Tuesday, 10 March 2015
A parallel currency for Greece.
There have been a large number of suggestions recently to the effect that Greece and indeed other PIGS might benefit from a second or parallel currency, e.g. see here and here.
Parallel currencies are not to be sniffed at: Switzerland has had a second currency for 70 years, the WIR, and 60,000 businesses in Switzerland use it. Plus Switzerland is one of the most successful countries in Europe: it has a decent GDP per head plus low unemployment. Thus it’s the last country you’d think would really NEED a second currency.
Obviously the Eurozone authorities DON’T LIKE second currencies because the whole idea of the EZ is to implement a Europe wide SINGLE currency. But there’s no need for any RIGID insistence on the latter. Moreover, there are any number of shades of grey between having the Euro as THE ONLY currency used in a particular country, and that country essentially using its own currency, with the Euro being used just occasionally for international transactions. In other words I’m baffled as to why “Grexit” is portrayed as such a big deal.
Indeed, every country in the world which issues its own currency is at the same time in a sort of Euro system in that every country in the world to a greater or lesser extent uses US dollars for international transactions.
Public versus private 2nd currencies.
The Swiss WIR system is a PRIVATE sector system: the Swiss government does not issue WIRs and won’t accept them in payment of Swiss taxes. But there’s nothing to stop the GOVERNMENT of an EZ country issuing a parallel currency and accepting it in payment of taxes. Obviously that constitutes a significant move along the “shades of grey” scale towards (in the case of Greece) re-establishing the Drachma. Or you could argue, quite reasonably, that would actually constitute a re-establishment of the Drachma.
Another choice that has to be made in deciding which shade of grey to go for involves the question as to HOW MUCH of the new currency to issue. Assuming it’s government that issues it, clearly it can issue large volumes of the new currency or a smaller volume.
The obvious DISADVANTAGE of issuing a LARGE volume is that that pretty much constitutes reverting to a national currency, which in turn means there are risks and costs involved in international trade: converting the national currency to Euros, etc.
In contrast, the obvious ADVANTAGE of issuing a large volume of the parallel currency is that that boosts demand INSIDE the relevant country by citizens of that country. To enlarge on that, Greek citizens who are currently short of Euros are resorting to barter. A supply of Drachmas would enable them do that sort of business (between Greek citizens) more efficiently.