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“A recipe for a country to gradually
and possibly exit from the eurozone
through a parallel emergency
currency realised via the mobile phone
network”
Trond Andresen
The Norwegian University of Science and Technology
Department of Engineering Cybernetics
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Overview:
•
•
•
•
Introduction
The eurozone debt crisis
Electronic payment opportunities
Advantages of a parallel electronic
currency
• Political considerations
• NGO currency?
• Words in conclusion
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Introduction
• My presentation builds on two papers,
http://www.itk.ntnu.no/ansatte/Andresen_Trond/econ/paperwolfson.pdf (gvt. parallel money)
and
http://rwer.wordpress.com/2012/03/12/rwer-Issue-59/
(non-gvt. parallel money) .
• The title is a bit misleading, due to the first paper with the
same title being a submission for the Wolfson prize. The
task for the prize: “How to get out of the euro?”
• Before proceeding, a thanks to professor M. Kennedy
who in 1996 inspired me through her book “Geld ohne
Zinsen und Inflation” to a lasting interest in alternative
thinking on monetary systems. On and off for 16 years ...
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Introduction
• From a control engineering standpoint (i.e. mine) a
macroeconomic monetary system should be compared to
a complex process plant, where the control strategy is
(above all) that the system is stable.
Also that it runs close to its set points, and is robust
against disturbances.
• In macroeconomic theory however, many instabilities are
either unrecognised or ignored. Even the concept of
instability is not very central in the discipline.
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Overview:
•
•
•
•
Introduction
The eurozone debt crisis
Electronic payment opportunities
Advantages of a parallel electronic
currency
• Political considerations
• NGO currency?
• Words in conclusion
6
The eurozone debt crisis
• First: the benevolent monetary circuit
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The eurozone debt crisis
• With a financial sector: a damaging debt accumulation
mechanism:
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The eurozone debt crisis
• Yes, the fundamental problem is too much debt related to
GDP. Debt must be written off.
• But parallel currencies – electronically mediated – can
strongly ameliorate today’s situation!
• … which will be my focus in the following.
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Overview:
•
•
•
•
Introduction
The eurozone debt crisis
Electronic payment opportunities
Advantages of a parallel electronic
currency
• Political considerations
• NGO currency?
• Words in conclusion
10
Electronic payment opportunities
• Technological developments mercilessly tend towards the
death of physical currency.
My prediction: It is only a question of some decades.
• Example 1: Mobile phone payment systems, like M-Pesa
in Kenya.
• Example 2: Payment via EFTPOS card in many advanced
countries. Norway has 5 million inhabitants. 12.3 million
cards. 300 transactions per inh. per year. 200 transactions
per second before Xmas. Run by a private company.
• These systems have immense capacity
• And they are trusted by the public.
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Overview:
•
•
•
•
Introduction
The eurozone debt crisis
Electronic payment opportunities
Advantages of a parallel electronic
currency
• Political considerations
• NGO currency?
• Words in conclusion
12
Advantages of a parallel electronic currency
• We go for mobile phones, not EFTPOS.
• Imagine a mobile-phone-based system resembling MPesa, established and run by some branch of the Central
Bank in a eurocrisis country.
Let us call this EC – Emergency Currency.
• Public employees are partly paid in EC’s, say 30% at the
outset but the share increasing. The rest in euros.
• A massive hiring of unemployed into the public sector
takes place, these are paid in the same mix.
• The national CB creates electronic EC’s out of thin air,
and “lends” these for the gvt. to spend. Deficit spending!
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Advantages of a parallel electronic currency
• All citizens and firms have EC accounts at the CB.
All EC transactions go via mobile phone.
• EC’s can be used to partly pay taxes. This is an incentive
for firms and persons to have confidence in EC’s,
following the MMT/Chartalist argument.
• Such a system will in a timespan of a few weeks strongly
improve the situation. It is very fast and cheap to establish,
compared to a parallel system with bills and coins.
• And speed is essential, since the EU/ECB/IMF will
probably try to quash it using legal arguments. The system
has to get popular before the Troika gains momentum.
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Advantages of a parallel electronic currency
• A second advantage is that a black economy in EC’s is
nearly impossible. The same with tax evasion.
(Privacy issues?)
• A3: there is no confusion with the bills and coins (i.e.
euros) that are being used in parallel.
• A4: By enabling activation of idle labour and production
capacity, exports increase. Thus, even if this extra activity
is mediated (partly) with EC's, this enhances the ability of
the country to service its (hopefully downwritten) debt
burden in euros.
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Advantages of a parallel electronic currency
• A5: Circulation in euros within the crisis country will also
increase, due to reduced pessimism – less liquidity
preference. For a given euro stock, euro flows will increase.
• A6: Without a parallel medium of exchange an eurozone
economy is wholly dependent on euros to uphold domestic
activity. This puts the country in a very weak position when
negotiating writedowns and lower interest rates on existing
debt. The creditors know that the country is totally
dependent on additional borrowing or rolling over of euro
debt. With EC's constituting an alternative medium of
exchange, the balance of power in negotations is shifted in
favour of the indebted country.
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Advantages of a parallel electronic currency
• A7: This is a 100% reserve system. All deposits are
HPM, at the CB. No deposit insurance needed.
• Also, some more futuristic advantages merit mention:
Silvio Gesell’s negative interest on money held
(demurrage) may be easily implemented.
• A new possible control tool with the opposite effect, is a
tiny but adjustable transfer tax between any accounts.
This would be incredibly more effective to damp an
overheated economy, than a CB interest rate hike.
• The above system is run by a government + its CB.
Further below I will discuss the case of a medium of
exchange issued outside the gvt., “NGO money”.
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Overview:
•
•
•
•
Introduction
The eurozone debt crisis
Electronic payment opportunities
Advantages of a parallel electronic
currency
• Political considerations
• NGO currency?
• Words in conclusion
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Political considerations
• The EU elite, corporations, mainstream media pundits and
other powers that be, are wedded to the euro project. They
will fight such solutions with tooth and nail.
Probably even the elite in hard-hit euro countries.
• One could suggest keeping the euro, but as “bridge
currency”, like Keynes did for a world currency, the
Bancor, at Bretton Woods in 1944 – and letting EU
countries implement national currencies with exchange rate
control mechanisms in the spirit of Keynes’ proposal.
• But would that convince? -I am pessimistic, and believe
that any reform that may be interpreted as a step backwards
towards more national autonomy, will be refused. So …
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Overview:
•
•
•
•
Introduction
The eurozone debt crisis
Electronic payment opportunities
Advantages of a parallel electronic
currency
• Political considerations
• NGO currency?
• Words in conclusion
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NGO currency?
• We assume that an alliance of popular organisations
(possibly including some creative firm!) establishes a
NETS (a “National Exchange Trading System”). This
national scope – as opposed to the many local LETS
implementations – has become possible because of using
the mobile network.
• Most arguments given earlier for the convenience of a gvt.run mobile-mediated EC, also holds for a NETS.
• Imagine giving out – say – 1000 “value points” – “VPs”, to
any individual being a member of the NETS. They need not
be initially earned. This is to kick-start the system. All
individuals that are members of organisations in the NETS
alliance, automatically receives these points.
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NGO currency?
• Any other individual or firm can open a NETS account.
• The VP is “faith”, not gvt (i.e. fiat), currency. Will it flop?
• Well. Consider two system properties: “need” and
“confidence”. Confidence will be near zero, but need will be
immense at the start. Need will ensure that some accept VPs
as payment initially. This will increase confidence
somewhat, and a positive contagion process will unfold.
• The VP will probably reach some fairly stable value after a
start at zero value and then some initial volatility.
• Note that since the initial issued amounts are given out, this
is an experiment that if unsuccesful may be terminated with
minimal legal consequences. VPs are a medium of exchange,
not a vehicle for saving or accumulation.
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NGO currency?
• One may expect strong resistance from above to an
NGO-run parallel currency – from the EU system, but
also from domestic elites including governments. The
scheme depends on gaining strong popular support, and
fast. Introduction of an NGO-implemented parallel
currency will necessarily be accompanied by intense
political struggle.
• Anyway: is there some entrepreneur out there with
both a big heart and brain? Starting and running
NETS systems in crisis-hit countries is a big,
exciting and meaningful business opportunity!
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Overview:
•
•
•
•
Introduction
The eurozone debt crisis
Electronic payment opportunities
Advantages of a parallel electronic
currency
• Political considerations
• NGO currency?
• Words in conclusion
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Words in conclusion
• As all here probably have noted, there is hardly any
public debate about alternative monetary solutions, even
after the recent years of a global crisis that resembles
the great depression of the 30ies.
• Keynes hit the nail on the head when he said:
"Worldly wisdom teaches that it is better for the
reputation to fail conventionally than to succeed
unconventionally“
• So this is an uphill battle. But worth it, and less difficult
today due to technology!
Thank you!