5 Drachmai – Greece

Greece entered the 1930s in a state of severe financial fragility, a direct legacy of the previous decade. The 1920s had been dominated by the catastrophic consequences of the Asia Minor Disaster (1922), which brought over 1.2 million refugees, necessitating massive state expenditure on relief and resettlement. This crisis was compounded by chronic budget deficits, heavy borrowing (notably from abroad), and a reliance on the gold-backed drachma. The Great Depression, which began to impact Greece around 1930, shattered this precarious equilibrium. The global collapse in agricultural prices, particularly for Greece's key exports like tobacco and currants, devastated the rural economy and slashed vital foreign exchange earnings, making it impossible to service the country's substantial external debt.

The currency situation rapidly deteriorated as confidence evaporated. A sharp decline in the trade balance and a flight of capital led to a dramatic loss of gold and foreign currency reserves, threatening the drachma's convertibility. By 1931, the pressure became unsustainable. In the wake of the German banking crisis and Britain's abandonment of the gold standard, Greece was forced to follow suit in April 1932, officially suspending gold convertibility. This triggered a steep devaluation of the drachma and effectively placed the country on a fiat currency system, severing the direct link between its money and a tangible gold reserve.

The government of Eleftherios Venizelos responded in 1932 by taking the drastic step of unilaterally suspending payments on its foreign debt, declaring a moratorium. Domestically, strict exchange controls were imposed to stem capital flight and conserve scarce foreign currency. Thus, by the mid-1930s, Greece's currency situation was characterized by a devalued, non-convertible drachma operating under stringent state controls, a defaulted external debt, and an economy struggling with deflation and deep recession. This period of monetary instability and autarkic policies set the stage for the authoritarian regime of Ioannis Metaxas, which would further consolidate state control over the financial system later in the decade.