Nine years with euro crisis – time to think anew
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By Trond Andresen, Steve Keen and Marco Cattaneo
A new means of payment can be part of the solution for the eurozone’s unemployed.
We have now seen nine years of social crisis and huge unemployment in many euro countries. An entire youth generation has barely experienced anything but being out of work. Still no solution has been found or implemented. The time is overdue to think outside the box. We propose a solution that has circulated internationally for several years: some of us have argued for this since 2011. Both households and businesses should be provided with an additional national means of payment, “Electronic Parallel Money” (“EPM”).
Our proposal works like this: EPM transactions take place via mobile phone, PC and card. The transactions are logged on a server in the country’s central bank. There are no EPM coins and notes in circulation. The government (and local authorities) have EPM accounts in the central bank. These are debited when the public pays wages and pensions, or purchases goods and services. All citizens and enterprises also receive a user account there.
EPM will greatly reduce unemployment and enable people and businesses to exchange goods and services. It will alleviate the social crisis and reduce pessimism in economics and society. Such a solution is now being discussed in Italy, triggered by the acute budgetary conflict with the EU.
New EPM is created as needed in the central bank. The public sector pays both in EPM and Euro. The ratio can be adjusted based on how the economy develops. Taxes are collected in a corresponding mix of the two currencies. The EPM will have value since it can be used to pay taxes. While government and other public sectors pay expenses and collect taxes in the same and fixed ratios, the euro/EPM mix used in private sector transactions can be freely chosen by the parties involved, and will thus vary.
We are very aware that an EPM proposal will be met with opposition from the EU’s elites, and many columnists in the financial press. However, the scheme will not be illegal according to EU monetary policy: the EPMs are legally government bonds that are extinguished when holders use them to meet tax claims. In addition, they do not exist physically – there are no EPM banknotes or coins, thus avoiding conflict with the euro’s money monopoly.
One can expect that the public’s initial confidence in the EPM will be very low, not the least because of widespread skepticism with national authorities who have not managed to counteract the crisis for nine years. For the analysis, it may be useful to define two terms, “trust” and “need”. Although trust is very low from the beginning, the need is very high: one should expect some initial use of the EPM because the options ‘no sale’ or ‘no job’ are worse. Over time, other actors will observe that transactions with the EPM are taking place, which will increase trust – which leads to more acceptance of a certain percentage of EPM in payments.
Eventually this will also include wages. When firms receive a share of EPMs in payment, they will ask their employees to accept a share of EPMs in wages. And employees will then often have the choice of accepting this or unemployment. This again causes businesses to become more willing to accept EPM in payments. We get a positive spiral.
After an initial period of political turbulence and low confidence, the EPM will approach a value not so far below the euro, because one EPM counts as one euro in the payment of tax. And as long as the economy is far away from full employment and the business sector has significant spare capacity, the inflationary impact of more money due to the circulation of EPM will be minimal.
A parallel electronic national currency will – with immediate effects – improve the situation for most residents of euro-crisis countries. It will also give the countries a much stronger position to negotiate euro debt forgiveness or easing the debt service burden.
Our proposal allows for a gradual and controlled movement towards a national currency, if desired (and yes, we are aware that this will be met with resistance from the EU system). Or for that case, the opposite: to later turn 100 percent back to euro if that option is considered better. It gives the National Assembly in a crisis country time to consider and make decisions in both directions, based on experience with the EPM.
Sadly, our observation over many years is that it is almost impossible to get public and academic conversation about alternative solutions that can make a big difference. This text is thus an exception. The authors are an engineer and two economists respectively. We wish to emphasize a point (provocative for some colleagues) about the difference between the social sciences’ and engineering culture, and which can explain to some extent why it is so difficult to implement even obvious solutions: social scientists and economists are – in contrast to the engineers – mostly concerned with describing the state of things, not finding solutions. Engineers look for solutions.
An economist who was very aware of this shortcoming was John Maynard Keynes. He expressed it somewhat sarcastically:
“Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”
Our EPM proposal ignores “reputation”, and proposes a means to succeed unconventionally when all conventional methods have failed.
Trond Andresen, Associate Professor, Department of engineering Cybernetics, NTNU
Steve Keen, Professor of Economics, Kingston University, London
Marco Cattaneo, founding member “Fiscal Money Group”, chairman CPI Private Equity, Milan
From: pp.9-10 of WEA Commentaries 8(5), December 2018
Will the EPM only be available in integer units? I assume the EPM is only available as 1EPM or 2EPM or 3EPM, but not 0.326EPM. Thus, like currency, you have EPM or you don’t have EPM. You do not have negative EPM nor fractional EPM. They come to life when the government spends and they evaporate when tax is collected. I also had my brain damaged with engineering logic at Imperial College. This government created digitised unit is a solution I have been working on. To run it parallel to the existing system was beyond my thinking and is pure genius.
The transaction could be logged on a network of less frequently connected computers which update each other with the latest ownership of a specific EPM along with its owner history. The local computer checks the bonefides of the EPM against its current records then send a simple change instruction to propagate at leisure around the network. This would be much the same as is done with website domain ip addresses and similar to the titles office for land and similar to car ownership which is done after the event. When one registers a domain name, one specifies a domain name server that is given the ip address of the computer appropriate to this domain. The details propagate around the world to the myriad of ‘domain name servers’ so that the details can be picked up locally. It previously to take a day to propagate, but now occurs in seconds or minutes. Thus, it is not necessary to refer to the computer at the Central Bank to effect a transaction. In fact, the system continues to function even when numerous computers all fail on Christmas eve. Any number of computers can be taken down at any time without a hiccup. The computers do not need to be under common ownership. No single person nor entity can ‘mess’ with the system as every computer has identical information except for the last few seconds of information. Thus, transactions can take place in aeroplanes and with machines not permanently connected. I can sell my motorcycle to my neighbour by kissing phones and the networked computers can pick up the transaction when the phones talk to the system. Protection is built in because the EPM has unique characteristics as I now explain. My concept was to create digital currency by creating a jpg image of a genuine currency note along with serial number. Effectively a photograph of a real note. Ownership being demonstrated by ownership of the jpg with serial number and ownership history. The tally stick had a similar characteristic where they were physically unique and thus un-forge-able.
The lending of banks has not increased since 2008 whilst the velocity has fallen. There has been hoarding of something in limited supply. To allow a situation where money only changes hands once in a year is something close to stupid. And I declare that anyone that is prepared to accept that situation is close to stupid. A dire way to run a Money Supply. The Euro has become a financial straight-jacket. Yours is a magnificent solution. I hope my adjustments help.
You may also wish to consider putting a time limit on holding such EPM.
“After an initial period of political turbulence and low confidence, the EPM will approach a value not so far below the euro, because one EPM counts as one euro in the payment of tax. And as long as the economy is far away from full employment and the business sector has significant spare capacity, the inflationary impact of more money due to the circulation of EPM will be minimal.”
What impact will EPM have on asset inflation and why?
There’s no need for a central bank: the EPM currency can be created directly by the National Treasury. If the banks need it, they can borrow from the Treasury. We have even created a solution on blockchain without the Treasury involvement: EquaCoin
Keynes was, without a doubt, a great manger of regulated capitalism. He knew how to mange the system so it would not collapse completely. For those who do not have sophisticated hackers to employ or whose various “smart” gadgets are hacked constantly, how will this help? Both social sciences (Economics is an example) and engineering are people oriented. In this, they should share the use and misuse of all things built for use by humans. The digitalisation of humans and their experiences will probably lead more alienation and humans acting like robots, which has already happened to a very large degree in places where any gadgets exist at all. One does not have to be an Economist of any orientation to see this in every day life.