# Hold some cash in case of euro breakup



## Swyper (23 Nov 2011)

One other option of course that is not mentioned is having a stash of cash in the safe.


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## PolkaDot (24 Nov 2011)

Swyper said:


> One other option of course that is not mentioned is having a stash of cash in the safe.



That is not a viable option with Euro. What if the Euro collapses completely? Your bank notes will become worthless.


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## Brendan Burgess (24 Nov 2011)

Swyper said:


> One other option of course that is not mentioned is having a stash of cash in the safe.





PolkaDot said:


> That is not a viable option with Euro. What if the Euro collapses completely? Your bank notes will become worthless.



Hi Swyper

Like PolkaDot , I just can't see any reason for doing this, so I did not include it as an  option worth considering. 

It only protects against a bank going bust. I think that the loss of interest and the security risk comfortably outweigh this. 

If there is an argument to be made for it, you might start a new thread and I will link to it from here, so as to keep this thread in overview mode.


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## Swyper (24 Nov 2011)

PolkaDot said:


> That is not a viable option with Euro. What if the Euro collapses completely? Your bank notes will become worthless.



That is true. But if the euro doesn't *completely* collapse then it is a hedge against a breakup of certain peripheral countries leaving and devaluing.

In the event that euro notes cease overnight to become legal tender then you should probably be more worried about the looters than the purchasing power of your cash.

Personally, I think holding cash is part of a sensible strategy. If Ireland leaves the euro, you can be sure that it will be hard to access your bank account for a while. It would be foolhardy in the extreme to hold your entire life savings in a safe.


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## Brendan Burgess (24 Nov 2011)

Are we not one of the leading candidates for leaving and devaluing? 

So do we check our notes and hold on to  the German ones and get rid of the Greek and Irish ones?


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## z107 (24 Nov 2011)

I believe that this is a sensible option. Maybe not hold your entire savings in cash, but at least some of it.

Two reasons I can see:
1. As mentioned, a bank collapse. Well the banks have already collapsed so it doesn't take a huge leap of the imagination for the rug to be pulled and depositors lose out. Certainly wouldn't be the first time this has happened!

2. It's harder for the government to help themselves to your savings. Look what they did to pensions earlier in this year. Deposit accounts could easily be next.


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## Swyper (24 Nov 2011)

Brendan Burgess said:


> Are we not one of the leading candidates for leaving and devaluing?
> 
> So do we check our notes and hold on to  the German ones and get rid of the Greek and Irish ones?



If there was some process put in place to revoke the legal tender of notes based on their serial number, then the idea of a common currency would be dead for good. There is good faith there right now that a German note can be spent in Italy and vice versa. If they started doing this (i.e. revoking legal tender for some notes), then there is going to be a de facto market scenario created with a non-1:1 FX rate on euro notes even in the countries which are left in the Eurozone. No German retailer is going to accept anything other than German notes due to the risk that the authorities would do the same to French notes etc. So, if the central European powers want to keep any kind of monetary union they would have to honour the legal tender of Irish and Greek euro notes, even post-exit.

Again, I think this scenario comes under the "worry more about the looters" situation. And rather than worry about the value of your cash, you should be more worried about the best before date on your stocks of tinned spam, and whether your gunpowder is dry. Not *there's* another hedge!


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## horusd (24 Nov 2011)

I think the cash option would only apply in a case of catastrophic collapse, which is highly unlikely. If certain countries decouple from the Euro it is likely this will be done over time for all sorts of very practical reasons from parking metres to money printing. I assume it would be something like a fixed rate of exchange, a deadline date and a gradual replacement of the Euro. These would be necc. to prevent panic, but how any gov't would prevent capital  flight to other zone countries is beyond me. The difficulties this would all create means there isn't an easy non-catastrophic option other than to hold the Euro together.


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## z107 (24 Nov 2011)

> I think the cash option would only apply in a case of catastrophic collapse, which is highly unlikely.



Why do you think this would be highly unlikely? All we seem to be hearing about recently is the impending collapse of the Euro.
Looking at the astronomical figures involved and the steps made so far to shore up the Euro, I would say its collapse would be at least 50/50.


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## Swyper (24 Nov 2011)

horusd said:


> I think the cash option would only apply in a case of catastrophic collapse, which is highly unlikely. If certain countries decouple from the Euro it is likely this will be done over time for all sorts of very practical reasons from parking metres to money printing. I assume it would be something like a fixed rate of exchange, a deadline date and a gradual replacement of the Euro. These would be necc. to prevent panic, but how any gov't would prevent capital  flight to other zone countries is beyond me. The difficulties this would all create means there isn't an easy non-catastrophic option other than to hold the Euro together.



How can you have a "fixed rate of exchange" that nobody would believe in? We would quickly see a black market rate of exchange as sellers look for much more in punts than they would accept in euros. Everyone would know the devaluation was on the way and so would not accept punts at the "official" rate. This is different to the way we entered the euro, where people had confidence in the new currency.

The only way to get around people's reluctance to convert to a pre-devalued punt would be to forcibly convert money. That's easy to do with bank accounts. It's much more difficult to do with cash, which is why I suggest holding a limited amount of cash is a good idea. During the "few weeks" you talk about above, you can expect banks to be closed, cash machines to be out of operation and a general unavailability of hard currency. It would have to be accompanied by capital controls.

The euro is a train heading to a brick wall. The train can go left or right to avoid the wall, but there are 17 drivers and they can't agree which track to take. In the meantime, it's straight ahead.

I think the mutually-assured-destruction scenario means that we will get a combination of ECB backstopping, eurobonds, significant debt write-off for at least Greece, and intrusive budgetary oversight. I think those in power know that this is where we will end up, but they all need to posture for their own electorates.


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## capilano (24 Nov 2011)

> I think the mutually-assured-destruction scenario means that we will get a combination of ECB backstopping, eurobonds, significant debt write-off for at least Greece, and intrusive budgetary oversight. I think those in power know that this is where we will end up, but they all need to posture for their own electorates.


 
SWYPER, 


If we get the above, would that not mean that the euro would continue as a currency for all but would devalue against other currencies?


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## Lightning (24 Nov 2011)

horusd said:


> I think the cash option would only apply in a case of catastrophic collapse, which is highly unlikely. If certain countries decouple from the Euro it is likely this will be done over time for all sorts of very practical reasons from parking metres to money printing. I assume it would be something like a fixed rate of exchange, a deadline date and a gradual replacement of the Euro. These would be necc. to prevent panic, but how any gov't would prevent capital  flight to other zone countries is beyond me. The difficulties this would all create means there isn't an easy non-catastrophic option other than to hold the Euro together.



Good post. 

We are back to barter if there any attempt to suddenly break to EUR up in a snap. 

There has 10 years of planning that went into the conversion from IRP to EUR. There will need to be planning and time frames around the conversion from EUR to the new European currencies. 

That been said, contingency planning by individuals who want to protect their deposits against the conversion to the new currency makes sense.


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## horusd (24 Nov 2011)

Swyper, the thrust of my post was that its next to impossible for an orderly decoupling from the Euro.The idea of a fixed exchange rate has occurred before, but you are right, it would entail serious problems, not least the one's you mention. However, most money is held electronically in the form of debt, particularly Govt. debt, or other electronic means, so setting a fixed exchange rate is not theoretically impossible. 

And there may be advantages to this decoupling, a debt transferred in punt nua would also immediately devalue, assuming 1:1 transfer, inflation would rise, exports would rise, imports would fall.  Despite this I still think its impossible - some British tycoon is offering big bucks for someone to come up with a way of leaving the Euro. I think he will be holding onto his money.


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## Swyper (24 Nov 2011)

capilano said:


> If we get the above, would that not mean that the euro would continue as a currency for all but would devalue against other currencies?


 
In theory, yes, but the reality is a lot more complex. The US is likely to have to engage in a bit more QE, the Chinese are adept at manipulating their currency, etc. The injection of confidence when European leaders finally sort this thing out may well relieve the current downward pressure on the Euro by repairing demand for Euro assets. Anyone who thinks they can predict how that will turn out is very foolish.


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## Swyper (24 Nov 2011)

horusd said:


> Swyper, the thrust of my post was that its next to impossible for an orderly decoupling from the Euro.


 
No disagreement there. That doesn't mean that break-up is impossible or that even a partial break-up is impossible. To get this back on thread, in the event of a break-up where one or more countries continue with Euro as legal tender, having a small reserve of Euro cash makes sense. In the case of abandonment of legal tender, all bets are off. Shart shooting looters.



horusd said:


> The idea of a fixed exchange rate has occurred before, but you are right, it would entail serious problems, not least the one's you mention. However, most money is held electronically in the form of debt, particularly Govt. debt, or other electronic means, so setting a fixed exchange rate is not theoretically impossible.


 
Exactly. So holding some wealth which is not electronic makes sense, as it is difficult for governments to forcibly convert it at a false rate at a point in time.



horusd said:


> And there may be advantages to this decoupling, a debt transferred in punt nua would also immediately devalue, assuming 1:1 transfer, inflation would rise, exports would rise, imports would fall. Despite this I still think its impossible - some British tycoon is offering big bucks for someone to come up with a way of leaving the Euro. I think he will be holding onto his money.


 
We, in Ireland, have a very good option here - though one that would make the armchair patriots choke on their Lucky Charms. If we wanted to leave, all we would need to do is make Sterling legal tender along with Euro. Because sterling is an existing, trusted currency (unlike punt nua), it would not instantly devalue. But I suspect that is a topic for a different thread.


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## Brendan Burgess (30 Nov 2011)

I have included a link to this post in the Key Post on the topic. 

Is the following text a reasonable summary? 



> *Hold some actual euro notes
> *This is discussed in more detail in this thread.
> 
> The reasoning is:
> ...


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## Pope John 11 (30 Nov 2011)

Brendan Burgess said:


> I have included a link to this post in the Key Post on the topic.
> 
> Is the following text a reasonable summary?



Cons
Your stashed euro in the safe, under the mattress or in the USA biscuit tin hidden underneath the floor boards becomes worthless in the event of a euro breakup.


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## Gervan (30 Nov 2011)

> Your stashed euro in the safe, under the mattress or in the USA biscuit  tin hidden underneath the floor boards becomes worthless in the event of  a euro breakup.



This surely can't be true. All the current euro countries would be changing their euro into their new/old currency, so surely we could just pick which currency we wanted our stashed euro to become.


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## Brendan Burgess (30 Nov 2011)

OK, I have added the following line. 



> If the euro completely collapses, then your notes will be worthless. However, so would any deposits in a German bank.



The heading of the original post is "Protecting against a collapse in the Euro". Maybe it needs to be changed to something else?

brendan


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## Lightning (30 Nov 2011)

Swyper said:


> We, in Ireland, have a very good option here - though one that would make the armchair patriots choke on their Lucky Charms. If we wanted to leave, all we would need to do is make Sterling legal tender along with Euro. Because sterling is an existing, trusted currency (unlike punt nua), it would not instantly devalue.



+1. A conversion to GBP would make most short term sense and cause the least panic. Perhaps, this is in Noonans' contingency plan.


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## smndly (2 Dec 2011)

What about holding some cash in another currency such as Norwegian Kroner or Swiss Francs? It avoids the hassle of opening an account in a foreign country. And these currencies will presumably be safer in the event of the euro collapsing.


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## easylife (16 Dec 2011)

smndly said:


> What about holding some cash in another currency such as Norwegian Kroner or Swiss Francs? It avoids the hassle of opening an account in a foreign country. And these currencies will presumably be safer in the event of the euro collapsing.



Anyone got any opinions/downsides to this? I assume an approximate combined 5% hit from exchanging and re-exchanging, plus receiving no interest, but anything else?


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## serotoninsid (16 Dec 2011)

easylife said:


> Anyone got any opinions/downsides to this? I assume an approximate combined 5% hit from exchanging and re-exchanging, plus receiving no interest, but anything else?


As outlined ad nausem, fx risk - that's on top of what your going to lose on converting to and from euro...


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## theTinker (16 Dec 2011)

As the fluctuations in the euro and dollar are very frequent and varying, I'd usually avoid changing to dollars.
However, As this discussion has the premise that the euro may fail, Would it make anymore sense in these times to hold dollars? If the euro doesnt fail, The fx risk would be the same as it usually is and often swings up and down, so i think there is some wriggle room. Infact, I think i've made about a 10% increase on dollars ive held this year just due to holidays etc and the fx rates.
If the euro does fail, the dollar would be holding its value alot more than the punt nua no? it may even increase in value as without the euro, im assuming more wealth will be placed into the dollars hands.

I'm pretty noob like when it comes to these things, so i apologise if ive just spoken garbage to all you AAM veterans!


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## easylife (18 Dec 2011)

serotoninsid said:


> As outlined ad nausem, fx risk - that's on top of what your going to lose on converting to and from euro...



Okay, from above, Id appreciate if someone could confirm the following:
1) FX risk: Is this the risk you take on whether the exchange rate has gone your way, or not, between changing from euro to [foreign currency] and back again at a later stage? If so, then having foreign cash wouldnt be any different to a foreign deposit?

2) Converting to/from euro: Again are the same costs not incurred whether you're converting a cash amount or a deposit balance?

Thanks


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## serotoninsid (19 Dec 2011)

easylife said:


> Okay, from above, Id appreciate if someone could confirm the following:
> 1) FX risk: Is this the risk you take on whether the exchange rate has gone your way, or not, between changing from euro to [foreign currency] and back again at a later stage? If so, then having foreign cash wouldnt be any different to a foreign deposit?


...refers to the risk in swapping your euro's out to whatever other currency.  Will that currency rise / fall against the euro?? - that's the variable.



easylife said:


> (2) Converting to/from euro: Again are the same costs not incurred whether you're converting a cash amount or a deposit balance?


Keeping in mind (1) above, lets work on the assumption that no fluctuation occurs - and if/when you decide to do so - you can change your foreign currency back into euro's again.  Based on this assumption, there is still a cost - as the bank you use to convert from euro to other currency - and back to euro - will take their margin on the initial conversion and again - when converting back.

Hope that makes sense...


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## kdoc (19 Dec 2011)

It's unlikely that the euro will be going anywhere, at least in a hurry. Far too many countries using it to dismantle the system any time soon.


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