Varoufakis is Wrong – Once an Electronic Drachma is Created The Market Will Quickly Supply the Currency

Guardian – one of the very few things Yanis has said I will disagree with

Exiting a common currency is nothing like severing a peg, as Britain did in 1992, when Norman Lamont famously sang in the shower the morning sterling quit the European exchange rate mechanism (ERM). Alas, Greece does not have a currency whose peg with the euro can be cut. It has the euro – a foreign currency fully administered by a creditor inimical to restructuring our nation’s unsustainable debt.

To exit, we would have to create a new currency from scratch. In occupied Iraq, the introduction of new paper money took almost a year, 20 or so Boeing 747s, the mobilisation of the US military’s might, three printing firms and hundreds of trucks. In the absence of such support, Grexit would be the equivalent of announcing a large devaluation more than 18 months in advance: a recipe for liquidating all Greek capital stock and transferring it abroad by any means available.

Yanis is quite right to emphasize the difference between ending a currency as for example Argentina did against the Dollar, and creating a new currency from scratch.  However he seems to think that no transfers can take place until the physical currency is in circulation, as if it is the currency itself which is what what has value.  However cash is simply a contractual IOU, a note of assets and liabilities, a note of a debt.  I will you with whatever backs the note – in modern currency terms the work done to produce goods and services to pay the taxes that balance exactly the government spending that brings currency into circulation, and ensures that the IOU retains its value.

Providing the public can pay its taxes don’t need physical currency.  For those that cant or wont use electronic payments – like some pensioners and those without bank accounts – the market has found a solution.  You can buy in almost any country the world electronic payment cards preloaded with electronic currency.  We know that Visa has already set up its systems to allow for a new Greek only Euro.  This would be bound to trade at discount becoming a new Dracma for reasons I have explained.  Therefore as soon as any Greek Government is forced to create electronic currency to jointly provide liquidity to its banks and pay wages the market within days would be issuing such cards.  Print on them the domination stored and don’t allow change except in other smaller cards – how is that any different from cash?  Hence you don’t need any more a fleet of Jumbos to create a currency – just state electronic payments and the market will swiftly supply it.

5 thoughts on “Varoufakis is Wrong – Once an Electronic Drachma is Created The Market Will Quickly Supply the Currency

  1. Well, you do not even need the financial vultures which are VISA/MC, etc.
    Somebody could write an app for a mobile phone, link it to the central database (at the issuing currency bank ) , and transactions could be processed with a PIN.

    It could probably be done in a few weeks. For the whole of Greece

  2. The currency is already marked anyway. Greek Euro coins and notes represent liabilities at the Bank of Greece. So as soon as the TARGET2-ECB account is closed the rest of Europe will tend to stop circulating Y serial Euro notes and coins with Greek Letters on them, and in Greece only those notes and coins will tend to circulate.

    Yanis is blowing this out of all proportion because he *wants* it to be difficult. He is after all a European Nationalist – and the dream is dying in front of his eyes.

    • OTOH, can he be seen to be courting any other lover than TINA?

      Excellent point about the existing coins/notes.

  3. You are quite right, currencies are what?, 98% digital already. The problem with virtually every economist and pundit is they are not only ignorant of the true problems and solutions for modern economics, they are just as ignorant of money systems. And to top it off they are actually hypnotized by the idea of debt so they follow the financiers and Bankers blindly into the financiers’ and bankers’ dominating profit, the economy’s instability, periodic “unrepayable” debt, unnecessary human suffering and historically rhyming war as the stressed out “solution”. If it wasn’t so pitifully stupid and tragic….it would be funny.

    Of course if they would simply momentarily stop splashing around on the surface of accounting trying to make sense out of the abstractions of debits and credits and look at the 3 and 4 dimensional datums of cost accounting they’d actually see the empirical evidence (this is what scientists allegedly do to with the scientific method) . Then, seeings how those datums will reveal a trend in every ongoing enterprise, if they just did the calculus they’d be able to decipher the DYNAMIC realities of the economy and money system….and actually craft policies that actually addressed and solved the problems. But it takes an awakening from the spell of the idea of debt first.

    As for the devaluation and instabilities of a new currency if you distributed actually sufficient (as in more than the Banker’s normally like so as to befuddle everyone with austerity) amounts of it and combine that with a policy of a retail discount that is totally rebated back to participating merchants and that is based on the formula of the total costs of what is consumed over the total costs of production (probably a 40-50% difference) …we could all happily advance toward the abundant, profit making and sane future that technology and AI is trying to enable us to do….if we would simply come into a new unit of time and out of the spell of the paradigm of Debt ONLY.

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