The lira is gone, for good. Some are beset with nostalgia, like the writer of a letter in one of the papers, who described the late currency as being stronger even than the US dollar. There's a public misconception that the Maltese currency came into existence in the early Seventies when the lira was pegged to a currency basket. Not so.

Malta took full control over its independent currency, the Malta pound, back in 1967 when the Central Bank of Malta Act was passed through Parliament and Malta joined the IMF. The Malta pound was then recognised internationally and given a fixed exchange rate by the IMF in terms of gold. It was a period of fixed exchange rates for all currencies and countries went their own way adopting different exchange regimes only when the Bretton Woods system collapsed in 1971. The later name-switch to 'lira' was just cosmetic and meant little.

It has been a long journey from there to the euro. The most bizarre were the days when the Socialist strongman decided on a grossly overvalued currency coupled with stiff import and price controls: society was regimented and the union was in the Government's pocket. Recently, talk of overvaluation has resurfaced: there were a string of articles claiming that the "boffins" (that's the catchword at the socialists' electronic mouthpiece) engineered the switch to the euro at the wrong exchange rate.

Then, on Wednesday, the Labour leader himself chimed in, stating in his column in The Times that the Central Bank of Malta had found that the lira was overvalued after 2002. Not so. If Sant just looked up the long report on the Central Bank's Website, he would have seen that on the basis of several studies, the Central Bank concluded that it found no significant misalignment of the lira.

Sant also claimed that according to the IMF, the overvaluation was even larger. Although I am not an economist, I would imagine that the IMF would base its estimates on some type of technique which it applies to every country without consideration of a country's particular circumstances. It is highly unlikely that in creating a model to apply as a tool for measurement of currency valuations, the IMF would have directly included Maltese statistics.

The results obtained should therefore be interpreted with caution, avoiding categorical statements on the basis of what might be considered flimsy conclusions. From what I had read some months ago about overvaluation and undervaluation of currencies in an international context, it appears that the IMF was under pressure to pronounce itself on the currency of an emerging economic giant... and to make this exercise less obvious they also applied the model to other currencies, which I presume would have included Malta.

Even for much larger countries, the IMF model produced some strange results. Some months ago, when the US dollar had already started to plummet, the IMF came out with a statement that the dollar was - would you believe it - overvalued.

Whoever informed Sant did not do him any favours. He forgot to tell the Labour leader that the IMF "staffers" (as they are called in Sant's article as well as in Maltastar) who were concerned about Malta's competitive weakness conspicuously refrained, in their staff report shown on the CBM Website, from recommending a devaluation of the lira, in contrast to Dr Sant who apparently would have wanted Malta to enter the eurozone after a devaluation. Coming from a man so concerned with even the slightest rise in any price, it is strange that he ignores the fact that devaluation would lead to sharp increases.

Since Sant enthusiastically quotes the IMF, he presumably respects their expertise in economic matters. He would then surely commit himself to policy measures that would please the IMF, such as cutting off all subsidies, including the one to the shipyards; reneging on his promise to restore the holidays that fall on weekends; downsizing drastically the public sector; abolishing student stipends; renouncing his promise of a subsidised cheap helicopter service to Gozo; and even charging for medical care.

In any case, if the lira is today so overvalued, how is it that the economy and employment are booming? Why did the lira come to an end with the Central Bank's reserves at a record level?

As to the nostalgia for the lira, a small country with a currency of its own pays a high price for that dubious privilege. It has to hold a huge volume of reserves, invested in secure and low-yielding assets to make sure that people don't lose confidence, panic and send their capital abroad.

Before January 1, our interest rates had moved in step with foreign interest rates; and recently with the interest rates set by the European Central Bank.

Although we had a separate currency, we did not really have monetary independence. In other words we did not really set interest rates in any way we liked. It sounds strange but now ironically inside the eurozone we have greater control, in relative terms, over monetary matters than before. That's because now the Governor of the Central Bank sits on the decision-making board of the ECB where he has a full say and a vote that is worth as much as that of the Governor of the German Central Bank.

Anybody who argues that we lost monetary sovereignty on January 1 does not really know what he's talking about. The lira is a symbol of the past, a past of import bans and restrictions and capital controls. Goodbye to all that. The reserves are not only in the Central Bank's strong room. They are now in people's pockets and in their bank accounts, in the form of euros. Hello euro!

micfal@maltanet.net