canada, Japan, Switzerland, and England, had been taken.  The action was taken to rush a fresh supply of cheap US Dollars to the ECB in time for the ECB to prevent a major European bank from imploding today.

Our guess is that the yet unnamed bank is BNP Paribas and by extension its many counterparties.  Any large French bank would be a candidate and we are just guessing that it would be the le grand chat.

The USD got torpedoed in coordinated action

As further evidence of the final act being underway, we see that the Federal Reserve suspended its POMO (Permanent Open Market Operation) for today until December 2nd.  Not coincidentally, this latest operation was to withdraw liquidity from the US dollar system on a day on which apparently the system was calling for more.

To simplify what has happened for our fellow taxpayers we offer the following executive summary:  Today is the final day of a calendar month, a day when accounts must be settled.  A large bank in the Euro zone did not have enough US Dollars with which to pay back its short term loans to other banks.  It turned to the ECB, which did not have enough US Dollars to backstop the large bank.  The ECB, then turned to the Federal Reserve, which quickly shifted gears from suck to blow and confirmed, once again, that it will print money any time there is a liquidity crunch, anywhere in the western world.

The FED will now wait until the dust settles on December 2nd to see how much liquidity it can withdraw from the system without imploding it.  To them we say: good luck.

As longsuffering Mint readers are already aware, a debt based currency regime, which is erroneously referred to as a monetary system, relies on the infinite creation of debt along with its continued acceptance in place of money proper in order for the game to continue.  Once either of those conditions ceases to exist, it indicates that a majority no longer have confidence in the currency regime.  In other words, the currency regime has failed.

The western central banks appear to momentarily have their streams crossed, and in a pointless effort to homogenize interest (and by extension foreign exchange) rates, will increasingly take this sort of “coordinated action” until their currencies act and trade as one. 

A JP Morgan note on this most recent coordinated action highlights the fact that the Federal Reserve not only will lend dollars to these Central Banks at a discount, the foreign Central Banks will in turn lend their respective currencies to the Federal Reserve at a discount on demand.  This gives further credence to the fact that the system has already failed and is in retreat, with the Central Banks themselves left passing their currencies and credits amongst themselves and their member banks.

Once this is homogenization process is complete; a severe devaluation of the homogenized currency will take place which will leave any holder or the homogenized currency(s) as a savings device substantially poorer and the holders of real assets better off on a relative basis.

However, on balance, the world as a whole grows poorer every day that the centralized currency regime is allowed to continue its violently enforced monopoly on currency issuance.

Money proper was never meant to be centralized and controlled by a single entity, and the current system which engenders this centralization is exploding before our very eyes.  Yet it will not go without a fight.  Recent events in the Middle East and Iran indicate that yet another physical fight to expand this failed system may be at hand.

It is a further expression of the Might Makes Right ideology, and it is time to pray for the peace of Israel.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for November 30, 2011

Copper Price per Lb: $3.56
Oil Price per Barrel:  $100.17

Corn Price per Bushel:  $6.01  
10 Yr US Treasury Bond:  2.07%

FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,747 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.0%
Inflation Rate (CPI):  -0.1%
Dow Jones Industrial Average:  12,046  

M1 Monetary Base:  $2,095,600,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,664,500,000,000 YIKES UP $1 Trillion in one year!!!!!!!