Possible Solution to the Current Greek Crisis

The current Greek crisis has forced the importance of sound economic management into the public consciousness, to a certain extent.

Greece is in a unique position, it faces extensive external debts yet it has ceded control of its monetary policy to the European Central Bank (ECB) as per the Maastricht treaty. This has left Greece with austerity measures as the only solution. These measures are exceptionally unpopular and have resulted in great hardships being visited on the Greek people.

Were Greece in control of her monetary policy, she would simply “print her way out of trouble”. What this entails is a cutting of the interest rate which leads to greater money entering circulation which results in a depreciation of the currency allowing exports to increase and the economy to expand. Quantitive easing where liquidity is supplied by the central bank to financial institutions other than commercial banks is another method whereby central banks create liquidity (money) in an economy.

Greece is bound by the treaty of Maastricht to only allow Euros as legal tender in the country. This means that Greece enjoys no central bank autonomy and thus cannot use monetary policy as a solution.

Whilst the Greek government and central bank are restricted by the provisions of the Maastricht treaty, private Greek citizens are not. What this means is that a private company (influenced by the relevant authorities and policy makers) can create a virtual currency that enjoys large scale usage amongst the Greek populace, and acts as an engine of growth. In this manner a crypto-currency is being leveraged to function as a form of domestically created money. Crypto-currencies are not defined as money according to the ECB (ECB: Virtual Currency Schemes, 2015).

My vision for this crypto-currency, let’s call it the e-drachma, is that it will function alongside the Euro.

 It will come into being according to the decisions of the creating entity. The e-drachma will not be loaned into existence, unlike fiat money. The issuing company, on the advice of the relevant experts and authorities, will provide e-drachmas to appropriate companies to use it as a means of expanding production. The extent of e-drachma provision will be in accordance with a company’s ability to employ domestic factors of production. The government will also be provided with e-drachmas to increase public sector employment. Salaries will consist of both Euros and e-drachmas ( percentage Euro and percentage e-drachma).

 Prior to its unveiling, a massive publicity campaign should occur, encouraging people to accept it as a way of saving Greece. The Greek authorities should strongly encourage large businesses to accept it and these businesses (supermarket chains, restaurants etc) should publicise their commitment to do so. The key element of money is its acceptability. The only reason we accept someone’s notes and coins is because we know the next business will, in turn accept the same from us. Generally, a country legislates its domestic country as legal tender, “forcing” its acceptance, yet dollars for example are universally accepted because they are known to be universally accepted. Thus, without it being legislated the e-drachma can play the role of a domestic currency due to widespread acceptance.

The government can motivate its acceptance by agreeing to accept a portion of taxes in e-drachmas. The government can then spend this portion on salaries for civil servants. In fact, employment can be stimulated by paying a portion of all salaries in e-drachmas. E-drachmas will only be accepted from local accounts. Greek exports cannot be paid for in e-drachmas. This is because Greece needs foreign earnings to pay her debts. Furthermore, the e-drachma will then not be used to pay for imports as it will have no desirability for foreigners. The resulting effect of this is that Greek products will be relatively cheaper to those of other EU countries, stimulating exports, job creation and economic growth, all without breaking the provisions of the Maastricht treaty.

The prices of goods and services will be quoted  as x amount euros plus y amount e-drachmas. Those goods that have more local inputs will have a relatively greater e-drachma component, this will stimulate the domestic production of goods and services.

The issuing company, should have an arrangement with Greek banks so that a bank account reflects both euros and e-drachmas and payment instruments are effective for both. Yet no interest should be paid on e-drachmas nor any financial instruments sold in lieu of them, this means that their sole purpose is to purchase goods and services emanating from the real sector. E-drachmas would thus have a high velocity.

As e-drachmas are not loaned into existence, inflationary concerns are easily solved. If there is a fear of hyperinflation “the tap is turned off” and new e-drachmas are not created. If there are fears of deflation, more e-drachmas are created. In this sense the e-drachma is identical to commodity money like gold and silver.

As the Greek economy grows and develops, the e-drachmas can be slowly eased out with less being produced each year until the Greek economy is capable of trading in Euros,solely.

The above possible solution ( to the best of my knowledge) does not contravene the Maastricht treaty in anyway, yet it provides a creative and workable solution to solve the current crisis.