What happens when a country defaults?
At the point when a nation neglects to pay its loan on time, it is said to go into “default”, what might as well be called going bankrupt.
If private companies go bankrupt, they may not pay the lenders any money. However, if nations default, they may restructure their debt and have an obligation to pay, as opposed to just declining to pay anything by any means.
As an example, after its $81 billion default in 2001, Argentina offered to pay its lenders 33% of what it owed. Similarly, when Greece defaulted in 2012, bondholders were compelled to take hits as high as 50%, meaning that half of their wealth was eroded.
Defaults can likewise be extremely difficult for the defaulting nation, especially because such incidents are sudden and confuses people. Residential savers and financial specialists, expecting a fall in the estimation of the nearby cash, will scramble to pull back their cash from banks and will try to move it out of the nation. To keep away from bank-runs and steep money deterioration, the government might close down banks and force capital controls, which is not good for residents and so ultimately the residents of the country will have to bear the brunt!!
Lets have a look at a flowchart to understand what happens if Greece defaults?
Source: Financial times
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