With Greek banks reported to be preparing contingency plans for a potential ‘bail-in’ of depositors as fears grow that Greece is heading for an economic collapse, some urgent measures now need to be found. Could then a parallel currency provide an answer and be an alternative for Greece?
The latest bail-in development, which apparently calls for a haircut of 30% on bank deposits over €8,000 (c.US$8,880), comes just after the International Monetary Fund (IMF) warned last week that the country required a massive further €60 billion (c.US$66bn) in funds to stabilize the economy over the next three years until the end of 2018.
Some like former Greek prime minister Antonis Samaras and New Democracy party leader has said that leaving the Euro and returning to the Drachma would kill the country. But what of a parallel currency sitting alongside the Single Currency?
Lee Gibson-Grant, founder of UK-based digital currency consultancy Coinstructors and the Drachmae Project, in this vein recently met with the Mayor of Agistri, an island in Saronic Gulf with a population of around a thousand people. The Mayor has agreed to allow testing of the Blockchain technology so that local businesses can create a loyalty programme (via Drachmaeconnect.com), which enables tourists to book hotels and other services at a discount.
While Agistri is a test case, it could nevertheless be applied throughout Greece and Gibson-Grant has suggested the idea of a parallel digital currency for the nation. He says: “A digital currency over the Blockchain would be ideal right now for Greece and tourists.” With the country having attracted record foreign visitors of over 20m last year and this influx contributing 18% to the nation’s GDP the stakes are high.
Matters have become even more pressing since the one ATM on Agistri ran out money a week ago. Indeed, Gibson-Grant, who has spent the last few months in Greece, was forced to take a ferry from Agistri to Athens and wait in lines to withdraw cash from four different ATMs in the capital.
He adds: “I would suggest to the Greek tourist industry that they study the tried and tested benefits of M-Pesa, a mobile-phone based money transfer and micro-financing service, and create a network that supports an asset-backed currency.” The currency could be backed by gold, silver or a basket of assets.
It could be adopted by local businesses as they become a services provider to the tourists, who could buy digital tokens that would be accepted as a store of value. In so doing it would sidestep the chaos surrounding Greece’s banks. And, while the government has stressed that tourists are exempt from limits on cash withdrawals, the fees and exchange rate levied are exorbitant by any standards.
As regards M-Pesa applied in other territories, in Kenya M-Pesa sees c.US$2bn worth of transactions per month and the country has 40,000 points of location (cash in cash out). M-Pesa accounts for 25% of Kenya’s GDP and roughly 10% of transactions are Cash In/Cash Out. It therefore proves the point that digital money can be used on a day to day basis other than as a store of value.
Elsewhere, Virtual Technology Services (VTS) is used in Namibia, whereby the hybrid Blockchain platform is used for cash services over the NXT 2.0 Blockchain technology.
A parallel currency also offers what Gibson-Grant describes as “a unique way to harness the country’s wealth and at the same time remain within the legal obligations Euro membership entails.”On his mission to Agistri he sought to discover the project outlines of Blockchain solutions for Greece.
The digital currency could be based on Greece’s considerable infrastructure assets, which are estimated to be ranked seventh in the EU. By monetising such assets into a digital token the government could pay pensioners and civil servants through the digital ledger Blockchain, which offers a transparent method for monitoring payments.
He contends that Agistri is the “perfect testing ground” for a new technology using the NXT 2.0 Blockchain and functionality of the SuperNET to provide a hybrid eco-system and marketing tool to the international marketplace. The hope is that it should bolster tourism by providing discounts to those tourists using it and “demonstrate what Blockchain technology can do in a real case scenario.”
In this contained testing environment a loyalty token (valued at €1 each) can be used by tourists who can obtain it through membership via the Drachmaeconnect.com business network.Discounts of up to 90% can be obtained depending on the owner’s discretion. Already Hotel Agistri and Yiannaand one restaurant/bar have signed up.
It represents the first time that Blockchain has been put to use in this way. But it remains to be seen whether people will adopt the technology and benefit from the discounts on offer – creating a template that could be used on a national scale. But clearly a key factor determining success will be if people are prepared to accept it in return for goods and services.
More broadly would a parallel currency actually work in Greece? And, if so how? Coinstructor’s Gibson-Grant says: “When looking at the current situation of Greece it has no choice but to create a parallel currency to take the stress off of requiring bailouts. But the question still remains how and would it be paper or digital?”. And, here are some other points one might like to ponder.
Paper or Digital? What are the differences?
If launching a paper parallel currency the cost would be significant and take time to print alongside needing to change infrastructures to the banking and merchants according the exchange rates. However, if one considers a digital currency it would take far less time and be easier to roll out alongside an existing currency.
As Gibson-Grant explains: “Being digital the network would calculate the exchange to Euro, so the merchants do not even need to worry about listing two prices since it will be done internally automatically.”
Would a Government-issued digital currency work?
It would not be valued as it would still be the same as paper currency but just cheaper and easier to rollout. Still, it will always be an ‘IOU’ and not trusted by the Greeks or international community. Yet it has benefit in that it can solve holes in the pension and tax systems.
Could a decentralised Blockchain provide any value?
The largest issues to have when launching a parallel currency are based on who the issuer is and who actually controls the ledger. Gibson-Grant notes: “If we look at the Blockchain technology, it could be Bitcoin or NXT 2.0 Blockchain technology as it is decentralised – therefore creating a currency over the top free from Government control and interference.”
In addition all transactions are public and totally transparent, which provides the public access to view what the Government is doing with the funds (i.e. taxes paid by Greeks to their government using a parallel currency could be tracked via the Blockchain digital ledger). It also provides guidelines to counteract and mitigate againstcorruption and fraud.
While there has been much speculation in relation to Bitcoin and how it could be applied, Gibson-Grant stresses that: “Greek people are unable to buy Bitcoins because of the capital controls, which prevents them getting money out of the country.” Furthermore, there is only one Bitcoin exchange in Greece that is able to services the Greeks for Bitcoin.
Would a parallel currency for tourism have any impact for Greece?
A system whereby tourists could purchase a digital currency via a card and then sell anything on they have left over without losing money makes sense given the current situation and it also reduces the risk of carrying too much cash around.
Gibson-Grant says: “The core element is based on adoption and this is resolved by using the M-Pesa point of Location model in which business can become verified to now accept the currency as payment, but cash in and out location in which they would earn 2% fee for doing so and the network would charge a 1% fee.”
The 1% fee would go towards the pot of purchasing more assets to keep the value of the currency growing based on transactions carried out. So, the more it is adopted and the greater the number of transactions, the more it would bring economic growth to the marketcap of the currency and build confidence in the currency.
The key element is to use a Blockchain technology that has core functions and enables the currency holders to vote for what assets they want added to basket. And, the ideal technology would be NXT says Gibson-Grant, which is the first stand-alone written from scratch [technology] other than Bitcoin – as it has built-in functions of voting so everything can be transparent and public.
But the overall outcome of this is an asset-backed currency that is acceptable for payment of taxes and government salaries. In so doing it reduces the government’s liquidity problem.
The latest bail-in development, which apparently calls for a haircut of 30% on bank deposits over €8,000 (c.US$8,880), comes just after the International Monetary Fund (IMF) warned […]