What Is the Greek Drachma?
The Greek drachma was the basic unit of currency in Greece until 2001 when it was replaced by the euro. The euro is now the only official currency of the country.
- The Greek drachma was the currency of Greece before it was replaced by the euro in 2001. It was also the ancient money of the Greek empire and city-states.
- Drachma note denominations ranged from 10 to 500 over much of its existence, while smaller denominations of 1 and 2 drachmae were issued earlier.
- Greece has suffered financially from the mid-2000s, experiencing a debt crisis, which called into question the benefits of using the euro.
- A movement known as Grexit, which proposes a return to the drachma, gained popularity during Greece's debt crisis.
Understanding the Greek Drachma
The drachma had been a currency unit used in many ancient Greek city-states. It was re-introduced in 1832, following the creation of the modern country of Greece, where it replaced the phoenix, the first currency of modern Greece introduced in 1828. In 2002, the drachma was subsequently replaced by the euro and ceased to be legal tender.
One drachma is divided into 100 lepta. Between 1917 and 1920, the Greek central bank printed paper drachma notes in denominations of 10 lepta, 50 lepta, 1 drachma, 2 drachmae, and 5 drachmae. Large denominations followed, with the 1000-drachma note appearing in 1901, and the 5000-drachma note in 1928. The Greek government issued smaller valued notes between the years 1940 and 1944, with denominations ranging from 50 lepta to 20 drachmae.
After Greece was liberated from Germany in 1944, old drachmae were exchanged for new ones at a rate of 50 trillion to one, issued as one, five, 10, and 20 drachmae banknotes. In 1953, Greece joined the Bretton Woods system in an attempt to slow inflation. The following year, the drachma was revalued at a rate of 1000 to one, pegged at 30 drachmae to one U.S. dollar.
The three modern Greek drachmae were replaced by the euro in 2001 at the rate of 340.750 drachmae to one euro. This exchange rate was fixed on June 19, 2000, and the euro was introduced shortly thereafter in January of 2002.
The Greek Drachma and Grexit
Following the Greek debt crisis that erupted in 2009, there have been arguments for and against Greece eliminating the euro and reintroducing the drachma as its national currency by leaving the EU, in a process dubbed "Grexit."
The primary impetus for Grexit was to bring Greece back from the edge of bankruptcy. The idea was that a devalued drachma would encourage overseas investment and increase European tourism at reduced rates by paying in euro, which is more expensive. The euro's value would go further in Greece.
This would impact Greece negatively in the short term, but the increased investment and tourism would help it recover from its debt crisis without the assistance of the eurozone and its stringent requirements.
Those against Grexit argued that the switch to the lower-valued drachma would reduce the living standards of the Greek citizen and result in a difficult economic transition; all of which would result in social unrest throughout the country.
On July 5, 2015, the Greek population voted in a referendum whether to accept an agreement between Greece and its creditors—the European Commission, the European Central Bank, and the International Monetary Fund. The voters overwhelmingly rejected the proposal, which would have imposed austerity measures—leading to speculation that Grexit, and a return to the drachma, was at hand.
On the 16th, however, the Greek parliament voted to accept a slightly modified agreement, averting Greece's department from the Eurozone.
History of the Greek Drachma
The National Bank of Greece issued drachma banknotes from 1841 to 2001, after which time Greece joined the European Union (EU) and adopted its common currency, the euro. Drachma note denominations ranged from 10 to 500 over much of its existence, while smaller denominations of 1 and 2 drachmae were issued earlier. Initially, 5 drachma notes were created simply by cutting a 10 drachma note in half.
In Ancient Greece, the most popular drachma coin, the tetradrachm, had the profile of the goddess Athena on one side and an owl on the other.
After Greece won its national independence from the Ottoman Empire in 1828, the new nation issued the phoenix as its currency; however, it was short-lived—only in use for four years. In 1832, the drachma was re-introduced, harkening back to its ancient origins. The first drachmae notes were impressed with the image of King Otto, who reigned as modern Greece’s first king from 1832 to 1862.
Greek Drachma vs. Euro
When Greece switched to using the euro, it benefited greatly. It switched from a low-value currency to a high-value currency. That being said, if Greece had its own currency, it could print as much as it liked until it stimulated economic growth. In addition, having a weaker currency would attract investment, including an increase in exports and tourism. The downside is that printing too much money would cause inflation.
Despite any benefits of having its own currency, Greece benefits from being part of the eurozone. It has a strong currency, it receives aid packages, and using a powerful currency makes it safer and more efficient for companies to do business. Greece benefits from stable financial markets because of using the euro, which generates investments and trade.
Using the euro does come with rigid rules that often don't benefit less wealthy countries, like Greece, while greatly benefiting wealthier ones, like Germany.
What Was the Drachma Worth in Ancient Times?
Economists estimate that in the 5th century B.C., the drachma was worth approximately $54 in 2021 currency.
What Was the Drachma Made From?
The drachma was made with silver but over time it became debased as copper was introduced into the silver.
Why Did Greece Stop Using the Drachma?
Greece stopped using the drachma as part of the European Union's switch to utilizing one international unit of exchange. Greece had been part of the EU since the 1980s and as all the countries moved to adopt one currency with the goal of benefiting from more efficient trade and financial markets, Greece moved with the process as well.
Will Greece Switch Back to the Drachma?
As of now, despite the presence of "Grexit" supporters, Greece will not switch back to the drachma.
The Bottom Line
The Greek drachma was the official currency of Greece for most of its history; from antiquity to being reintroduced in the 1800s until it was replaced by the euro in 2001. The switch to the euro has come with many advantages and disadvantages for Greece and the debate of switching back to the drachma has been popular in the last few years. Despite the benefits of a lower value currency, Greece does benefit in many ways by using the euro.
Correction: Dec. 8, 2021. A previous version of this article incorrectly stated that in 2015, Greece voted to either remain with the euro or to switch back to the drachma, with the votes to stay with the euro winning the majority.