ECB considers pulling back on ELA to Greek banks, mulls new currency
Promissory notes could be used to pay the country's civil servants
The European Central Bank (ECB) is reportedly considering pulling back on emergency liquidity assistance to Greek banks.
Read more: Greece moves to tap local governments´ cash
ECB's staff have suggested raising the discounts imposed on the securities banks post as collateral when borrowing from the Bank of Greece, sources told Bloomberg.
The so-called haircuts are yet to be formally discussed by the Governing Council but it is understood that it may be considered if Greece fails to agree a deal with creditors on economic reforms to unlock further aid.
The ECB has also considered the possibility of the country using a parallel currency, as reported by the Spanish daily El Mundo.
"The ECB has analysed a scenario in which Greece runs out of money and begins to pay its civil servants with promissory notes, creating a second virtual currency within the Eurozone," sources told the daily.
Experts concluded that this 'parallel currency' would be like a de facto recognition of a Grexit.
Citigroup strategist José Luis Campuzano told Digital Look's Spanish sister-site Bolsamania that, for the moment, the rumours have been neither denied nor confirmed.
Nevertheless, Campuzano pointed out that this measure is “not so uncommon”, but stressed that it would only work “if it is a transitory measure until an agreement is reached. Otherwise, it would be another step in the deterioration of the situation".
A report by Goldman Sachs also stressed that the issuance of promissory notes would not be a viable solution in the medium term, since the new Greek currency would be only used to make payments within the country and would not be valid to buy goods abroad.
As of 10:58 the yield on 10-year Greek sovereign bonds was higher by 27 basis points to 13.43%.
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