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