[A-List] Latvian "scrip" money creation

[Michael Hudson]

    Given Ellen Brown's recent popularization of the discussion of state
banking (why not), it NOW looks like this may result not from populist
pressures, but as a result of the right-wing IMF's extremism.
    Note Latvia's central-bank governor
    Michael

THURSDAY, MAY 28, 2009
Latvia will devalue-- Swedish press
The Swedish business newspaper Dagens Industri reports that a devaluation of
the Latvian lat is drawing ever closer and that the Swedish central bank,
Sveriges Riksbank was borrowing 100 billion SEK to bolster its foreign
currency reserves ahead of the likely move by the Latvian central bank,
which would probably be followed by devaluations in Estonia and Lithuania.
Latvia's central bank governor gave a bizarre hint at a devaluation by
saying that if Latvia didn't get international loans, it would have to issue
some kind of scrip (taloni--literally, coupons) instead of paying salaries
to public sector employees. This would effectively be a second currency with
which to buy food and pay rent and would undermine the current legal tender,
the lat.
According to Dagens Industri, a devaluation would hit hardest at Swedbank,
which has SEK 217 billion in lending to Baltic borrowers, most of it in the
form of euro-based loans. The level of distressed debt has been rising even
without a devaluation (or because of the domestic devaluation due to drastic
salary cuts). The newspaper says Swedbank may have to raise at least SEK 10
billion in new capital. Both Swedbank and SEB (Baltic exposure SEK 186
billion) share fell on the Stockholm Stock Exchange, but SEB is seen as
sufficiently capitalized for the moment.
A devaluation in the near future will effectively subject Latvia to the
worst of both worlds -- wage cuts and mass unemployment that have slashed
purchasing power to the minimum, and a further cut in living standards when
the inflationary effects of a devaluation are passed along.