Home > Uncategorized > A parallel currency for Greece? The comments to the Andresen and Parenteau post.

A parallel currency for Greece? The comments to the Andresen and Parenteau post.

In this post Robert Parenteau and Trond Andresen propose a parallel currency for Greece. Here some snippets from the thread. Introductory remarks:

1) An effective tax system is crucial to the new system. Making the tax system more effective (and just) is top priority of the Tsipras government, as is clear from ‘the list‘. This is at the moment obstructed by the Troika.

2) The government of Iceland has published this immensely readable tract on monetary reform (great teaching resource!) which is, from Soddy and Keynes to Werner and Huber a good overview of how scientific economists think about money. And an analysis of the immense failure of ‘private’ banking in Iceland and the changing nature of the money-inflation nexus.

3) Historically, governments (often local, or sub-national) have sometimes been forced to introduce a parallel currencies – not always without succes (Notgeld, but also Wörgl).

The snippets:

A) Nikos Karatsoris about the Greek central bank:

“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

B) Andre (part of his response)

“Transactions are done via mobile phone/SMS”.

This will be the only way to receive/make payments? Are you serious? This seems very limited. 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?

C) Andresen responds:

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.

D) Andresen also responds to Alan Harvey:

“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.

E) Parenteau responds to Pavlos

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.

  1. April 3, 2015 at 9:22 am

    Reblogged this on iGlinavos.

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