A detailed program proposal for creating a parallel currency in Greece
from Trond Andresen and Robert W. Parenteau
The premise for the proposal to be presented in the following is that the government has a breathing space of a couple of months. At the end of that period a parallel electronic currency shall be put into circulation.
But first, how does a parallel currency (to the euro) work?
Proposals resembling the following have been put forth earlier by Andresen, for instance in , and recently by Hillinger . The additional (“parallel”) circulating medium of exchange to be proposed may be designated a Tax Anticipation Note (TAN), a term introduced by Parenteau . The TANs are used by the government to partly pay wages, pensions and for domestic purchases. The TAN enjoys confidence since anyone can use it to pay taxes with one TAN counting as one euro (more on this below). Transactions are done via mobile phone/SMS, and automatically received and accounted for on a server with ample capacity at the country’s Central Bank or perhaps preferably, for political reasons, at a bank-like facility established for this purpose at the Treasury – from now on just called the TB: “Treasury Bank”.
Such a mobile-based transaction system may be implemented through one of the technically proven schemes already in successful operation in some developing countries, also recently put in operation by the central bank of Ecuador. The system may be implemented to work also with older models of mobile phones, since it may be SMS-based (but there will be apps for smartphones).
There are no physical/paper TANs in circulation. The government has a TAN account at the TB with no limit. TANs are thus created out of thin air, but they are later destroyed when paid back as taxes. The government account is debited whenever it pays wages or pensions, or buys goods or services. All citizens and domestic firms are automatically assigned cost-free TAN accounts at the TB. Interested foreign entities are offered to have accounts (but we will expect TANs to be used only by domestic agents in an initial phase). The deposit interest rate is zero. At the start this is a pure medium of exchange, in that sense resembling physical cash. Lending is not considered as an organised option in the pioneer period of this system. (But spontaneous peer-to-peer TAN lending will emerge and grow.)
The government pays employees, pensioners and suppliers in a mix of TANs and euros – say 20% TANs at the outset – but this share should and will probably increase. One TAN is nominally equivalent to one euro, even if there will be a somewhat lower exchange rate in the market. The government-set TAN/euro spending mix may be adjusted based on how the process develops. Taxes are collected in a similar mix of the two currencies. Since the TAN may be used by the public to settle tax obligations, it will – even initially – be accepted to a fair degree as a means of payment by many agents; both individuals and firms. It does not have to be declared “legal tender” to be accepted. And because of the tax settlement property one should expect the euro/TAN exchange rate not to go much below parity, even if the rate is allowed to move freely – which it should. By this there will be no grounds for a black market for such exchanges.
Employees and firms offering goods and services will increasingly – as the scheme gets more popular – decide to accept a certain share of TANs as payment, while the rest must still be in euros. While the government pays wages and taxes in the government-set mix of the two, the mix in private sector transactions may be decided freely by the involved parties, and will differ between trades. Both the government mix and private sector mix will necessarily have to be adjusted with time and circumstances. For pricing, a business could typically leave the original price (before TANs) unchanged, but accept a specific TAN share in payments and the remainder in euros. By this a business that accepts a fairly large share of TANs gets a competitive edge. Employers and employees may negotiate the share of wages being paid in TANs, based on how things develop. And workers that accept a large share of TANs in their wages will get a job more easily.
An additional positive effect of introducing TANs is this: By enabling activation of idle labour and production capacity, exports increase. Thus, even if this extra activity is mediated (partly) with TANs, this enhances foreign currency inflow and the ability of the country to service euro debt.
Another positive effect is that pessimism is reduced. This will decrease the liquidity preference of individuals and firms that possess euros but have been holding back in their spending. For a given amount of euro stock held by agents, the aggregate euro flow will increase, i.e. we get increased money velocity. And a share of euros held overseas today will probably be repatriated.
Important advantages of electronic TANs versus bills and coins, are:
- The system can be implemented fast, and adjustments that turn out to be needed can be implemented in software, therefore very easily and cheaply.
- The system is very cheap to run, compared to a system with notes and coins. And forgery is impossible.
- There is no confusion with bills and coins (i.e. euros) that are being used in parallel.
- No deposit insurance is needed. Money cannot be lost, and this is clear to the public – thus no bank runs.
- A black economy in TANs is nearly impossible. The same with tax evasion. Intelligent software can monitor transactions 24/7, and flag human operators when suspicious patterns emerge. Knowledge of this implies a credible threat, so that agents to a large degree will abstain.
- TANs cannot be used for capital flight, since they only reside at the CB.
- Also, some more futuristic advantages merit mention: negative interest on money held (demurrage) may be easily implemented, to speed up circulation if that is needed.
- A new possible control tool with the opposite effect is made possible by TANs only existing as accounts at the TB: A tiny but adjustable transfer tax between any accounts. This would be incredibly more effective to damp an overheated economy, than an interest rate hike. It can stop too much spending in its tracks. As far as we know, this is a feasible tool that has not been considered in the large economics literature on inflation control.
Now to a possible program for getting a TAN parallel circulation system working:
The government needs to implement some measures, and the parliament may need to pass some laws:
- The first is the creation of a new unit under the Treasury, the TB. The TB has sole power to issue TANs.
- The second is that payment to public employees and pensioners may be done partly in TANs, possibly with some upper bound on the TAN share.
- A third is that all agents must pay taxes and fees with a lower bound on the share of euros corresponding to the decided mix.
- A fourth is that all mobile phone operators shall be obliged to install and run the hardware and software needed for the TAN system, and that the fees they are allowed to collect for transactions are capped, at very low levels.
- A fifth is about exchange between TANs and euros. The exchange rate should be allowed to float freely. But there should possibly be some measures against types of speculative activity. The TB should be given authority to implement such if that is deemed necessary.
The government must ensure that the mobile infrastructure is up and running smoothly before the launch date, with testing and fixing of all problems that have emerged so that everything is ready in time. We recommend copying from existing systems that are up and running.
Public information and debate
An information campaign must be run. The media must be used to disseminate information and answer questions and objections. A crucial part of this is to convey some understanding of monetary systems and modern money theory to the public.
Negotiations with unions and domestic organisations
They must be convinced to accept a share of TANs in wages, especially for public employees and pensioners.
Advice and help to businesses
They will have to adjust to two types of payment from customers, complicating matters. To some degree the TAN side of accounting can be automated, since a given business can have more than one TAN account at the TB. Tax payments can also be automated on the TAN side. The government should help with apps, software and device solutions for fast and convenient TAN payment in shops and on public transport.
A central organiser of the system
Probably it is most convenient to assign all tasks related to the introduction and running of the TAN system to the TB, which must be amply and competently staffed.
Political process versus the EU
Ongoing negotiations should openly acknowledge the intention of the government to launch a parallel system without leaving the euro. The EU side ought to be convinced that the stimulus of TANs to the Greek economy will improve Greece’s ability to service euro debt. An agreement on the euro debt service issue should then be more feasible than today. On the other hand, if disagreement persists, Greece will have a stronger position in negotiations because of the TAN alternative that they can still go forward with, as opposed to today where they are completely dependent on further euro injections to avoid the economy grinding to a halt.
 Trond Andresen, “A parallel emergency currency via the mobile phone network”, Die Parallelwährung: Optionen, Chancen, Risiken. Bundesverband mittelständische Wirtschaft, December 2012, pp. 14–17. URL http://www.itk.ntnu.no/ansatte/Andresen_Trond/articles/sammelpublikation_parallelw%C3%A4hrung.pdf
 Claude Hillinger, “From TREXIT to GREXIT? – Quo vadis hellas?”, real-world economics review, issue no. 70, 20 Feb 2015, pp. 161-163, URL http://www.paecon.net/PAEReview/issue70/Hillinger70.pdf
 Robert W. Parenteau, “Why Understanding Money Matters in Greece” Naked Capitalism (website), 9 March 2015, URL http://www.nakedcapitalism.com/2015/03/rob-parenteau-why-understanding-money-matters-in-greece.html
Trond Andresen, firstname.lastname@example.org, The Norwegian University of Science and Technology Department of Engineering Cybernetics, Trondheim, Norway
Robert W. Parenteau, CFA, email@example.com, MacroStrategy Edge California, USA