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The value of money

| Posted by: Paul Donovan | Tags: Paul Donovan

  • Greek banks reopen today, and without a daily withdrawal limit – although there is a weekly withdrawal limit instead, set at the equivalent level. The Greek banks remained shut for longer than the US Federal bank holiday of 1933 – arguably the Greek situation is worse, and the solution less effective.
  • The risk is that a Euro in a Greek bank is perceived as having less value than a Euro in physical form in Greece, and that a dual economy emerges – one cash based, one electronic. A cash based economy is more difficult to tax, of course.
  • Foreign exchange markets have been content to take the dollar a little higher as US inflation continues to pick up, and the Fed signals a desire to tighten monetary policy. Real Fed Funds are set to decline significantly in the absence of some kind of Fed action.
  • German producer price inflation came out in line with expectations, and is not normally a focus (even on a slow news day). However inflation pressures are clearly building, albeit slowly, in the German economy. The combination of higher inflation perceptions and quantitative policy may raise some political tension.