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Greece’s Plan B?


This post has moved to Across the Euro Area (Europeriphery).

From → European Tribune

  1. The Argentinean experience is important. Argentina had approximately 17 parallel currencies in 2001-2002. 1 was a national parallel currency (Lecop) and the rest were state currencies. In my recollection, only 2 parallel currencies managed to maintain parity, or be near parity: the national one, and the one of the main province (Patacón, of Buenos Aires). Perhaps some other province managed as well, but many others experienced huge devaluations of their parallel currencies, which were trading at 50 to 30%. It might be a short term solution, but I doubt it is a long run alternative. And certainly not if a Grexit is anticipated.

    • If the local currencies were not accepted outside their respective states it stands to reason that only the federal parallel currency (and the Buenos Aires one given the region’s weight in the national economy) would trade at anything near parity.

      With tax arrears of €74bn and government arrears of €4bn (including €700m in overdue tax repayments) out of a GDP of €182bn (25% below peak), any expansion of the money supply, and any opportunity to improve income in order to pay taxes, is likely to be welcome and boost output and tax revenue. And I’m estimating something of €20bn for the amount of TAN in circulation for the first year or so.

  2. Rob Parenteau permalink

    If the Greek government agrees to accept the TANs (tax anticipation notes, or what you refer to as a parallel currency) as payment for taxes at a one TAN = one euro exchange rate, arbitrage should insure euros keep circulating, rather than getting hoarded. Euros will still be needed to settle international transactions in any case. In the extreme, it might not be such a bad thing if TANs become the primary means of settlement in Greece, as then Greece will have a greater degree of both fiscal and monetary sovereignty…all without exiting the euro.

    • Thanks for your comment, Rob.

      There are a number of “ultraperipheral” European countries with their own currencies where people save in Euros. A notable case is that of Croatia where the exchange rate is on a dirty peg. People indeed hoard Euros, both in the form of cash and Euro-denominated bank deposits. In fact this is a continuation of the old practice of using Deutsche Mark as the store of value in the 1980s and 90s.

      I am guessing that the “market” exchange rate of TANs might fluctuate away from Euro parity but not too far away, the reason being that TAN value is anchored at parity at two points in time: the time of issue by the Greek government, and the time of redemption in payment of taxes or fees. And since there is a tax payment date at most 12 months ahead at any point in time, the TAN exchange rate can never drift too far away from parity. Is that what you mean by “arbitrage”?

      The whole point is that TANs become the primary means of settlement in the local economy, of course. The question is whether TANs should be electronic or paper and in so far as there may be large parts of the Greek economy which are not ‘bankarised’ and operate on a cash basis currently (the mountainous or island hinterland comes to mind) the issue of paper certificates in denominations of 5, 10 and 20 euros might be preferable.

      • Rob Parenteau permalink

        There is some good research along the lines of your first point. Here is one paper that may be relevant: The case of Argentina early last decade is especially informative on the use of parallel currencies in private transactions. By arbitrage I mean if the government stipulates TANs or euros are acceptable to pay taxes at 1 TAN = 1 euro, you will want to pay your tax liability with TANs if TANs somehow lose value relative to euros, thereby creating more of a demand for TANs, which should tend to bring the TAN back to 1 TAN = 1 euro. As long as you have some major institution willing to receive 1 TAN = 1 euro, and you have to pay that institution one way or another, and that institution has very little limiting its ability to receive TANs as a means of settlement (here it would be political limits to raising taxes, for example), you will tend to have private agents trading in such a way as to preserve the 1 TAN = 1 euro exchange rate. On electronic vs paper forms, one advantage of the former is that it becomes harder for the Troika to challenge the TANs as “banknotes”, which various legal tender clauses in the Treaties prohibit without ECB authorization (see Article 128 in Treaty of Lisbon, I believe, as an example of this restriction: see Of course you could issue TANs as physical notes in various convenient denominations and argue they are just like any bond certificate (they just happen to be perpetual, zero interest bonds…which is essentially what a currency is, but we tend not to think of it that way). Or you could argue Article 128 only applies to euro banknotes, as stated in its first sentence. The point is to get the alternative financing instrument up and running, and buy enough time with the legal system, that you could demonstrate its effectiveness, making it essentially a politically irreversible reform. Or so one might hope.

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