Time is running out for Greece to find a solution to its debt crisis. Some analysts believe a parallel currency could be a viable alternative. But what would that entail exactly – and is it realistic?
Towards the end of June, Greece is due to pay back a hefty sum to the International Monetary Fund (IMF). Right now, the cash-strapped nation would not be in a position financially to do so. At the same time, the lender is holding back a bailout tranche of 7.2 billion euros ($8.1 billion) as it is not satisfied with Athens’ reform concessions.
It is thus hardly surprising that experts have been debating the introduction of a parallel currency in the country for quite some time. It would put the government in a position to pay out wages for its civil servants without Greece having to leave the eurozone. That currency would be a kind of IOU which could also be used to make other transactions.
A chief economist at Deutsche Bank, Thomas Mayer, came up with a name for such a parallel currency three years ago. He said it should be called the Geuro, for Greek euro. Cypriot-British economist and Nobel laureate Christopher Pissaridis has also endorsed a parallel currency in the event that the state can no longer pay wages and pensions.
Central banks keep mum
But when asked about plans for a parallel currency in the drawers of the Bank of Greece, the ECB or Germany’s Bundesbank, monetary pundits there remain tight-lipped.
“Please understand that we do not want to make any statements on a parallel currency scenario,” the German central bank told DW. The Bank of Greece also refused to comment on any such speculation.
The central banks’ reluctance to speak out on this topic is understandable. For them, the euro is the only legal tender in the bloc. Debates about alternatives tend to be viewed as debates about the possible end of the currency union in its present form.
On the other side, parallel currencies have been introduced in a number of places, but their impact was limited regionally. Take the Chiemgauer, for instance, a regional currency in southern Germany that was called into being by a Walforf school back in 2003.
Get cracking immediately
In principle, not much is needed to introduce a parallel currency, says Frank Jansky, a lawyer and executive with Regiogold, an umbrella organization dealing with parallel currencies.
“You need a handful of companies, which woud accept a parallel currency alongside the euro, and you need concumers, who are likewise willing to use that alternative regional method of payment,” he said.
The supporting association behind the Chiemgauer regional currency has meanwhile boosted its membership to 6,000, including 600 firms and 250 public charities from the region around Lake Chiemsee in southern Germany. That currency is available both as paper money and in digital form. Chimeguer money can be exchanged for euros at a rate of 1:1, but if people want to convert Chiemgauer money back to euros, they have to put up with a 5 percent fee.
Other regional currencies cannot be converted into euros at all. Their value is based exclusively on the consent from companies to accept the money in exchange for goods and services. In Switzerland, a parallel currency called WIR has a particularly long tradition. It has been around for 80 years and has been accepted by 45,000 small and medium-sized companies.
Regional value creation chain
All those currencies aim to boost regional economies. On Regiogeld’s website, a video explains just how this works in practice. If, say, a baker sells his rolls for euros, he can buy flour and other ingredients from the whole of the currency union.
“But if regional money changes hands, the same baker would be in a position to rethink his supply chain,” says IT business engineer Norbert Rost. He could look for a miller in the same region who accepts the aternative currency.
That miller in turn would then try and buy products from regional suppliers. “He’d possibly get his crop from regional farmers or energy from regional power suppliers.”
Added values would thus stay in the region. Regiogeld is of interest to structurally weak economic areas suffering under fierce international competition.
Regiogeld executive Jansky argues a parallel currency would also be helpful for Greece.
“And not only for Greece, but for other regions in Europe as well,” Janksy said. “It could be helpful wherever the intruduction of the euro has led to a distortion of the real economy as not all members of the bloc are on an equal footing economically.”
Not desired by policymakers
Money creation as a result of civic initiatives instead of action by central banks, commitment to regional development instead of globalization, doing without interest payments – “you could argues that regional currencies boil down to a partial democratization of our monetary system,” Jansky said. But compared with the euro, those currencies do not really have a tangible economic impact.
Also, it would not be easy to spread such a currency to a whole nation. The problem is that even within Greece regions have not developed homogeneously. Apart from that, regional currencies would solve the Greek government’s fnancing plight. Athens would have to introduce a national parallel currency to be able to pay wages and pensions.
And it coud not fall back on old drachma bills and coins. “Almost all of those were destroyed when the euro was introduced,” a Bank of Greece spokesman told DW.
Image Credits: Reuters/A Konstantinidis