Tuesday, April 21, 2015

Biagio Bossone & Marco Cattaneo — Greek Parallel Currency: How to Do it Properly

According to several recent media reports, both the Greek government and the ECB are taking into consideration the possibility (for Greece) to issue a parallel domestic currency to pay for government expenditures, including civil servant salaries, pensions, etc. This could happen in the coming weeks as Greece faces a severe shortage of euros. 
It is important to stress that the introduction of a Greek parallel currency could take place in at least two ways, with deeply different implications. The first avenue would be for Greece to issue IOUs, i.e., promises to pay to the bearer euros upon a future time expiration. Basically, these IOUs would be euro denominated debt obligations issued and used to replace euros to pay salaries, pensions, etc.
The second avenue would be to issue Tax Credit Certificates (TCC) and assign them to workers and enterprises at no charge.[1] TCC would entitle the bearer to a tax reduction of an equivalent amount maturing in, say, two years after issuance. Such entitlements could be liquidated in exchange for euros and used for spending purposes. Liquidation of TCC would take place against purchases of TCC by those who would provide euros in exchange for the right to the future tax cuts.….
The first involves borrowing in a currency that Greece does not control. Increases indebtedness in euro and kicks the can down the road. Bad idea.

The second is free money. Good idea.
The TCC avenue would clearly be a superior solution, and would allow Greece to stay in the Eurozone, while stimulating demand by increasing citizens’ purchasing power, reducing domestic labor costs, and significantly increasing GDP. This would also generate, in due course, higher gross tax receipts (which would offset the shortfall in euro fiscal revenue due to TCC issuance).
Economonitor
Greek Parallel Currency: How to Do it Properly
Biagio Bossone & Marco Cattaneo

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