The discussion of a corralito in Spain has reached the newspapers. EL PAIS has published an article about the government renouncing the idea today. A corralito limits the amount of cash that you can withdraw from bank accounts. (Later, the corralón translated your dollar-backed pesos into free-floating peso denominated government bonds.) The discussion is part of the problems that would come with a break-up of the euro. In theory, a break-up would see national currencies reinserted. The easiest way to do this is by converting bank accounts back to, say, the nueva peseta. The nueva peseta would be worth less than the equivalent amount of euros since this is the whole point of the exercise. The currency must depreciate in order to regain competitiveness.Read the rest at econoblog101
Therefore, if people would move their euros abroad in expectation of a corralito – which was introduced shortly before Argentina lifted the dollar peg – these euros would keep their value. Once people realize this, a bank run is what is next.
by Dirk Ehnts | research assistant at the chair for international economic relations at University of Oldenburg, Germany