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Greece imported billions of euro in banknotes to avert bank run?

Greece’s central bank had allegedly  billions of euros of banknotes shipped in from other central banks abroad to avert a bank run during the country’s debt crisis as depositors withdrew their money,  newspaper To Vima reported on Sunday.

The banknotes allegedly arrived to Athens per cargo airplanes, while employees at the central bank worked day and night to promote the banks notes to several banks in major Greek cities.

Cash airlift helped avert Greek bank run during debt crisis-paper

“Fears the debt-laden country might ditch the euro and return to the drachma led Greeks to pull out billions of euros of savings in the last three years, stashing their cash under mattresses or in safe deposit boxes.

“While many talked about a lack of liquidity in the economy, the cash circulating … had no historical precedent,” the paper said, citing central bank officials it did not name.

Central bank officials could not immediately be reached for comment.

Cash in circulation jumped to 48 billion euros ($62.32 billion), about a quarter of gross domestic product (GDP), in June 2012, from 20 billion before the crisis erupted, way above normal ranges of 6 to 8 percent of GDP in developed economies, the paper said.

To meet the high demand for cash, the Bank of Greece had loads of banknotes secretly airshipped from abroad, feeding it to banks throughout the country to avoid shortages that could have intensified worries and set off a bank run.

The Bank of Greece only prints 10-euro banknotes.

Greek banks lost about a third of their deposits after the debt crisis exploded in late 2009. Without access to wholesale funding markets, they came to depend on the central bank for their liquidity needs. (full story in English Reuters).

PS can somebody help me though this story, please? What did they do? They bought banknotes and air-shipped them to Greece? Or did they use photocopies?

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18 comments

  1. KTG,

    Most money only exists as entries on bank computers – not as physical notes. When people started near panic withdrawls, there was the danger that the banks would run out of physical notes then triggering full panic and a bank run.

    • keeptalkinggreece

      thsi part I fully understood, the practical part I didn’t. didn’t the Bank of Greece have to pay for the imported banknotes?

      • Good question and it is worth asking the BoG! Hopefully they only paid a value for the paper/printing.

        What astounds me here is that the BoG is only allowed to print 10€ notes….
        Is that normal for EU countries? Or another ‘safety insurance’ for the EU?

        • keeptalkinggreece

          no idea, Eleno, We need Klaus (a commentator here) to explain some things.

          • I guess the only thing which Greece might have had to pay for was the transportation cost of the Euro banknotes, it at all.

            This should not be a surprise revelation at all. After all, at the peak, over 80 BEUR had left the Greek banking system as deposits. Deposits can leave the banking system in one of two ways: (a) either via non-cash money transfers to the banking system of another country or (b) via cash withdrawals on the spot. My understanding is that about 30+ BEUR left the banking system via non-cash money transfers to the banking systems of other countries which leaves about 50- BEUR which left it in the form of cash withdrawals; i. e. people like you and me lining up at the teller and asking for a cash withdrawal.

            The entire 80 BEUR which the Greek banking system lost as funding had to be replaced somehow for the banks to stay afloat, and they were replaced by funding from the ECB. So one has to picture that the ECB sent 80 BEUR to Greece so that Greek banks could transfer 30+ BEUR abroad and pay out 50- BEUR in cash.

            To replace the non-cash deposit flight is merely a bookkeeping entry within the ECBs cash management system (Target2). The cash deposit flight required the physical transfer of bank notes to Greece because Greek depositors wanted to see bank notes and not some ECB bookkeeping entries.

            One has to picture the latter like a loan which is not disbursed in the form of a credit to a bank account but, instead, in cash. Put differently, the Greek banking system borrowed from the ECB but instead of receiving the loan proceeds as a credit to an account they received it in cash bank notes.

            For the accountants: at the end of the day, the Greek banking system showed 80 BEUR less in liabilities to depositors and 80 BEUR more in liabilities to the ECB.

            Not related to this but still: here is part of the explanation why prices have not come down. Austerity here or there, as long as there is cash in the economy, people can – in sum – spend money. I recognize that some people have zero cash and others a lot, which is why I say ‘in sum’. But it is the sum which counts.

            A bit of a myth had been created about the deposit flight, that myth being that Greeks had to withdraw their last Euros in order to pay taxes and to survive. Well, if Greeks had really spent the entire 80 BEUR which they withdrew, there would have been a boom of unknown dimensions in the last 3 years. Again, I am talking ‘in sum’ and not on an individual basis.

            Also note the following perspective: at the peak, the Greek banking system showed domestic deposits from Greeks of about 250 BEUR. I don’t have comparative figures with comparable countries on hand but, believe me, that is a very, very large number. So – again ‘in sum’ – Greeks were not poor at all as regards financial assets. They are not that much poorer now because those financial assets still exist (minus actual expenses financed by them). They are just no longer in the Greek banking system but either in a foreign banking system or under the mattress.

            And add to that the 3-digit BEUR figure of deposits which Greeks hold in foreign bank accounts. I wonder if the overall per capita deposit volume in Austria would be as high as in Greece (again ‘in sum’).

            Add to that the very high percentage of private home ownership in Greece relative to other countries and add on top of that the fact that the mortgage ratio is quite low relative to other countries.

            Add to that the enormous properties of the Greek state which, at the end of the day, are properties of the Greek people. And to finish it off, add to that the properties of the CHURCH (after all, the church also belongs to the people).

            Bottom-line: Greeks (again ‘in sum’) are not poor at all as far as assets are concerned. They would become poorer (but not poor)) if the sovereign debt were deducted from their assets. Technically, Greeks – like the citizens of all other countries – are liable for the debt of the state. In practice, there is no way that foreign creditors can enforce their claims by expropriating domestic assets (at least not since the days of gunboats and cavalries).

          • Interesting stuff, Klaus.

            You say that the cash “in part” explains why there has been no price reductions. There is also the point from the producer viewpoint pricing is not infinitely elastic. You have to cover costs and particularly if there are state imposed fixed costs that limits you.

          • The major reason that I am always given when I ask why prices are not coming down at the, say, supermarkets is that this is due to cartels. Whatever those cartels are. I am not informed about that. If there are cartels, they can surely influence prices a lot more than some hoarded cash because people will spend hoarded cash carefully in times like these.

          • keeptalkinggreece

            these mysterious cartels are the usual multinationals agreeing on prices people cannot pay.

          • Too right. In November 2011 the EU fined Proctor & Gamle and Unilever a total of 315.2 million Euro for forming a cartel with Henkel and artificially keeping the prices of washing powders high. I can email you the link to the press release if you want it.
            Similar situations exsist in other industries, examples would be CRH (construction), CRT (Cathode Ray Tubes) cartel got a 128 million Euro fine, 175 million fine for manipulation of animal feeds, 331 million fine on memory chip cartel etc. The sad thing is that the profits made most likely far outweight the fines and probably make it worth their while to form these cartels in the first place…

          • It seems to me that you tend to take an accepted moral principle of society, adopt it as your own, and then accuse mainstream society of violating that principle. Probably everything you criticize about today’s workings of parts of the capitalist economy is similarly and thoroughly criticized by those who believe in a social market economy. If the established order were not convinced that cartels are a cancer on the social market economy, why would the established order sue multinationals who violate the cartel rules?

            Read this:

            http://hellasfrappe.blogspot.co.at/2013/03/kraft-food-hellas-gives-out-work.html

            Having spent half of my career with multinationals, I would not recommend Greece to bank its future on multinationals. They are just too global to always fit national priorities. But particularly Greece can report some very positive experiences with multinationals of late (Cosco, Kraft, Philip Morris, Henkel, Unilever, HP and others).

            My point is that Greece should seek foreign investment primarily from what I call Mittelstand companies. Those are companies which are more steady and reliable partners and which are interested in sustained and long-term value creation.

          • I recognize that some people have zero cash and others a lot, which is why I say ‘in sum’. But it is the sum which counts.

            NO IT IS NOT! The ones that count are those who have zero cash, and any recovery policy must be based on their needs, not the “need” of those “who have a lot” to keep “the lot” as is so obviously the case.
            Life, a society, a country is NOT an exercise in accountancy, balancing the books using fancy accountancy footwork and nifty tricks. We are talking people and their livelyhood here, not figures and “the sum”. That is precisely what is so very wrong with this rotten system…

          • Ok, I see that my sentence could be misinterpreted. What I meant to say that ‘the sum’ counts for the overall analysis of the country’s wealth. That this wealth is extremely unevenly distributed (from billions to zero, so to speak) is well know all arond by now.

          • It still does not justify reducing the running of a country and it’s people to a number crunching accountancy exercise. The name of the game is not some fancy footed accountancy, it is distribution of society generated wealth according to need of ALL individuals within that society.
            The complete disregard for the human factor is the problem. Instead of disregarding it, it has to be the primary function of any society for that society to work and be worthy of the name society.
            The World is in crisis because of greed and manipulation, to such an extent that in a world of mass production and innovation we are expected to run on the spot in a rat-race and work until we drop. The rights of private capital have been placed above the needs of people. The wealth of nations belong to their people, and the primary concern of wealth distribution must be to ensure that all have unhindered access to this wealth to satisfy their basic needs of food, energy, housing, clothing and health care.
            It’s an abominable situation when our political leaders are the immoral enforcers of the rights of private Capital over the common good of the people they are supposed to lead. This situation is not only maintained, it is aggravated by current TROIKA enforced EU policy. The driving force is the financial system which is rotten to its core and must be completely dismantled if society is ever going to stand a chance of funcitoning as a society instead of just being another tool to enrich the already over-rich even further.

  2. I’m thinking that the banks in question had some form of ‘cash asset’ listed on its balance sheet. Even so, the bank wouldn’t be in possession of the actual physical money. Therefore, they shipped in actual cash to avert the run(s) and the ‘cash’ line item decreased as withdrawals increased.

    (I may be totally wrong but I doubt anyone was, for all intents and purposes ‘loaning’ the money to the banks so they must have had some sort of asset to enable them to secure the actual notes…)

  3. I think I read somewhere that the banknotes were secured with “horseballs”.

  4. @ Klaus

    an accepted moral principle of society, adopt it as your own, and then accuse mainstream society of violating that principle

    The thing is Klaus, this “accepted moral principle of society” is NOT accepted, especially not by those who tend to profit handsomely from abusing it. I of course own this principle, as does everybody else who lives in a society. What I am pointing out, time and time again, is that what should indeed be a universally accepted moral principle of any society is constantly and consistantly abused in the name of power and profit. If society generated profit being accessible, as needed, to members of that society to fulfil their basic needs is, as you would seem to accept, a universally accepted moral principle, then why is it not standard practise everywhere? If this is the case, then why do we have global energy companies screwing people for so much that they can’t heat their homes? Why do we have global food companies CREATING hunger in the world instead of eradicating it? If such a principle were indeed universally accepted, then pray tell me what is the justifcation for a golden handshake of some 120 million dollars for the CEO of Heinz Foods. That is the perfect expression of the sickness of the system. What would that money do in the USA to eleviate some poverty, leave alone in Africa or Asia? And what Teutonic feat did this guy pull off to “earn” such a reward. Before you answer that, apply the moral principle and ask “who suffered for him to be able to pull of this stunt?”
    Profit is God, more profit is the greater God, and if it costs a few million people their livelyhood, so what. As long as profit is made, who cares? That is the universally accepted principle, and apart from being very immoral, it is also directly responsible for the mess Greece and the rest of the world finds itself in. The ones who don’t care are those who are making the profit, as is blatantly obvious. And when the “more profit” is not enough, in come the “attitude adjusters”, aka as TROIKA. Just because they wear a suit doesn’t mean they are less of a gangster…
    Rather than inviting the devil to dinner, what Greece should learn from the likes of HP, Unilever etc is that these guys don’t give a blind hooth about Greece or any other nation for that matter. The “jobs created by HP in Greece”, as an example, have not been created. They have been stolen from somebody else (some of the 27,000 employees they sacked over the last year or 2) and only come the way of Greece because right now Greece offers “more profit”.
    If tomorrow Trukey turns around and offers better conditions, they are gone again. Ditto with Unilever, who by the way don’t invest in Greece. They shift the 110 production lines to Greece, but use existing Greek contracters to make the product. Meaning, if another producer decides to undercut tomorrow, they don’t even have to pretend to be sorry for moving. After all, it is not the Unilever name that gets mentioned as losing the jobs, it’s some small, probably family run Greek company that gets shafted instead. I’ve seen it all over the years, as I am sure you have to, going by your own comments. But how you can then turn around and still defend these gangsters is beyond me. They steal peoples lives, abuse their skills, deny people a proper living wage, blackmail them with anything going, and when the “more profit” opportunity opens elsewhere, they spit them out like a bad apple. Only to start the whole sordid scenario all over again somewhere else. That is the reality of the universlly accepted principle of “more profit”. Quite the contrary to the not so universally accepted principle of “morality”