ZH article - redenomination risk

Discussion in 'Economics' started by short&naked, Jul 9, 2013.

  1. Could somebody please explain the following sentence from the zerohedge article?

    Why would a sliding EUR mean redenomination risk and how did the Japanese carry trade lessen this risk?

    "...the ECB is intent on actually lowering the EURUSD, because unlike last year, there is no (immediate) fear of redenomination risk as a result of a sliding EURUSD. Thank you Japanese carry trade."

  2. ZH broke the link.

    They have noticed that EURUSD has gone down this time not because of EUR weakening, but rather because of USD strengthening (amazing insight, that). They believe that USD has strengthened because everyone has piled into (and continues to pile into) USDJPY (the Japanese carry trade). Therefore, the ECB can be reasonably confident that EURUSD going down isn't a symptom of a redenomination (EZ breakup) risk premium being priced back into the ccy.

    It's just random speculation.
  3. Redenomination would imply the introduction of a "New Euro".

    Your "Old Euros", whilst still a fully legal form of exchange, be worth a 10th, 100th etc of the new unit.