When I was a kid, Pop and I were bringing a boat north from Puerto Rico when we lost an engine and wound up marooned in the Dominican Republic for a few weeks while we waited on parts.
This was 30 years ago, and the DR wasn’t quite so tourist friendly, people butchered goats on the sidewalk, guys walked the docks with assault rifles, and we learned a bit about the economics of bribery.
Bribes, fees for service really, were best paid in U.S. dollars. Dominican dollars were acceptable, but you had to offer more of them – despite a 1:1 official peg. Slips and fees at the government marina had to be paid in Dominican dollars – no worries, they’d change your greenbacks right there at 1:1. (Guys downtown would change you at 1.2:1, I’d imagine guys in the know did even better.)
Running with two currencies seemed a great way to get good dollars into the country, and I suspect into the right pockets.
Lots of countries run with multiple acceptable currencies, which made me wonder… why can’t Greece do the same?
Print Drachma for domestic use, use Euro for international payments, “fix’ an exchange rate, and let the robust underground Greek economy sort out it’s own exchange rates. Internally, you’d get Drachma inflation, likely Euro deflation. The peg allows you to keep marks high, and likely exports a smidge of inflation. The strong euro within Greece boosts tourism and foreign investment.
Thoughts?
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