Safe Haven – keep an eye on “X”!
Lauri Karp. Monday, July 06, 2009
Is there really such a thing as a safe haven? In answer to this question many analysts would quickly cite three classic examples: gold, jewels and government debt. At the height of the financial crisis in the fourth quarter of 2008 and during the discussions about the stability and cohesion of the Eurozone, a fourth safe haven appeared – euro notes with an “X” in the serial code.
Reports about this have appeared in various media and are causing a great deal of head scratching. Given the seemingly fragile state of the banking sector, many people began to feel uncertain and lost trust in the idea that their savings were safe in the hands of the banks: this led to a hoarding of cash.
However, some people were particularly fastidious about which banknotes they would collect. In their eyes, euros with serial numbers starting with “X” were more “safe” than others, according to articles e.g. in the June 2009 issue of The Economist. Printing of these notes, confirms the ECB, was initiated by Germany. Banknotes with “U” (from France) and “P” (Netherlands) were also considered worthy of inclusion in the collections of these individuals. Notes sporting a “Y” (Greece) or “S” (Italy), on the other hand, were seen as a risky investment and avoided. But, the fact that a German-American professor of economics is the one touting such “investment tips” doesn’t make them any more praiseworthy.
Is “X” the choice for those who believe that it is better not to trust in the continued existence of the EMU in the event of doomsday for the financial markets. No! If any of the European states decided to abandon the common currency, every 5 euro note would still be worth 5 euros – no matter which letter was at the start of the serial number. The euro banknotes are a joint liability of every Eurozone country.
The story is different, however, when it comes to euro-denominated, interest-bearing debt securities issued by the member states between “X” and “Y”.
Already in March, Thomas Härter of Swisscanto wrote in Wirtschaftswoche about the risk of “I am system-relevant” extortion among countries (though their relevance to the system can by no means be discounted). The spectre of a capital-intensive bailout of a state represents the real risk to the value of the euro – whether the notes are kept in a bank or under the mattress.
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