Louis Proyect: A Brief Response to Joe Firestone on IT/Grexit

By Louis Proyect, who has written for Sozialismus (Germany), Science and Society, New Politics, Journal of the History of Economic Thought, Organization and Environment, Cultural Logic, Dark Night Field Notes, Revolutionary History (Great Britain), New Interventions (Great Britain), Canadian Dimension, Revolution Magazine (New Zealand), Swans and Green Left Weekly (Australia). Originally published at Louis Proyect: The Unrepentant Marxist

On August 18 I wrote an article in response to Joe Firestone, the author of an EBook titled “Austerity, Greece’s Debt Crisis and the Theft of Democracy” that had a chapter on the IT problems of a Grexit, which addressed earlier articles I had written.

Yesterday someone brought my attention to a follow-up on his blog (http://neweconomicperspectives.org/2015/08/on-the-it-problem-of-grexit-a-reply.html) that once again tries to strike a balance between Australian economist Billy Mitchell’s blithe assurance that the IT problems are minimal and my own insistence that it will be at least a three year effort to modify the systems. This will be a brief response to Firestone’s latest.

Firestone maintains that he is only for studying and evaluating some approaches. He also favors a phased implementation, something that is put forward concisely in a comment he made under his article:

  1. The mainframe application is undoubtedly very complex so there is a good possibility that Louis is right and the mainframe conversion to Drachma processing cannot be accomplished in the short time necessary for Grexit
  2. So, if we want to support a Grexit that may be necessary in the short term, then we must find a way to get around the need to convert the mainframe application in the short-term
  3. The two possibilities I suggest in my book deserve discussion as possible ways to avoid immediate conversion of the mainframe application and to have to deal with the complexities of the interaction between humans and the mainframe inherent in the operation of the application in the real world

This assumes that you can hold off converting “the mainframe application” for the future but that’s not the way that banking systems are put together as if they were Lego toys made up of discrete modules that can be assembled in phases.

Think of it this way. When you open a checking account, you sit at the desk of some bank officer who begins entering your information into a computer, starting with name, address, social security number, etc. He or she then issues you a temporary ATM card that can be used immediately for deposits and withdrawals.

In the ensuing months, customers might take out a credit card from the bank and afterwards a mortgage and/or an auto loan. And each month they expect a statement that will have an accurate record of their transactions, both debits and credits. I am sure everybody is accustomed to this unless they are used to keeping cash under a mattress.

The implicit assumption (bordering on explicit) in both Mitchell and Firestone’s presentation of the problem is that such a “phase” is essential to moving to a drachma. I can certainly understand why someone might think in those terms because that is generally how we relate to a bank—as a customer. I should add that the applications that handle such relationships are generally referred to as belonging to the “front office”.

Unfortunately, most “back office” operations must be converted on the very day that you implement a new front office based on a drachma since they are designed to support the managers and clerks who are invisible to the customer but critical to bank operations.

For example, the accounting department of a bank is fed data aggregated on a daily basis from various sources in order to populate a General Ledger, which is the source of profit and loss statements and other essential reports for treasurers, auditors and the like. Your deposits and withdrawals are lumped together with those of other customers and end up in buckets identified by a unique General Ledger Account Number, one of which might reflect Mortgages. Needless to say, knowing how much is owed to the bank in this category is essential to a bank based on the 2008 financial crisis.

So if the accounting software is still denominated in euros, what are you supposed to do? Use these for a couple of years until the next phase kicks in?

Grexit adding machine

This does not begin to address the problem of being able to rely on accounting systems once they are converted to handle the drachma. Banks have historical data that is used to generate reports that reflect financial trends. Since 2003, data has been captured as euro-denominated. If you want to study how the mortgage business has been faring over a ten-year period, you need to write conversion software to update computer files going back to the day Greece switched from the drachma to the euro. You also need to make sure that all back-office applications are checked for hard-coded tests for a euro amount, as I have pointed out a number of times.

I know that most of my readers and those who have seen my posts on Naked Capitalism care little about the financial analysis conducted by bank officers in order to make business decisions but as long as Greece remains capitalist, that is the name of the game. This is not a problem limited to banks. It applies as well to insurance companies, brokerage houses, manufacturers, and any other large-scale capitalist enterprise.

Now it is entirely possible that at some point Greece might elect the candidates of the new Popular Unity party that is a leftwing split from Syriza and that is committed to a Grexit, at least if you take them at their word. They may consider the conversion to a drachma to be cost-justified even if it entails the wrenching IT modifications needed to make it work. While I am obviously sympathetic to resisting austerity, I cannot help but wonder if the answer lies solely in the type of currency used. I plan to write a series of articles about Greece that deals with the economic problems in general and hope that by that time the IT questions will no longer need to be discussed since in the final analysis they are secondary to the political ones.


  1. Synoia

    The nearest, orderly, comparison I can recall is the Irish Pound break from the Pound Sterling. I believe the break was made from the Pound Sterling when the Pusan sterling was floated in 1971.

    Thing were not very computerized at that time. I believe all bank branches were performing their lefger work independently, and the only connection between branches was check clearing, DDAs system were not deployed.

    The most recent change a currency was the Iraqi Dinar. Personally I’d not call that an orderly change.

    In other works we have no current road map, or a plan to follow. Any break from the Euro is new, there is no experience to use, and includes much research.

    Going to the Moon was easy, first assume a large rocket…

    1. washunate

      Ironically, the euro itself does give us a halfway decent roadmap, in principle. The ECSC (Coal and Steel Community) was formed under Bretton Woods, when the US dollar was defined as a certain weight of gold. The Europeans developed a unit of account called the European Unit of Account (EUA) in the 1970s as the US started pulling back from the Bretton Woods arrangement. This led to the European Currency Unit (ECU) in 1979 to peg European currencies to each other (essentially, to the West German Deutsche Mark – the French, correctly IMO, viewed integration as working better with a common currency rather than having the German mark function independently as the de facto lead currency in Europe) in the face of the dollar floating against gold rather than being defined by it. Then that led to the euro replacing ECU in 1999, and finally full rollout at the end user level of the euro currency in 2002. German unification probably delayed things a bit, but basically it took them a quarter century to move from national monetary coins and the ECU currency basket to the actual implementation of a shared physical and electronic currency in the euro.

      An individual country, especially one motivated and organized at scale in a national emergency, could obviously move faster since it can jump straight to the step on getting the accounting currency going. But I think this general process is a pretty good conceptual map. First outline where you are going, then get the internal affairs in order so regional activity is moving in concert, then roll out an accounting currency, then produce physical coins and notes.

      Or perhaps a different kind of map is the Apple Pay program. This involved close collaboration with payments providers (particularly MasterCard and Visa) on the order of hundreds of dedicated computer programmers working in secrecy for something like 18 months, then another year after initial rollout to bring on additional banks and the Discover network and retailers and trouble shoot problems and so forth.

    2. AEL

      It may well be easier to starve the legacy applications. Everything existing continues to run on Euros. Bring up new systems, new cards, new accounts, new everything on the drachma. The government starts paying out in drachmas and people can either start using those drachmas in the new system (or systems as they come on line) or convert them to euro’s (at whatever exchange rate) and move them to the old systems. Since the old systems will continue to work, people will still be able to pay for things

      1. washunate

        Yeah, this idea has been in the mix for awhile. Since it sounds intuitive at first glance, it’s helpful to focus on this particular component:

        at whatever exchange rate

        That’s the trick. If the new drachma is not interchangeable with the euro at 1:1, then what you have in practice done is reduced the real wages of the workers and suppliers being paid by the government. If it takes 10 new drachmas to buy 9 euros, then you have effectively cut people’s salary by 10% (from 10 euros to 9 euros).

        If that is the desired policy goal, there is no need to create a new currency in the first place. You can simply cut government spending, or raise taxes, by the desired percentage.

        1. AEL

          The policy goal is to get Greece off the euro with the minimum of human suffering and delay.

          Moving to a parallel system allows for a evolution towards the drachma, rather than an unimplementable overnight cutover.

          1. washunate

            I am curious why getting Greece off the euro is a policy goal in and of itself? What does that accomplish?

  2. washunate

    Continuing to enjoy this series. I think it’s really important to analyze the operational details of policy proposals that are advocated as solving major social problems.

    …hope that by that time the IT questions will no longer need to be discussed since in the final analysis they are secondary to the political ones.

    That seems the ongoing crux of the matter. In the long run, could Greece reclaim monetary sovereignty? Of course; it can absolutely be done. If Greece had gone down this path in 2010 instead of the bailout path and the long-running bank run, they would have a functioning drachma today and a solvent banking system.

    But reality means accepting that we are at where we are at, and in the short-run, sovereign money (from parallel currencies to a new drachma) offers no solution to the Greek dilemma. It’s a political question of whether Greece desires to renounce the euro-denominated debt or attempt to pay it off (tax the oligarchs, gut social spending, cut (real) wages for public workers and vendors, privatize public assets, bail-in remaining bank deposits, and so forth).

  3. micky9finger

    Once again Greece can’t stop using the Euro because it’s too hard for IT.
    It seems one of Joe Firestone’s points was: let’s
    use our brainpower to figure out how to do it- not how it can’ t be done.

    1. Yves Smith Post author

      I suggest you read the comments on previous posts from IT professionals. This is not a matter of “brainpower”. It is a matter of brute force effort to inspect literally billions of lines of code. There are no tools to do otherwise in Cobol. Worse, some of this code may even be in binary. Given the massive problems of legacy systems in large banks, if there was an easy fix amenable to mere “brainpower” this situation would not exist in the first place.

      And having been told that repeatedly, and in gory detail by Louis, Clive, and having that reading confirmed (and then some) by bank IT professionals in comments, continuing to say, “Gee surely we can find a way” looks more and more like sticking your fingers in your ears and saying “nah nah nah” because you don’t like what you are being told.

      1. Wendy

        Yves, I work in IT on mainframe computers, and if the system was designed properly it may mean just some table entries. Also if the systems are really old the code for the Drachma may still be there commented out or just down the path not taken.

        1. Richard Smith

          Hi Wendy, what are the systems requirements that ‘may mean just some table entries’? Presumably they fit into the space available for reader comments too. It would be interesting to see them.

        2. Clive

          Separating code from data is, as you imply, good coding practice. But it is surprising, more surprising to perhaps a younger generation of developers, how comparatively recent a custom or directive (exactly how rigorously it is implemented depends on the culture and degree of enforcement present at the enterprise which owns the codebase) it is. Put it this way, I’m not that old, but when I first started developing IT systems 25 years ago, spaghetti code was the norm. I can clearly remember Microsoft introducing the doc/view model for Windows development and the first iteration of the MFCs. Before that, most of the C or assembler written for Windows 3.0 applications was very unstructured.

          Most core banking systems are even older than that era. You may be dealing with 30 or even 40 year old codebases. Separating out your reference data from your programming logic was something that was learned by developers the hard way. Only after many years of bitter experience of what happens when you don’t do this and how hard it makes it to maintain the codebase did “modern” approaches to writing code emerge. So when you say, in hope, that Greece’s financial systems’ were “designed properly”, by which you mean “designed as we would design them today”, your hope may well be completely misplaced. It wasn’t that many decades ago, developers were being intentionally useless. It’s just that they didn’t know what we know today (or have learned in the past 20 years or so). And if the currency definitions or parameters weren’t segregated in reference data (“it may just mean some table entries”) they you have to unpick the spaghetti code to find them and change them.

          Furthermore, even if when the systems were “euro-ised” (if I may call it that) the old drachma references were just commented out, that might make them easier to find – and note that I say “might” here, that is an unvalidated assumption – but it gets you nowhere in overcoming the problems of agreeing the design/specification you are working to, unit testing (just the system you are changing in isolation), system and integration testing (testing with other systems you have upstream or downstream interfaces and dependencies on) and how you do your implementation. Implementation is the biggest residual risk in your “let’s just uncomment the old drachma code” premise because you’re presupposing that cutover from the euro to (for example) a new drachma is definitely going to be done as a “big bang” i.e. you decommission the euro and immediately switch over to the drachma. But it is just as likely that some period of parallel running is going to be needed where both currencies are maintained. Just reinstating the “drachma” code kills your ability to settle any outstanding euro transactions. This might not be the requirement. Solutionising in the absence of agreed requirements is a very unwise thing to do in software development.

      2. Brooklin Bridge

        A point of clarification, not disagreeing with the points you have made here and elsewhere (many times). Looking on Wikipedia, I note that COBOL is a compiled language. Normally, this should mean that where the source code is available, pattern matching tools such as grep or egrep CAN be used even with COBOL for assistance in tracking down hard coded constants and other such issues. Still, even more modern source analysis tools are far from perfect given such massive amounts of code but better than nothing.

        Where the source code is not available, however, as you note, it becomes much much harder, and in some cases impossible, especially if the symbol table is stripped out, to track things down (never mind correct them) short of testing or having them blow up in your face in a live environment. Given the age and the disparate nature of all the binaries that make up the “system” in any particular area such as Greece, I imagine that source code is frequently not available, so my point is one of accuracy (assuming I haven’t missed something unique to COBOL or COBOL on mainframes) rather than one of feasibility.

        This contradicts nothing that has been said on the difficulty of such a conversion (3 years), and in particular on the impossibility of meeting the time and financial and political constraints that would be so critical if this effort were to actually be tried.

        1. Howard Beale IV

          I have been doing COBOL coding professional since 1980, so I think I can speak with some level of knowledge here.

          Firstly, many newer systems written on non-COBOL systems will probably not be an issue as in all likelihood they will be using IEEE-758 decimal floating point-so things like ATM’s and retail POS’s will in all likelihood won’t be an issue, as will as many of the middleware systems.

          The core back-ends, written in COBOL, will definitely be problems depending on the sizing of the PICTURE clauses used for holding numerical accounting data. These are typically going to be held in what we call PACKED-DECIMAL/COMP-3, where the maximum size limitation is 31 decimal digits. Most packaged core banking software support I have worked on support multi-currecncy processing (and I believe that some vendors would have provided EURO conversion support way back when, but I wasn’t in that domain at the time.)

          You have several problems: (1) The people who did the initial flip from the Drachma to the Euro are retired or probably dead, (2) the historical conversion will require that the currency conversion matrixes haven’t been tampered/altered (if you even choose to go down that road)

          1. Synoia

            No financial (accounting) system uses floating point.

            The books, the ledgers, in a floating point system do not balance to the penny.

            1. Howard Beale IV

              What part of the IEEE-758 DECIMAL (i.e., NOT binary) floating point spec did you not understand? If you’re that paranoid, you can use Java’s BigDecimal class, which will negate any truncation concerns.

              1. Synoia

                I have to dig into my memory on how we coded this stuff…

                IBM mainframes had, in the early ’70s four forms of arithmetic (360, 370, and 303x series of mainframes).

                Addressing, Fixed binary, fixed decimal, short floating, and long floating point.

                I never used floating point, even in PL/1.

                – 360/370/3033 Addressing was limited to 24 bits, specifically the LA instruction.
                – Binary fixed point number used 31 bits, and a number was negative if the high order bit was a 1. Otherwise it was a positive number.
                – Packed fixed decimal was the arithmetic of choice. I seem to remember the length limit for character moves, before the ML instruction was created, was 255, and number addition 8 bytes or 15 digits of precision.
                -The rightmost 4 bits of the packed decimal field of 8 bytes donated the sign of the number, a hex C was positive and a hex D was negative. Each of the remaining 4 bit fields could only have values from 0 to 9, and if a packed instruction hit a non valid number, the processor threw an exception (in OS 360 I believe this became an OC4 abend)

                The floating point in the 360 architecture would round numbers depending on the exponent, because there were not 15 digits of precision in floating point numbers, as there were in fixed point decimal numbers.

                All this is the basis of all banking systems, I do not understand your reference to IEEE decimal specifications, because I believe them to be published after date the introduction of the IBM 360 series architecture, which was sometime in 1962 or 1963.

                Bottom line: Floating point did not have enough precision for ledger or accounting systems, only fixed point.

                FLOATING POINT HAS INSUFFICIENT PRECISION for accounting systems. Are we clear?

                1. Howard Beale IV

                  You’re abslouteley clueless. Today’s floating point has more than enough precision. Case closed.

              2. Synoia

                IBM COBOL translates the PCI 999 COBOL type declarations in to fixed poit decimal arithmetic, because there is no specification for the exponent part of a number in the PIC 999 COBOL definition.

                Your comment states “IEEE-758 decimal floating point” is irrelevant if the processing of the floating point number reduces precision. For example $2,000,000 + $0.01 can cause rounding, if the numbers are expressed as $2^10^6 + $1000000*10^-8.

                Floating point is for engineers, and the most precision any engineers use is in surveying, which historically used 7 figures of precision.

                1. Howard Beale IV

                  The fact that you haven’t even bothered to look at IEEE-758 means you have no clue as to what is happening in today’s IT processing systems, and can be cheerfully mocked as being a true know-nothing, while the rest of us who actually make a living in this industry shake our head and pray we never run across your kind as a contractor.

      3. Howard Beale IV

        It isn’t that aren’t tools to do it (there are.)

        It’s always boils down to the same question-who’s going to pay for it?

    2. flora

      The point is not : Greece can’t do a Grexit because it’s too hard to modify the banking IT.
      The point is : Greece can’t do a quick Grexit because there’s no easy way to modify bank IT. (millions of lines of code, interfacing and integrating with world pay systems, etc.)

  4. Matthew Saroff

    I’m wondering if some sort of block chain protected online currency might be the answer.

    Kind of a bitcoin for non-criminals.

    Also, I’m wondering if the increased use of local scrip in the Greek economy in the next few years may lead to a defacto parallel currency that could be used.

    1. Yves Smith Post author

      The issue is that no matter what the currency is, you need to have the systems recognize it. That takes massive changes to the systems. Bitcoin does not address the underlying IT issue. This is a payments system problem.

    2. washunate

      the answer…to what?

      …if Greek depositors will accept the online currency in exchange for their euro bank accounts, then it would absolutely allow the insolvent Greek banks to recapitalize.

      …if Greek public workers and vendors will accept the currency in exchange for their euro wages, then it would absolutely free up government euro spending for debt payments.

      …if the IMF will accept this currency in exchange for euro-denominated debt, then it would absolutely address IMF debt.

      …if the ECB will accept this currency in exchange for euro-denominated debt, then it would absolutely address eurozone debt.

      In addition to the implementation question of IT (and its associated marketing/communication challenges, such as how to educate the public about the currency), the fundamental question is why. Why would anyone who has a claim on euros give up that claim unless the online currency was worth at least as much as the euros being surrendered? There are many potential reasons, of course, from court orders to military invasions to threats against family members to cultural norms, but some reason is required.

      One of my favorite operational examples is that the East Germans used to make visitors from western countries do all sorts of bureaucratic things, like pay booking fees for their itinerary and buy a certain number of East German marks. Or if you were just traveling through to West Berlin, you might have to stay at government hotels and purchase gas along the prescribed routes, all at friendly marked up prices for the gracious hosting provided by the Democratic Republic. And perhaps nothing was more creative than the ‘ransoms’ – a system that turned into direct cash payments in the East German budget for releasing prisoners (supposedly) to the west. Of course, the systemic problem with forcing compliance with a currency is that it usually leads to collapse in the not so distant future.

      …more than 77 percent of total ransom payments were transformed into foreign currency and used to pay the GDR’s debts at West German banks.


  5. Watt4Bob

    I am more and more amazed at the fact that so many people with little or no experience with IT systems are willing to argue with experts on the topic, about the nature of the processes that would be involved in moving Greece off the Euro, and back to the Drachma.

    It reminds me of conversations I’ve had with ‘users’, (I work in IT) I tell them that something they want to do is impossible, not-allowed, or ill-advised and they say; “No it isn’t!”, “Why not?”, or “I don’t care!”

    They want a, “Do what I meant” button, and can’t get it through their heads that the machine is doing exactly what it was designed to, and that’s what we all rely on to get our jobs done.

    Another unfortunate, and related factor in this discussion is the widely held opinion that “main-frame” is synonymous with “obsolete”. This is a grave misunderstanding. Most main-frame systems were designed at a time when both processor cycles, and storage were very expensive, so a lot of effort was put into making both programs and data bases elegant and thus efficient in their use of processor time and disk space.

    What this means in the every-day world, is people who don’t understand these very important systems, insisting that the “solution” is ‘obviously’ getting rid of the ‘old stuff’ buying some ‘new-is-better’ stuff and telling those who disagree that we’re just not ‘with-it’.

    Computer systems involve hard science, your EQ will not help unless you apply it to getting along with those who know what they’re talking about.

    The people who know what they’re talking about have patiently explained the problems, and evidently, no amount of careful explanation is sufficient.

    I’ll say it one last time, and then I’ll quit;

    Nobody is saying it’s impossible, they’re simply explaining the likely time-frame involved.
    This is not a value judgement, it’s a factual observation by people who’ve done these sort of jobs before, know what’s involved, and how long it takes.

    1. Brooklin Bridge

      Familiarity with any software that is mission critical, transactional, high volume and distributed, never mind banking, should be more than enough to get the picture, but even more so with the domain specific detail and description that has been given in the various posts on the subject.

      Also, the fact that software projects, particularly where integration is dense, are notoriously obstinate in complying with the time estimates of even very meticulous and well researched analysis should be tempering a few of the more experienced commenters that have taken issue with the difficulty described. It’s odd. Either they are not as experienced as they say, or there is something missing. Such projects truly are the tree that runs out into the road to make sure the car has an accident in spite of the best efforts of the driver. In a complex system such as conversion to the Drachma, time, effort and cost are just not avoidable.

      1. flora

        Brooklin Bridge and Watt4Bob,

        It seems that in many peoples’ minds – even some IT people – the computer is not ‘the computer.’ It is ‘the Computer’ , with pronoun capitalization.

    2. dw

      ah yes the DWIM function. we also started thinking we needed the DWIN function. o the do what i need.

    3. MaroonBulldog

      Thank you, Watt4Bob, for explaining what I have long been thinking but couldn’t find the words to express.

  6. Jonf

    If wishing could make it so….. I wonder if realization of this problem is what really prevented a Grexit? I also wonder what happens next if Greece says they want an exit and commences work on it?

  7. JTMcPhee

    Yes, us wishful thinkers who see the poisoned blade hidden in the robes of Empress Capitalisma stubbornly resist seeing the difficulties we have built for ourselves or let others build us into in the long slow flow of toxic sludge that is our current culture and political economy. We deserve to be beaten around the head and shoulders for our ignorance.

    But the fix is patently in, in favor of a set of unaccountable people and their cooperatives who, by steady application to the furthering of their own little pleasures and interests, have rendered themselves immune to almost all consequences. But what is the fix/are the fixes, for where “we” are at? Outcomes inevitably happen — what outcomes do “we” want, can “we insist on and enforce, will “we” apply ourselves to, so other humans don’t have to die of thirst or full-metal-jacket lead poisoning or live in the garbage dumps of hypertrophic metropolises? And drag all the other species down with “us?”

  8. Unknown Gnome

    I’ve been reading this series with interest and thought I could offer some insights on the difficulties of a transition to a new Greek Drachma based on my background and experience.

    By way of my background – I have worked for over 10 years in the IT department supporting the foreign exchange front office arm of a bulge bracket bank known for the size of its foreign exchange business.
    I joined initially as a programmer, started working as team lead and am now employed by the same bank as a delivery manager of a largely outsourced and offshored IT department.

    On the basis of working for my employer I probably have a fairly good insight in to the difficulties of making IT changes to introduce a new currency to a large bank and most banks of our size are likely to face the similar of problems.

    So how difficult is it?

    I can probably best illustrate this on the basis of a recent change request.

    Our foreign exchange sales and trading arm wanted to increase the precision of certain foreign exchange instruments we were quoting – we were supposed to make a global change so that an instrument – one currency quoted vs. another – could be offered to clients at a higher precision.

    The request that came in was to increase the precision by one digit – so we could quote rates with 5 digits of type 1.23456 as opposed to 1.2345 we offered previously – this was requested for 200 different currency pairs.

    How difficult could this be? We decided to start by changing the precision of just one currency pair in a test environment.

    The problem was simplified by the fact that the change wasn’t going to affect the operations/back office components in a big way. After all cash flows and not rates were settled and no changes were going to be required to the risk management or middle office components.

    Nevertheless introducing and successfully testing 1 digit precision change for a single currency pair in to a software test environment took over 4 months and changes to 50 separate software applications.

    “Why was this so hard anyway?” – a senior MD wanted to know – “couldn’t we IT people keep the instrument definitions in a single central place?”

    All I could offer were excuses that sounded lame – even to me – the applications hadn’t been developed with this in mind.

    Not surprising really given that our trade capture and price distribution tools – written in Java are 5-10 years old. The risk management and middle office applications are 15-20 years old and are written in C++. The settlement systems are 30+ years old are written in Cobol and run on a mainframe.
    Each component had its own and often undocumented source of instrument data.

    What does this tell us about the effort required to introduce a new Greek Drachma?

    This would require a lot more effort for a number of reasons.

    Firstly it isn’t possible to simply revert the original ISO currency code (GDR).

    An example will illustrate this – let’s assume a bank had issued a 30 year loan in the original Drachma to a financially sound commercial counterparty in 1998 to mature in 2028. This loan would have been converted at the agreed fixed rate to the Euro in 1999.

    Both counterparties should expect to settle in 2028 in Euros at the rate fixed in 1999 – not a new rate for the new Drachma and any attempt to re-activate the original instrument with a different exchange rate would cause problems both in the banks spot and interest rate risk management applications and department as well as the operations department at settlement date.

    Lots of applications would be affected.

    The front office applications responsible for price distribution and trade capture would need to recognize and price the new Drachma instrument vs other currencies – even in a managed exchange rate environment with the rate fixed by the new central bank of Greece.

    Risk management, finance and the global ledger would need to have their risk decomposition and book assignment rules upgraded to ensure the correct aggregate books contained the correct amounts.
    Several sources of instrument static data would need to be upgraded.

    The settlement systems would need to be upgraded to allow them to confirm trades and settle transactions in the new Drachma.

    Central pieces of essential inter-bank plumbing run among others by Swift and Reuters would need to be upgraded as well. It should be noted that these pieces are likely to be required even for the lesser goal of enabling financial transactions between Greek banks within Greece in the new Drachma.

    It’s worth remembering here that when the Euro was introduced commercial banks and other financial intermediaries were given multiple years to do the work and a strong commercial incentive of the common market in a single currency.

    A potential disorderly exit from the Euro by Greece would leave many banks with little time to implement the changes and – short of coercion by the EU – little commercial incentive given Greece’s much smaller economy.

    Without the global IT plumbing modern cross border financial transactions in the new Drachma would be all but impossible for Greece.

    In case of a Grexit their best bet in the interest of keeping any form of financial exchange going would probably be to unofficially adopt the Euro or US Dollar ad interim – the way Ecuador did in 2000.

    1. Louis Proyect

      Yesterday I told Yves that I had grown weary of this debate but I am glad that I soldiered on just to read the brilliant comment by Unknown Gnome.

  9. JTMcPhee

    All these smart, talented, experienced people piling on, proving and re-proving how nearly impossible or horribly difficult it is or would be for Greece The Nation to sever the ties that bind “her” or is it “its” people to the Wheel of International Trade. Okay, then, does that mean the legend over the portal into EuroHades reads, enforceably, “Abandon Hope, All Ye Who Enter Here!”? The people in Albania had closed borders and closed minds and a pretty closed political economy maybe except for weapons and spies and a culture of revenge and pride that ” worked” for decades, obviously with a lot of pain and death and corruption, but maybe that goes with a landscape of dark mountains behind wine-dark seas? Let reDrachma be equal to null set. Solve for x… Happy to accept proofs that x = i… Well, both unhappy and disappointed, if that proves to be the case…

    1. lambert strether

      We wish it weren’t so. But it is so. And wishing it were different doesn’t make it different.

    2. Norb

      This ongoing discussion has been an important one because it clearly illustrates the complexity of our current system in stark detail. Thanks to all the IT people out there sharing their expertise and experiences.

      People have been deluded by marketing propaganda that modern society runs effortlessly. This is the ploy of wealthy elites to claim more of the profits for themselves. They are the capital owners and job creators so deserve the greatest share of our common efforts. If the illusion can be maintained that modern society runs effortlessly, why should the common people, the workers who keep the system running every day, deserve or expect more compensation for their labors. It’s when things break down or when changes to the system are required that the fragility and corruption of the existing system is revealed for all to see.

      TINA will persist as long as social problems are viewed and interpreted from the perspective of the elite class that does not believe in a common or public space. Our political economy is focused exclusively on personal self interest and wealth accumulation. The power of government and public institutions have been turned into instruments of private wealth accumulation benefiting a small portion of society.

      Change will come when we demand of our leaders that the power of government and finance be directed to the benefit of the people not private self interest. Public Banking. Public Health Care. Public Transportation.
      Public Education. Public Utilities.

      The political and IT problems we face are interconnected. The political and IT systems that serve the .001% of society looks and functions entirely different than a system designed for the majority.

      Withdraw your support of corrupt and unjust systems. Lend support to those who believe in the common good.

    3. washunate

      At the risk of piling on, I think you actually hit upon a very important meta issue in our society. One of the great defense mechanisms of the status quo is this notion planted in our culture that criticism is bad. One must always be a cheery optimist, regardless of the actual facts. Otherwise one is a party pooper Debby downer pessimist accepting all the horror and evil in the world.

      But in practice, it is not abandoning hope to deal with the obstacles and challenges of reality. That is what optimism actually is – a belief that truth is worth understanding because these problems can be solved. The abandonment of hope is when one is so overwhelmed by the problem that one succumbs to the temptation of ignoring reality. Or the temptation of Doing Something when that something doesn’t solve the problem.

    4. Alejandro

      It’s been claimed that the cages of poverty are hopelessness and dependency. If this is true, and I believe it is, then what are the causes that ‘lead’ to the conditions that bind and blind us to conclude hopelessness and dependency…how does it change if not through awareness that challenges pernicious policy and consequently articulate better policy? Desperation can be readily recognized as an extreme expression of hopelessness-but isn’t false and/or deceptive hope, much worse-given how it insidiously ‘leads’ to dependency? Independency is an antonym of dependency-but isn’t it a fallacy to think of them as a dichotomy, when in context it’s more accurate to think of them as extremes that define a scale of varying degrees of interdependency? What drives varying degrees of interdependency if not varying degrees of awareness? Becoming aware of how you depend and how you’re depended upon. Even a hermit, which can be thought of as an extreme delusion of independence, must become aware of his interdependence with nature for survival.

  10. Synoia

    To: Check Republic
    From: Greece

    Dear Check Republic

    We believe the Check Republic is in the EU, but not in the Euro zone.

    Please send us a copy of your banking system’s IT stuff, for free.

    And while you are at it, please also send us a copy of your banking laws.


    PS Please translate those Check comments in your code into intelligible Greek.

    cc United Kingdom, Norway.

      1. Synoia

        And partly serious. A solution for Greece is to lift the banking system from a non-Euro, Euro zone country, but laws are embedded in banking systems, and currency quirks (like the currency symbol).

        How would Greece pay for such a technology Transfer? Ask the Germans to foot the bill? (I’d ask the Germans, you want us out, you pay for it).

  11. dw

    seems like we think there is only one system that needs to be ‘changed’. its every greek bank that would as each would be different. it all depends on what each did to convert to the euro. and if any one that did the work is still around.

  12. Tom

    It would seem that all of the simplified phased in type proposals are advocating for economic isolation on the order of North Korea as internal Greek business is conducted in scrip and international trade is dependent on cash transactions. Surely some country would be willing to airlift in crates of internationally recognized currency to help out the ailing central government at extortionate rates… and plenty of black market goods would trade briskly in euros, dollars, and maybe rubles.

    How that ‘temporary’ phase of uncontrolled economic anarchy translates into the international effort needed to integrate the drachma back into financial systems I dunno. Even if Greece developed into a thoroughly reputable trading partner instead of an economic basket case, it’s lack of size and resources would still leave it limited in trade as most institutions just wouldn’t be bothered to make the effort. It would take a powerful ally to force the drachma on the world, and that would likely look a lot like the power relationship Greece has now with the EU.

      1. Tom

        Also worrying is the immediate and dire shortage of medicine that was already demonstrated recently.

        Since the free movement across borders is a separate issue from currency in the eurozone, perhaps medical refugees and tourists will lead the way in showing the inverse of free trade logic. A repudiation of the euro would make cross border trade in goods and services unwieldy, but people as laborers and consumers could easily hop the open border, assuming they can find income denominated in something other than drachmas.

    1. Yves Smith Post author


      This is not a matter of currency. This is a matter of being able to engage in commerce, which in the modern world means having a payment system.

      And as for your flying in currency scenario….it’s been done. The US tried that initially in Iraq and decided that was not a hot idea. Yanis Varoufakis used Iraq 2.0 the most recent example as to why Greece should not undertake a Grexit (note that introducing a parallel currency is not a Grexit….in fact one of the points of that idea was that it would sidestep many of the issues with a Grexit, but a parallel currency would not be accepted as currency outside Greece).

      It took the US a full year, with its logistical capabilities, and three printing presses, to get enough currency in circulation. Varoufakis stressed that the US military has better logistical capabilities than the Greek government. Our payments system expert Clive has discussed at GREAT length how getting cash in ATMis is a brutally difficult problem and would take months (as in quite a few) to get done. Just consider one issue: in you “let’s just use another currency” scenario, all the ATMs need to be refitted to handle it, since the bills wont be the same size.

  13. Eleanor

    Are any of the Cuban experiences, especially in the Special Period, relevent? Cuba was a small economy that lost its main foreign trade partner and had to reconfigure its economy to deal with a serious loss of imported food and oil. (This question is not about the IT problem. More about the national survival problem.)

    One complicating element in the Greek problem is the importance of tourism. International tourists are not going to want to deal with currancy and banking problems.

  14. Carlos

    Are all the naysayers saying it’s “impossible” for Greece to run some form of parallel currency? Resolving the IT issues over a period of three to four years.

    I know it’s not easy, Just like to know if it’s “impossible” too.

    BTW I’m not interested in what can’t be done. I’d like to know what can be done. I will be calling bullshit if Yves or Lambert really says TINA, think of the poor Greeks. That’s the thinking that got them into the shit they are in now, give the poor sods a break.

    My anti bullshit credentials: Engineering degree, MSc in AI (really) and 20 years in an IT corporation.

    1. lambert strether

      “Naysayers.” Hmm. Sounds like you know the answer you want.

      My recommendation: Do some reading on the site, and comment when you can add value of some sort.

    2. Synoia

      The Greeks could introduce a government script as a parallel currency.

      And the EU (and Germans) would then do what, keep supporting the Greek central bank? Providing Euros? Or cut Greece off from the Euro?

    3. washunate

      There is no monolithic group to answer that question. There are many differing opinions.

      But assuming that’s a serious question – I wholeheartedly second Lambert noticing the use of the word naysayers – there are a host of interrelated issues in political economy that have been coming to a head in Greece for several years, from NATO to financial fraud to European integration to the end of financialized GDP groaf.

      To be concise, Greece doesn’t have three to four years. Its major banks are insolvent, now. Its government has taken on euro-denominated debt with the bill coming due, now. What do you see a parallel currency accomplishing?

  15. MaroonBulldog

    The future is unpredictable, but not completely so. Given all the things that can happen, and might happen, chaos and complexity make it impossible to predict with certainty what will happen, but they do not rule out the possibility of excluding many things that won’t happen.

    So, Carlos, is it “impossible” for Greece to run some sort of parallel currency? What does it even mean to pose that question? Human beings can always do what they already know how to do, and sometimes do what they can figure out how to do by making things up as they go along, but they can’t do anything else. So maybe you’re asking whether it is possible to conduct a Greek experiment in parallel currency that might somehow succeed? Recognizing that most new ideas are bad ideas, and most experiments don’t turn out, Greece still might be able to do it. Are the benefits worth the risk?

    Here are the considerations that I think constrain success: to run the experiment successfully, they have to teach people to willingly settle transactions and obligations in the new currency. Which means they need to be able to account for obligations in the new currency. Which means they need to banking systems that will record the obligations, the transactions, and the settlements. Immediately with the introduction of the new currency, if not sooner. Certainly not after a delay of three or four years. That won’t do.

    Do you know where that parallel banking systems will come from? Neither do I. Neither does anyone. Uness atavism is a possibility. Maybe we could do all the accounting and conduct all the settlements with paper and ink bookkeeping?

  16. CHS

    I apologize for not knowing the best way to pursue this. I believe this post and the comments to be valuable, and want to know more about the Unknown Gnome whose comment above I find particularly insightful. I’d like to enter this person into my database, and also to read any other writings, if any, by this person. A google search was not productive (there is an Unknown Gnome who writes children’s stories but nothing on IT.) Is there a way to move from anonymous comments to being ‘pen pals?’ Or is this a breach of etiquette, or a technical impossibility (I’m still not sure how blog comments are processed.) Thank you.

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