There is a succinct piece on explaining that Greece has 5, not 2 options before it. I want to put forward a sixth.
Before I do that, a summary of the other 5:
1. Greece stays in the Eurozone
2. Greece keeps the euro, but stays outside the eurozone – “The Montenegro Option”
3. A Currency Board – a new currency, but locked to the Euro.
4. A Dual system – a Drachma and the Euro circulates side by side
5. The New Drachma – possibly growing out of option 4, above, due to Gresham’s Law.
Option 6 – Currency Freedom
This is to end currency monopoly formally, not just to a dual currency arrangement, but a true acknowledgement of plurality, as decided upon by each member of the Greek citizenry.
US dollars, euros, RMB, gold, Bitcoin, anything, if agreed by both parties in the transaction.
It would be likely, IMHO, for the Greek govt to have its own currency again, free from external control by states or private sector banks, but this time it would be without a monopoly. The government can, of course, require payment of taxes in its own currency, and decide to pay suppliers and employees in it, too. This would add some heft to it.
What this will do, however, is not grant it as much power to print at the expense of savers, creditors and wage earners. It will impose much needed discipline and awareness of consequences. The government would need to become more like a going concern, able to raise funds for investment purposes that yield return, but the Government would find it hard to borrow on the never-never for ongoing overheads and obligations. A Drachma will be, more than most currencies, a share certificate in The Greek State Inc. And for those who think one cannot borrow/lend shares, well, one can, and many do already.
The role of the central bank would not go away, but be limited to institutions handling Drachma, as mentioned. Most banking organisations are operating under global agreements such as Basel3, anyway, and if taxes are paid in Drachma,
most banks will need to handle it one way or another and thus have a state license and deposits lodged at the Central Bank.
The freedom in currency will mean an organisation that has costs in us dollars can bill in us dollars. It means routinely,
savers need not keep their wealth hostage to one currency or politicians. Banking solutions can and would be found to handle the exchanges efficiently. It is not beyond the wit of banks to perform immediate, low margin, zero commission foreign exchange via multiple accounts in different currencies. In Hong Kong, my moderate transfers had a 0.3% spread 15 years ago. Multi currency credit or debit cards, or other payment solutions such as gold linked or bitcoin based, that detect the destination currency, would deduct the appropriate account or perform the necessary conversions.
With the 6th Option, people will be free of currency slavery. Even if they did continue to use the domestic State currency, it would be more exposed to reality, and thus give the State a moment of pause before they acted. Life could continue if a person chose to back out of its use partly or completely.
The state is, however, faced with a society that has, for all intents and purposes, pulled out on the implicit, if grudging, compact that sustains taxation. Taxation has to be seen to be fair not just by the majority, but also by those shouldering the burden. Flat? Land ? Consumption? A mix of all three? It is a problem that faces the nation, no matter what option was chosen.
Image © Alehins
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All six options miss the point.
The point is – that the government services and benefits (promised by Greek governments for many years) are not affordable.
This is, at heart, a fiscal mess – not a monetary one. It is not “taxation” that it is the problem – it is government spending.
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That they are not affordable isn’t under question – debt funding of ongoing overheads.
Unless the ability to promise and borrow is not restrained, governments can continue to run up the bills. More tragic, is when they resume doing so after a period of fiscal restraint by a previous administration that became unpopular due to the medicine.
Currency freedom brings with it strong motivation and discipline, or, just as importantly, it puts temptation far away. Being in the Euro was almost the polar opposite.
Taxation, in Greece, is broken. An organisation can cut costs and reduce overheads, but if it still cannot get any meaningful income, it is sunk.
All are important and intertwined.
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Indeed Paul, but we might as well point out that there is an opportunity for what is an unfortunate but inevitable real-life ‘experiment’ in economics. However, with Syriza on one side, the EU and various EU government and the IMF on the other, what chance is there for any form of rational, realistic discussion over the fundamental issue? The State is God, Tsipras believes that, and it can borrow money and not pay it back. In their hearts, Merkel and Juncker agree with him, they just want it to be done more artfully.
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“Tsipras believes that, and it can borrow money and not pay it back. In their hearts, Merkel and Juncker agree with him, they just want it to be done more artfully.”
Indeed, and the same applies to almost all governments.Greece is just the slowest of the wildebeest, pursued by the lions of economic reality.
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Well it seems that the Greek government’s position, after the referendum, is going to be something like: “Now you must lend us ‘the f***ing money’*, as he People have voted not to pay you back.”
* Acknowledgment to Bob Geldof.
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‘the People’
(Or ‘das Volk’ if you prefer).
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Well from here, the Greek plan appears to be, post-vote:
1. Challenge the rest of the Eurozone to go against ‘the will of the people’.
2. Hold out for a better deal that the Eurozone’s etc. last offer, with a partial write-off, and with the awkward Greek Finance Minister jettisoned, a Mr Reasonable will fill his place (for a while).
3. Keep the nose in the trough of EU membership/Eurozone lending.
4. Rinse and repeat when the next load of money runs out/has to be repaid, as it will.
The Eurozone Finance Ministers seem remarkably interested in giving the can of economic reality yet another toe-punt down the road.
But, if it all falls through, and Greece has to leave the Eurozone (I don’t see why it should, the Greek State could simply run out of money and remain in the Eurozone), then we may see a hurried introduction of a new currency. But presumably with Greek debt denominated in Euros and to be paid back in them, what benefit is there of starting a new fiat money?
Greek could be a bit like Macau with its pataca, when I went there, the HK dollar was accepted everywhere, and was preferred to the pataca. The pataca is reportedly a legacy of the Mexican dollar. It now runs on a currency board to HK dollars, themselves boarded to US dollars.
https://en.wikipedia.org/wiki/Macanese_pataca
Gresham’s law will however, inevitably strike (or a variant). Bad money drives out good. (I.e. overvalue one form of money artificially, and the devalued one will be hoarded and the overvalued one spent first), e.g. pre-1947 2 bob coins in the UK with silver, vs. the 1948 2 bob coins with no silver. The 1947ers vanish as they are hoarded.
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