1 “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 2 Overview: • • • • Introduction The eurozone debt crisis Electronic payment opportunities Advantages of a parallel electronic currency • Political considerations • NGO currency? • Words in conclusion 3 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 ... 4 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. 5 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 7 The eurozone debt crisis • With a financial sector: a damaging debt accumulation mechanism: 8 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. 9 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. 11 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! 13 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. 14 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. 15 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. 16 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”. 17 Overview: • • • • Introduction The eurozone debt crisis Electronic payment opportunities Advantages of a parallel electronic currency • Political considerations • NGO currency? • Words in conclusion 18 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 … 19 Overview: • • • • Introduction The eurozone debt crisis Electronic payment opportunities Advantages of a parallel electronic currency • Political considerations • NGO currency? • Words in conclusion 20 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. 21 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. 22 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! 23 Overview: • • • • Introduction The eurozone debt crisis Electronic payment opportunities Advantages of a parallel electronic currency • Political considerations • NGO currency? • Words in conclusion 24 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!