Monday, December 12, 2011

12/12/2011: What if - the value of the punt nua?

For those of you have been reading recent (weeks old) reports that Irish punt, were it to be reintroduced, can witness appreciation relative to the dollar or 'old' euro, here's the table from Nomura research that, in my view, more accurately reflects what's going on:

Even the above estimation suggest long-term equilibrium value (5 year horizon post-introduction) for the punt, in my view, which means that on the downward adjustment path it is likely to undershoot the new equilibrium level and first move to a devaluation of more than 28.6%. The problem in terms of predicting the actual short-term movement in the punt is that we will have to deal with a number of problems that will take place simultaneously upon re-introduction of the new currency. The analysis is also sensitive as to the nature of transition from euro to the punt, as well as to the assumptions on debt to be carried over into new currency against the debt remaining in foreign currency.

Note: specially for those trigger-happy readers, this is not, repeat not, my view on viability of the punt or the desirability of exit from the euro or retaining the common currency. This is simply 'what if' argument.


Anonymous said...

Is there any analysis or think tank thoughts on the pros and cons of introducing a punt nua and leaving the euro. It seems that it should be achievable of both currencies run parrallell for a period of time.

TrueEconomics said...

This is exactly a way to remonetize economy in a cooperative exit from the euro. But it requires cooperation of ECB & the rest of the euro area member states.

I am not aware of any analysis of this done by any irish think tank... mind you, there are no real think tanks in Ireland - just EU, Government & Unions sponsored ones.