The Greek government is considering an option of paying part of the salaries and pensions of citizens in a parallel currency, as stated by Greek journalist Kostas Stoupas in his article for the online edition capital.gr.
The three scenarios published to date are as follows: the first includes the already known to all IOUs, the second the so-called Τax Advance Notes (ΤΑΝ) or securities related to tax rebates, and the third is associated with credit cards with digital monetary units that will be accepted for payments to the state.
For now, the most likely scenario is the one that will introduce a single digital parallel currency. It cannot be converted into euro, apparently not to devaluate and quickly become obsolete, and it will be accepted by the state when citizens pay their obligations to it.
In practice, the new currency will be transferred to a credit card as a percentage of the salary or state obligations to civil servants, pensioners or individuals who use it for transactions.
For facility’s sake, this digital currency will be called GGCU (Greek Government Currency Unit similar to the European currency, ECU).
In order for the new currency to be adopted with less protest, there is an idea of giving a bonus of several monetary units together with the percentage of the salary or obligation to be transferred through GGCUs.
GGCUs value will be determined by the state and will depend only on the adoption of state funds as a means of payment of obligations to the state.
An employee or pensioner who receives 1,000 euro per month, due to the inability of paying the total amount in euro, will receive 800 euro and 200 GGCUs plus a bonus of 5-10%, or 210-220 GGCUs.
With these 200 GGCUs that person will be able to pay taxes or other obligations to the state treasury. However, as companies pay taxes to the state, he or she will also be able to exchange them for goods or services.
A citizen who has 200 GGCUs for example will be able to pay with them in supermarkets, as the latter will be able to pay a portion of their tax obligations to the state.
State bureaucrats are struggling to understand the consequences of such a decision relating to the transactions and the economy.
Clearly, a company that prefers to hold those GGCUs of the bankrupt Greek state, in addition to the reliable euro, will bear a particular risk and will need some incentive to do so.
In this case, the incentive can be a discount on the amount for which the state collects taxes in GGCUs. The neighbourhood supermarket has no reason to sell to pensioners, in exchange for GGCUs, goods that it has paid the supplier in euro unless the profit from this action is greater than the risk of remaining with a parallel currency in hand.
Simultaneously, the company will want a discount on the value of GGCUs that it receives, otherwise why should it do so.
The state will also pay citizens, the amount of whose tax and other obligations will be lower than the GGCUs that they will receive on an annual basis. They will try to get rid of them by selling them at a discount to those who have obligations to the state and in turn will try to take advantage of them by paying their obligations with GGCUs bought at a discount. In this way, the latter will profit from the difference and the first will suffer losses in their main income.
The state that will resort to issuing GGCUs to cover part of the reduced revenues in euro will collect in the form of tax revenues all GGCUs it has issued. Who would want to keep their GGCUs under the mattress and pay in euro?
According to the law of Gresham, the bad currency takes the place of the good one in terms of circulation, as all want to pay with the first and save the latter.
Thus, government revenues will decrease every month, especially those in euro, whereas those in GGCUs will increase. Consequently, each month after the parallel currency has been put into circulation, the treasury will be forced to pay a higher percentage of salaries in GGCUs, and in a few months, their value will significantly decrease and the state revenues will actually collapse.
After a few months, the state will find out that the shrinking of purchasing power of salaries and pensions caused by the memoranda is less than the shrinking due to the anti-memoranda GGCUs.
Then the government will face the wrath of society. Usually, in such cases, the anger of the most fanatical supporters is stronger than that of the rest.
At first glance, GGCUs seem to be a "clever" way to reduce government spending without nominal cuts in salaries and pensions. In fact, however, in an unstable political situation in a country that is completely isolated from Europe and the West it is a major step towards leaving the euro zone.
Perhaps some government members who want the country to leave the euro zone think that the introduction of GGCUs will be a smooth transition to the return of the drachma. For the majority of the cabinet, which wants Greece to remain in the euro zone, it is a temporary solution until they complete the negotiations and economic activity returns to a more normal pace.
They are wrong – the damage to the already "sick" economy over the past six months is striking, and even with extreme political changes and reforms (real and painful, not leftist and half-hearted) it will take years for it to recover.
Putting into circulation the parallel currency GGCU will accelerate the collapse of the economy and the banks because of the psychological effect of uncertainty that it will cause.
In the critical situation in which we find ourselves at present, those who are concerned about Greece avoiding the catastrophe of a Grexit must take radical political decisions for a government of national salvation.
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