Switching to the dollar from the euro would help Greece get out of its crisis and would at the same time be an electoral boost for U.S. President Barack Obama, an analyst with London-based Strategy Economics consultancy group wrote.
For Greece it is very hard to pull out of the euro zone unilaterally but, at the same time, the country "runs a substantial trade deficit, and no longer has any realistic ability to borrow money," Strategy Economics analyst Matthew Lynn wrote in a note.
"If it introduced a new drachma overnight, it would collapse in value. For a while it might be quite literally worthless, in the way the Zimbabwean currency was. No one would want to accept it," he wrote, adding that the country might not even be able to pay for vital imports such as oil and medicines.
But if the country were to switch to the dollar instead, and redenominate all its euro contracts in the U.S. currency at a rate of one to one against the euro, it would have the advantage of devaluing by around 30 percent "at a stroke" while at the same time still having a hard currency, wrote Lynn, who admits that such a scenario "probably won't happen."
The Federal Reservewould have to be willing to extend liquidity to Greek banks if the country adopted the greenback, but, Lynn pointed out, "it has done that for foreign banks in the past."Page 1 of 2 | Next Page