While Greek Finance Minister Yanis Varoufakis’s tweet on April 1 about his country adopting Bitcoin may have been in jest, some financial technology experts say an asset-backed digital currency could be a solution to Greece’s cash crisis, reported Reuters.
The country faces €1.5 billion of repayments to its creditors this month, having been locked in discussions regarding a cash-for-reforms agreement for months. Failing to agree could result in a Greek default and a possible exit from the euro zone, giving a black eye to the supposedly irreversible currency union.
In order to avoid such a situation, some suggest Greece could adopt a Bitcoin-like parallel digital currency, with which it could pay its pensioners and public sector workers, said Reuters.
Unlike Bitcoin, a decentralized currency whose value is derived from its usefulness, a parallel digital currency would be issued by the state and backed with Greece’s substantial assets.
“If you’ve got all these assets, why don’t you use them to back up a digital currency,” said Lee Gibson-Grant, founder of Coinstructors, a consultancy for people wanting to use the blockchain to start businesses, to Reuters.
Gibson-Grant argued that if Greece’s assets could be tokenized and issued as a digital currency, public sector salaries and pensions could be paid with it. Reuters said that would preserve scarce euros for repaying Greece’s creditors and help avoid a sell-off of valuable assets at significantly low prices.
Reuters reported that in 2014, Varoufakis blogged about the possibility of a parallel “Future Tax (FT) coin.”
An academic economist whose radical-left Syriza party was then not yet in government, Varoufakis said the FT coin would by denominated in euros but backed by future tax revenues.
He wrote that the coin would use a “bitcoin-like algorithm in order to make the system transparent, efficient and transactions-cost-free,” and could provide “a source of liquidity for the governments that is outside the bonds market.”
Reuters noted that Greece’s radical left is not alone in having contemplated a parallel currency. The European Central Bank (ECB) has analyzed a scenario in which Greece pays its public sector workers with IOUs, which would depend on future tax revenue in a similar method to the FT coin, creating a virtual second currency in the euro bloc.
ECB officials decided it would not work, as civil servants would receive wages in the IOU currency rather than in euros, putting more pressure on Greek banks because those workers were likely to squander their savings.
Reuters noted that the basis for such concepts relies on an implicit assumption that the Greek state will not collapse, which is not guaranteed in the current climate.
“This would be different to a distributed, trustless digital currency such as bitcoin, since holders would still have to trust the issuer,” said Tom Robinson, chief operating officer at London-based Bitcoin storage firm Elliptic, to Reuters.
Garrick Hileman, an economic historian at the London School of Economics whose specialty is alternative currencies, told the news agency that the problem with such a plan is that it does deal with Greece’s most basic issue: the need to reduce its debt burden.
“There is a precedent for parallel currencies working,” Hileman said. “But the fundamental issue in Greece is the size of the debt and the fact that the economy is not growing, and you’ve got to find some way to in effect reduce that debt burden in Greece.”
If cryptocurrency has not placed in a solution for Greece, blockchain technology might do, said Reuters.
It points to the Honduran government, which recently partnered with Factom to develop a secure and immutable land title record system using the blockchain to mitigate against fraud. Factom CEO Peter Kirby told Reuters he reckons Greece could adopt a similar system to deal with its tax-dodgers.
“With a true global distributed ledger that basically keeps track of everything that happens, you can start putting a lot more transparency into the way the Greek government does its business,” said Kirby.
Public domain image by Mwd