The Drachma, Foreign Creditors and the International Monetary System: Tales of a Currency during the 19th and the Early 20th Century

Fixed exchange rate regimes can be regarded as a “rule with escape clauses”, allowing the monetary authorities to temporarily suspend convertibility and enact a discretionary policy only under well-understood contingencies, such as wartime emergencies and financial panics. Seen from this perspective, adherence to the specie convertibility rule enables peripheral countries to establish credibility of the nation’s economic policy and, thus, to obtain access to the core countries’ capital markets. The evidence assembled in the paper, both historical and empirical, supports the conclusion that Greece seems to have tried very hard to adhere to “good housekeeping rules”.