Home > Greece > A detailed program proposal for creating a parallel currency in Greece

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 [1], and recently by Hillinger [2]. The additional (“parallel”) circulating medium of exchange to be proposed may be designated a Tax Anticipation Note (TAN), a term introduced by Parenteau [3]. 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:

  1. The system can be implemented fast, and adjustments that turn out to be needed can be implemented in software, therefore very easily and cheaply.
  2. The system is very cheap to run, compared to a system with notes and coins. And forgery is impossible.
  3. There is no confusion with bills and coins (i.e. euros) that are being used in parallel.
  4. No deposit insurance is needed. Money cannot be lost, and this is clear to the public – thus no bank runs.
  5. 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.
  6. TANs cannot be used for capital flight, since they only reside at the CB.
  7. 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.
  8. 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.

Technical preparations

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.
____

 

References 

[1] 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

[2] 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

[3] 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,  trond.andresen@itk.ntnu.no,  The Norwegian University of Science and Technology Department of Engineering Cybernetics, Trondheim, Norway

Robert W. Parenteau, CFA, macroedge1@gmail.com,  MacroStrategy Edge California, USA

  1. March 28, 2015 at 3:33 pm

    There is one aspect to your proposal that I find ill-conceived and that would make the system difficult to function. You would allow the exchange rate between Euros and your proposed TANs to fluctuate but you give not details regarding how a market exchange rate between Euros and TANs would be determined. When a Greek grandmother goes to her local vegetable stand to buy a kilo of potatoes, will she have to worry about this exchange rate in deciding how to pay?

    A similar problem faces a taxpayer. You state that he must use a minimum share of TANs to make his payment. He may not have them. Then he must go out to look for a seller. If he wants to get the best rate, he may have to do a lot of negotiating and that would be a big additional burden.

    I think that in this respect my proposal is much simpler and better. The second currency would be legally on par with the Euro for any domestic transaction. Payments could be made in any proportion. These features would be equally compatible with your proposed electronic payment system.

    I also fail to see any compelling reason for pretending that a currency is something else. This is sterile legalism. I cannot imagine that a Euro Zone decision for or against a Grexit would depend on a choice between the words ‘Drachme’, or ‘TAN’.

    Sadly, I think that our proposals are probably in vain. From the start, the Syriza government has concentrated on making futile demands on its creditors, instead of doing what it could to help itself. If, immediately following the election, the government had instituted controls on capital flows, limited cash withdrawals from banks and implemented a second currency, then the situation in Greece would be vastly better today.

  2. March 28, 2015 at 4:03 pm

    Claude, thanks for response. I think that it should not be forbidden to exchange euro/TANs at a fexible rate decided by supply and demand, A black market should be avoided. That said, I don’t think it will fluctuate much, only a big initial dip, when skepticism is large. After a while the exchange rate will probably stabilise, and fairly close to par. The Treasury Bank can offer euro/TAN exchange at a reasonable rate, along with other financial entities, This will make things simple for TAN holders.

    Concerning the grandmother in your example, she just has to consider the euro/TAN mix demanded by the seller. And perhaps go to anothere seller offering to accept a larger TAN share in payment. That then becomes a competitive instrument for sellers in addition to price. Sellers and employees shouild be free to choose the mix for prices respectively wages.

    We don’t mean that a taxpayer “must use a minimum share of TANs to make his payment”, but the opposite: a minimum share of euros, corresponding to the euro share in govt spending. If all taxes could be paid in TANs, they would not circulate but immediately be used to pay taxes, cf Gresham’s law. While the government would run out of euros.

    Finally, we are not “pretending that a currency is something else”. But since TANs do not exist as physical notes, and if it is not declared legal tender, it is not in breach of EU law as far as we now. That makes it more difficult to attack it on formal grounds.

  3. Macrocompassion
    March 28, 2015 at 5:48 pm

    Will the Euro controllers/contract be in agreement with this?

  4. Nikos Karatsoris
    March 28, 2015 at 6:17 pm

    “The Greek State undertakes the obligation, during the period of the privilege granted to the Bank, not to issue or re-issue money of any type other than coins in circulation, in denominations not higher than one thousand drachmae and such coins only through the Bank at its request or pursuant to the law.”

    This is article 3 of the Statute of the Bank of Greece. [1] This paragraph of the Statute has not been amended since 1927.

    The Statute of the Bank of Greece is “of a superior law prevailing over any other provision of domestic law” [2]. The Statute of the Bank of Greece is an annex to an International Treaty for a loan that was floated internationally under the auspices of the League of Nations.

    The Bank has been rechartered until 2050 in December 2012. Article 7 of the Statute stipulates that “The present Statute may be amended by a decision of the General Meeting of Shareholders, ratified by law.”

    Hence any legislative initiative breaches the charter of the Bank of Greece. The proposal suggests that “first is the creation of a new unit under the Treasury, the TB. The TB has sole power to issue TANs”. Should the Treasury authorize a second Bank of issue it would be prudent to amend article 3 of the Statute of the Bank of Greece. But the Statute can be amended only by the General Meeting of the Shareholders. The Bank of Greece is listed in the Athens Stock Exchange. According to article 8 of the Statute “The State, as well as public enterprises, shall not, directly or indirectly, hold shares of the Bank amounting, in the aggregate of such holdings, to more than thirty five per cent (35%) of the nominal issued share capital.”

    Please note that to my knowledge no other Central Bank Statute contains a clause forbiding “to issue or re-issue money of any type other than coins in circulation”. Usually states grant to their central banks the privilege to issue banknotes. The Bank of Greece’s Statute needs to be amended and modernised and I cannot go into details here. Article 3 must be replaced with an article like article 14.1 of the Statute of the Bundebank [3] that says:

    “Without prejudice to Article 128 (1) of the Treaty on the Functioning of the European Union, the Deutsche Bundesbank shall have the sole right to issue banknotes in the area in which this Act is law. Banknotes denominated in euro shall be the sole unrestricted legal tender.”

    This article introduces the notion of “sole unrestricted legal tender” a terminology that does not exist in the Treaties and Laws of the European Union. “In Germany, banknotes denominated in euro are the sole unrestricted legal tender. Euro coins are restricted legal tender as no one is obliged to accept more than 50 coins or coins to the value of more than €200” [4] This is however an explanation as it tries to incorporate into the Bundebank’s Statute article 11 of Regulation 974/98 [5] that says “Except for the issuing authority and for those persons specifically designated by the national legislation of the issuing Member State, no party shall be obliged to accept more than 50 coins in any single payment.”

    However for a complementary means of payment to be introduced in Greece and be accepted for the discharge of monetary debts including taxes it should technically acquire the a status of a “restricted legal tender”, only for internal, national use whether it is convertible or not in whatever denomination at whatever market exchange rate.

    Can Greece amend Article 3 of the Bank of Greece? Can the Statute of the Bank of Greece be modernised? These are issues that need to be addressed before the introduction of a complementary means of payment. Of course everything in the end is a poltiical decision.

    [1] http://www.bankofgreece.gr/BogDocumentEn/Statute.pdf
    [2] http://www.bankofgreece.gr/Pages/en/Bank/LegalF/statute.aspx
    [3] https://www.bundesbank.de/Redaktion/EN/Downloads/Bundesbank/Tasks_and_organisation/bundesbank_act.pdf?__blob=publicationFile
    [4] http://www.bundesbank.de/Redaktion/EN/Glossareintraege/L/legal_tender.html
    [5] Official Journal L 139 , 11/05/1998 P. 0001 – 0005, http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1427192385533&uri=CELEX:31998R0974

  5. March 29, 2015 at 12:21 am

    This is fun, I am in the middle of rewriting a sci fi thriller and the main nation has collapsed. The romantic young econ couple and the post grad are devising a similar scheme. To keep the governments honest – not an easy task – counterfeiting is encouraged.

    The counterfeiting is based on kilocalories and blank bills are painted on by anyone who this their art on a bill will sell.

    The second parallel currency is a 100% market release coming from the people as fast as they can paint it. Variances between the peoples market currency and other currencies sum to reveal the relative efficiency of particular governments in relation to laws of thermodynamics. A national currency that reaches par with counterfeit currency is an extraordinarily efficient government.

  6. Robert Parenteau
    March 29, 2015 at 6:27 pm

    Nikos, that is fascinating, please let us know if you find more information that could indicate how best to revise or comply with Article 3. And also how that Article is upheld in light of euroissuance by Greece’s National Central Bank as authorized under Article 128 of the Lisbon Treaty.

  7. Andre
    March 30, 2015 at 2:42 am

    “Transactions are done via mobile phone/SMS”.

    This will be the only way to recieve/make payments? Are you serious? This seems very limted. I don’t think it’s acceptable to a government oblige people to have a cellphone in order to do transactions. I don’t want to be enslaved to my cellphone, which will become like a human organ if transactions become limited this way. How about poor people, who can’t or don’t want to buy cellphones? Will the government provide cellphones? Do people will have to pay for monthly SMS services to make payments? How about my son? He is a teenager, vulnerable to frauds and crimes. Will he have free access to my account? Will he walk around with my password? Will I have access to his transactions? Will I be able to limit his transactions?

    If the cellphone suddenly stops working, how people will make payments? How he/she will pay for another cellphone? And if the cellphone gets stolen?

    Even in such a limited transtaction structure, I am assuming that there will exist some sort of secure internet site, supplied by the government, that will make it able for people to transfer this new money.

    “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 itself can be implemented fast, but it is just a part of a bigger operation. This bigger operation is actually very complex and expensive, because:
    1) You need a costumer’s service like operation. People will need to register, choose a password, and gain access to a internet secure site. People will have questions and will need support. Will there be some kind of account manager? Will there be some sort of call center to answer people? People will have a lot of different kinds of problems. If a man dies, how will his wife get access to his account? Will it be possible to merge two different accounts into one? Will a mother be able to have a joint account with her teenage son? If my teenager son accendatily changes the account password, and forgets it, how will I get my account back?
    2) Some cellphones will be stolen. Maybe the thief will do some transactions with stolen cellphones. Who will be responsible? To whom will the victim have to call to solve this kind of problem?
    3) People and their accounts will be subjected to fraud, via fake e-mails, virus and ad-wares and other means that are common in banking. Will the government be prepared? Will it be responsible for frauds?

    You know, things in real world are much more complex and difficult than in the world of ideas… Won’t a new currency solve the problem? Neo-drachma, in the traditional form: paper money?

  8. March 30, 2015 at 3:00 am

    Very useful and promising. Some comments:

    (1) As Nikos has pointed out elsewhere, an electronic currency is good for Greece to the extent it eliminates cash transactions and the opportunity to evade taxes. It would be good if transactions over, say, 50 euros were digitized.

    (2) As you say, the government needs euros for its euro-denominated obligations. Your idea here is to set a limit or percentage on the number of TANs that can be used for tax payments. Another idea would be to assign the actual taxes, e.g., VAT must be paid in euros, Income in a mix, Property with no mix required.

    (3) The activation of idle labor leading to the increase of exports leading to the inflow of foreign currency is a long-run certainty, but increase and level are different, and it is subject to short-run kinks. The government’s accounts cannot depend on this sequence until it happens.

    (4) Likewise, the decrease in liquidity preference leading to an increase in aggregate flow of euros is subject to the psychology of the moment, and indeed, the opportunity to swap euro transactions for TAN transactions might lead to a kink in the other direction. In this case it could break the sequence with short-run ramifications.

    (5) Preparation for TANs would be useful in the event that the Greeks are forced out of the euro, insofar as an infrastructure would be in place.

    (6) One wonders if government agencies could not simply add TANs to current payroll and pensions, as a way of meeting the goals of their platform. This would place them in circulation among people who are likely to spend. Those without TANs would be likely to trade more freely for them and keep the exchange rate in line.

    (7) The question of EU negotiations is pertinent. Evidence suggests that reason and persuasion are not necessarily linked. It may be useful to develop the TAN idea aggressively in either case, insofar as it can be used as a bargaining chip, even if not implemented.

  9. March 30, 2015 at 10:07 am

    Nikos, thanks for comprehensive and informed comment, But Syriza should not allow itself to buckle under because of legal objections. There is one overarching problem and that is the need for a domestic medium of exchange to employ people and get the economy going. The legal issues must be solved either by changing some laws, or by circumventing them. Syriza holds governmental power, and should prepare parallel electronic currency while at the same time fighting the battles on the legal front, not allow itself to be stopped by such objections.

  10. March 30, 2015 at 12:21 pm

    In your proposal the government has two levers to generate demand for a parallel currency and both of them are authoritarian: Citizens need it to pay taxes, and government arbitrarily uses it to pay its workers who then try to negotiate for market goods. If demand for the currency is only authoritarian, it may backfire and create a niche economy that’s isolated and shunned by the greater economy you’re trying to fix. Maybe it’ll circulate among public sector workers and that’s that.

    You also need a market-based way of creating demand for the currency, like using it to pay for government services that are highly desirable. If people can use it to pay for transport, that’s a small thing. Electricity is bigger. Health services, even if a fraction of the cost is out of pocket, have a big psychological impact. If the public sector has productive assets for which there’s latent demand, the government can automatically finance such demand through a parallel currency. Otherwise it’s powerless.

    That’s the main reason to resist privatisation of basic services: Any parallel currency or other unconventional monetary policy that the Greek government may try is only as good as its latent capacity as a market participant. If the the productive assets of the Greek state are sold off, any monetary-fiscal policy options are closed and the government is just a bad bank.

  11. Robert Parenteau
    March 31, 2015 at 2:31 am

    Pavlos: All elected governments with fiat/sovereign currencies dictate what they will accept as a means of settlement for tax liabilities they impose on the citizens that elected them. We can argue whether that is authoritarian or not, but as you say, that is only relevant if citizens perceive the parallel currency as an imposition that is not likely to be of net benefit to them. In that regard, you are ignoring, perhaps, the large backlogs of tax payments the citizens of Greece have accumulated in recent years, which will create an immediate demand for the parallel financing instrument we have designed. I do very much like your idea of allowing the parallel instrument to be used for payment of government provided services, and I do think that would speed the adoption of the parallel currency by consenting adults as a means of settling private market transactions. There are also other historical examples where economies with high unemployment rates have been eager to take up parallel currencies to overcome a “scarcity of money” which is impeding production and income generation, the Worgl in Austria during the Great Depression being one such example that mushroomed across the nation, until the Austrian Central Bank stomped it out.

    • April 1, 2015 at 3:03 am

      Agree with Pavlos comment and more so with Robert’s response. So long as the government accepts it for taxes, it has value, as with all other states. The more so if it is useful for government services. The big step will be financing investment, public or private. Any thoughts on that? Or how it would affect a major “export” industry — tourism.

  12. April 1, 2015 at 10:57 am

    Thanks for all responses. I will reply to some of comments in this thread, chronologically:

    Andre writes:

    >This (mobile phones) will be the only way to receive/make payments?
    >Are you serious? This seems very limted. I don?t think it?s acceptable
    >to a government oblige people to have a cellphone in order to do
    >transactions. (… also listing many other worries about such a system …)

    Euros will circulate in parallel. And even poor people have mobile phones these days. For those who don’t have, the system can be configured such that one may norrow another person’s phone, i.e. a TAN account holder may use any person’s phone to execute own transactions. Concerning possible info remaining in a stolen phone, the system can be configured so that the thief does not get any access to the owner’s account.

    These practical issues are solvable. Mobile phone based payment systems have a proven track record. M-Pesa (“mobile money” in Swahili) has worked very well for the poor rural population in Kenya since 2007. Such systems are now being implemented in several other developing countries, inspired by the Kenya success.

    Also, a Greek TAN system should allow transactions via personal computer, and possibly use of a TAN debit card via the terminals that is are in use in many shops today.
    ___

    Alan Harvey writes:

    >(1) As Nikos has pointed out elsewhere, an electronic currency is good
    >for Greece to the extent it eliminates cash transactions and the
    >opportunity to evade taxes. It would be good if transactions over,
    >say, 50 euros were digitized.

    Yes, electronic money makes it truly difficult to evade taxes. A bonus on top of other advantages.

    >(2) As you say, the government needs euros for its euro-denominated
    >obligations. Your idea here is to set a limit or percentage on the
    >number of TANs that can be used for tax payments. Another idea would
    >be to assign the actual taxes, e.g., VAT must be paid in euros, Income
    >in a mix, Property with no mix required.

    Yes, this can be done in many ways. Some govt income may be a pure TAN flow, other a pure euro flow, or some mix. The only requirement is that the govt receives a share of euros not lower than the share it spends. Some proposals I have seen allow that all taxes may be (and then will be!) paid in TANs. As stated earlier I believe that would result in TANs not being used for transactions but immediately recycled back in taxes. But I am open to counterarguments here.

    Yanis Varoufakis has himself suggested another solution to force circulation and avoid immediate repayment of taxes. As I understand him, it means putting idle euros into circulation by getting holders of too much euros to buy what he calls “FT-coins” from the govt, and thus giving the govt more euros to spend. FT-coins can be used for tax payment, but not before – say – two years. Every FT-coin has a time stamp and is thus unique. Se here for his proposal: http://yanisvaroufakis.eu/2014/02/15/bitcoin-a-flawed-currency-blueprint-with-a-potentially-useful-application-for-the-eurozone/ (note that the first part of his text is an argument against bitcoin as a crisis solution tool, the ft-coin idea is in the last part).

    For Greek society as a whole, this corresponds to an increase in euro money velocity without increasing euro stock. It corresponds to the govt selling bonds to the public, since the FT-coins are redeemed with accrued interest later on. So it is a trick to get people to to buy govt debt so that the govt gets more euros to spend. You depend on the mood and the willingness of euro owners.

    As opposed to this, the parallel currency is an unlimited tool controlled solely by the govt, not depending on any willingness of bond buyers. And it allows gradual euro exit and complete reinstatement of a national currency, if that turns out to be wanted by the population.

    This currency can then remain purely electronic, or one may also issue bills and coins after a while. Note that the electronic alternative allows a govt an ample amount of time to introduce physical currency if that is considered necessary.

    >(3) The activation of idle labor leading to the increase of exports
    >leading to the inflow of foreign currency is a long-run certainty, but
    >increase and level are different, and it is subject to short-run
    >kinks. The government’s accounts cannot depend on this sequence until
    >it happens.

    I don’t understand what sort of “kinks” you mean here, Alan. Could you elaborate?

    What I envisage is a turbulent start-up period where the euro/TAN rate dives because of skepticism and scaremongering, but that the govt stays calm and spends TANs in the promised mix, gradually removing panic and leading to more optimism, and that the euro/TAN rate then gradually converges to a level probably above 90%.

    Should this rate be allowed to float as suggested in our paper, or be declared to be 1:1? In the last case you will get a black market, but I am open to good arguments for a declared 1:1 rate.

    >(4) Likewise, the decrease in liquidity preference leading to an
    >increase in aggregate flow of euros is subject to the psychology of
    >the moment, and indeed, the opportunity to swap euro transactions for
    >TAN transactions might lead to a kink in the other direction. In this
    >case it could break the sequence with short-run ramifications.

    Please elaborate. It is unclear to me what you mean.

    >(5) Preparation for TANs would be useful in the event that the Greeks
    >are forced out of the euro, insofar as an infrastructure would be in place.

    Precisely!

    >(6) One wonders if government agencies could not simply add TANs to
    >current payroll and pensions, as a way of meeting the goals of their
    >platform. This would place them in circulation among people who are
    >likely to spend.

    Agreed, which we also say in the paper.

    >Those without TANs would be likely to trade more freely for them and
    >keep the exchange rate in line.

    TANs would – I think – only be attractive to buy if the exchange rate is somewhat below par.

    >(7) The question of EU negotiations is pertinent. Evidence suggests
    >that reason and persuasion are not necessarily linked. It may be
    >useful to develop the TAN idea aggressively in either case, insofar as
    >it can be used as a bargaining chip, even if not implemented.

    Good point!
    ___

    Pavlos writes:

    >In your proposal the government has two levers to generate demand for
    >a parallel currency and both of them are authoritarian: Citizens need
    >it to pay taxes, and government arbitrarily uses it to pay its workers
    >who then try to negotiate for market goods. If demand for the currency
    >is only authoritarian, it may backfire and create a niche economy
    >that’s isolated and shunned by the greater economy you’re trying to
    >fix. Maybe it’ll circulate among public sector workers and that’s that.

    See Rob Parenteaus’s reply.

    >You also need a market-based way of creating demand for the currency,
    >like using it to pay for government services that are highly
    >desirable. If people can use it to pay for transport, that’s a small
    >thing. Electricity is bigger. Health services, even if a fraction of
    >the cost is out of pocket, have a big psychological impact. If the
    >public sector has productive assets for which there’s latent demand,
    >the government can automatically finance such demand through a
    >parallel currency. Otherwise it’s powerless.

    I disagree, not powerless. As long as TAN’s up to the declared mix can be used to pay taxes, it will have value even if all govt services were free or privatised. But I agree that it helps very much if the TAN’s are not only collected as tax, but may also be collected through payment for govt services.
    ____

    Alan Harvey writes

    >…..The big step will be financing investment, public or private. Any
    >thoughts on that? Or how it would affect a major “export” industry ­ tourism.

    The issue of lending in TAN’s (for investment) is not covered in our paper. At the outset the acute problem is to increase employment and activity, to close the enormous output gap. This may be done simply by spending more money (of both types) into the economy. The TAN tool allows the govt to instigate emergency employment schemes by spreading its available euro spending flow also to the unemployed, and topping up the reduced euro wages and pensions with TAN’s in the mix suggested in the paper. Say 20% at the outset, perhaps increasing gradually to 35% when panic and skepticism has subsided.

    Investment and lending can for a period be in euros like today. But lending in TAN’s will emerge.

  13. Robert W. Parenteau
    April 1, 2015 at 11:48 am

    If the following account is true, and Syriza is about to reach for straight Bitcoins, and not an e-money variant like the one described above, as their parallel currency, then they have just managed to “screw the pooch”, as Chuck Yeager used to put it. Bitcoin is not a currency. It is an intangible asset. With an eventual fixed stock supply. And by design, is meant to be an easy target for speculative manipulation. With a very unstable and volatile value relative to other currencies, as well as consumer goods and services. If a straight shift to Bitcoin is the actual proposal, these are not even erratic Marxists – they are clearly Groucho Marxists! On to Freedonia! http://greece.greekreporter.com/2015/04/01/yanis-varoufakis-greece-will-adopt-the-bitcoin-if-eurogroup-doesnt-give-us-a-deal/

  14. April 1, 2015 at 11:51 am

    Given the fact that YV identified some of the serious failings of Bitcoin in his own Feb. 2014 e-money proposal, I have to assume either this report is garbled, and he is actually re-proposing his FT-coin idea from them, or he has had a complete lapse of memory (and judgment), perhaps induced by sleep deprivation since taking office.

  15. April 1, 2015 at 12:40 pm

    Robert, I hope/believe this an April fools’ thing. I fell for it for a while.

  16. April 1, 2015 at 12:45 pm

    Reuters ran something 4 days ago also suggesting YV getting ready to go for Parallewahrung.
    http://www.thetoc.gr/eng/economy/article/ez-officials-no-grexit-nor-grexident-but-euro-and-drachma-in-parallel
    I believe the GR journalist may have misinterpreted YV’s FT-Coin e-money approach with Bitcoin. Strategically, since the reforms are being rejected and Syriza is running out of options to make payments (these spike up in mid-April) it would make sense for YV to start playing this card now too.

  17. April 1, 2015 at 12:51 pm

    And also in India Times 4 days ago. Swore I glanced at something on Bloomberg Sunday as well along these lines.

    http://articles.economictimes.indiatimes.com/2015-03-27/news/60553621_1_euro-zone-official-prime-minister-alexis-tsipras-greek-government

  18. April 1, 2015 at 1:26 pm

    Alan Harvey writes
    >…..how it would affect a major “export” industry ­ tourism.

    Forgot to respond to that.

    When tourism is paid in euros only, and employees are paid partly in TANs, this will be a boon for the tourist industry. Which will be in a better position to pay euro taxes.

  19. April 1, 2015 at 7:15 pm

    Next possible steps, once several eurozone nations have up and running Parallewahrung, are mentioned toward the end of the attached article.http://www.project-syndicate.org/commentary/euro-currency-manipulation-by-stefan-kawalec-2015-04#twimvwSGHbug061b.01

  20. Robert Parenteau
    April 3, 2015 at 3:30 am

    More and more trial balloons like this one floating in the press on introduction of a parallel currency as Greece heads for partial, in place default, starting with IMF on April 9th.http://www.telegraph.co.uk/finance/economics/11513341/Greece-draws-up-drachma-plans-prepares-to-miss-IMF-payment.html

  21. April 3, 2015 at 8:37 am

    Robert

    “>(3) The activation of idle labor leading to the increase of exports
    >leading to the inflow of foreign currency is a long-run certainty, but
    >increase and level are different, and it is subject to short-run
    >kinks. The government’s accounts cannot depend on this sequence until
    >it happens.

    RWP: “I don’t understand what sort of “kinks” you mean here, Alan. Could you elaborate?
    What I envisage is a turbulent start-up period where the euro/TAN rate dives because of skepticism and scaremongering, but that the govt stays calm and spends TANs in the promised mix, gradually removing panic and leading to more optimism, and that the euro/TAN rate then gradually converges to a level probably above 90%.

    Should this rate be allowed to float as suggested in our paper, or be declared to be 1:1? In the last case you will get a black market, but I am open to good arguments for a declared 1:1 rate.”

    AH: As you say, there will be an initial confusion, but the kink I was thinking of stems from the fact that the TAN will be introduced in the context of withdrawal from the euro, whether actual or potential, and so the export markets are not clear at all. A would-be importer of Greek goods may wait to see what a price settles at, even if there is no reason it should change. In addition, the activation of idle labor seems to come through the demand side, if that is not too cryptic. That is, Greek exporters do not get a pile of TANs to hire people with; it is instead a matter of a more amorphous resurrection of an active economy.

    >(4) Likewise, the decrease in liquidity preference leading to an
    >increase in aggregate flow of euros is subject to the psychology of
    >the moment, and indeed, the opportunity to swap euro transactions for
    >TAN transactions might lead to a kink in the other direction. In this
    >case it could break the sequence with short-run ramifications.

    RWP: “Please elaborate. It is unclear to me what you mean.”

    AH: Confusion and uncertainty will motivate some people to hoard anything, at least in the short run, though one would suspect not TANs. The more uncertainty, the more liquidity preference. The introduction of TANs itself is uncertainty generating. On the other hand, the scenarios are several — whether TANs are introduced in parallel, as an obvious successor, or in some unclear situation. If potential investors see this as an opportunity, and in particular, whether they think they can get more now than later (that is, at a low exchange rate) is important to manage, if possible.

    So I guess my point there is that how people see the future is what will lead to the flow of euros to some degree. If they think TANs will rise to parity, they will trade early and help the rise. If they see it as a desperation play and the TAN will fall, they will hold their euros and try to substitute TANs. Is the thought, anyway.

  22. April 3, 2015 at 2:19 pm

    Alan, it was me, not RWP that asked these questions about elaboration. Just for the record. And thanks for answers!

    • April 4, 2015 at 12:08 am

      Oops. That makes up for your writing the piece I need to read in a language where I have the capacity of a three-year-old.

  23. April 4, 2015 at 11:12 am

    After following the news this week, and noting the extreme hubris of the EU/Troika side bordering on bullying, I am starting to feel that the Greek government should perhaps simply leave the euro fully and abruptly, and denominate euro debt in the new drachma, at a fixed exchange rate of – say – a reasonable 0.7 eur = 1 new drachma. The euro:ND exchange rate will of course dive far below this in the initial turbulent period, but after a while things will settle down and I believe the exchange rate will approach such an initially set level.

    But if it instead stabilises at a significantly lower value, that is mostly a problem for the creditors, not for working people in Greece. Then the creditors should have thought more carefully about that.

    • August 8, 2015 at 12:11 pm

      Why would Greece force its creditors to accept such an exchange rate? Debts are in USD and Euros and that’s what the creditors expect, right?

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s