The advantage of the new system for the residents of a country would be that the state bank would permit them to deposit or borrow money at better interest rates than available at the commercial
Conversion of Euros to the national currency of a certain country A would be limited, by an amount depending on the amount of tax previously paid in country A. Since they in general
will not pay tax in country A, residents of other countries would not be able to convert their Euros to the new national currency of A. Conversion to Euros from the new national currencies would be effected by software at the exchange rate of the moment.
Banks would have to do major steps down, as the more simple processes of making a profit, such as (1) making money from borrowing/lending interest differences, or (2) currency exchange, would be performed by the state bank.
abbreviations: RE = real economy; FE = financial economy; SEPA = Single Euro Payments Area
Summary of the proposal to establish parallel electronic national
The proposed addition of parallel national currencies to the Euro (Euro++) has the goals:
(1) to effect a system for disaster planning, of which the
reintroduction of electronic national currences would be a part;
(2) to minimize the changes required for the existing huge IT systems in finance. IT systems are difficult to change but easy to extend. Economists
tend to overlook their size and complexity. Instead of effecting simple economical changes, at the cost of building complex IT systems, simple IT add-ons would permit fast and not very complex economic changes;
to effect a gradual and controllable process, which resembles a currency reform;
(4) to make use of today's universal storage of money by electronic means (somewhat similar to the BitCoin electronic currency http://bitcoin.org );
(5) to keep the Euro as the currency for cash transactions and payments between countries. The Single European Payments Area (SEPA) would remain operative
(6) to protect the RE from the FE. Periodic crisis seem inherent to the FE. The novel system should
dampen these crises, not amplify them;
(7) to counteract deflation in the RE;
(8) to extend the regulatory powers of the government - in addition to the central bank
and the tax office, a new national bank (NNB) is established. One of its functions would be to administrate the electronic national currency, clearly a sensitive and responsible task. Methods against external speculation would be introduced;
(9) to split existing commercial banks, so that services, trading and investment activities are effected by different banks small enough to permit internal and external supervision and accountability; and
(10) to create new national currencies, of which the exchange rates with the Euro will be set by the market.
The implementation: At the start all bank accounts would be split in two accounts, one in Euro’s,
one in the new national currency (NNC). Account holders would have the right to convert, at par, Euro’s to the NNC, but only to a limited amount, based on the contribution of the account holder to the RE (and not to the FE) in the country of residence.
The details of this conversion will have to be worked out; there is considerable freedom in doing so. In general terms, the contribution to the RE would be measured by the amount of tax paid by the account holder in
the country of residence during the last few, say 6, years, or, for a company, by the amount of taxes paid by the people working at the company.
As a result, at this stage, Greeks
would not be able to convert their Euros at parity to new Marks (and the Germans would not be able to convert their Euros at parity into New Drachmes); later, free exchange on the market between the national currencies and the Euro would result in
an exchange rate different from parity.
It is not the idea that companies will be punished for legal tax evasion, but, on the other hand, individuals and companies that do not contribute to the national economy
cannot be allowed to convert at parity.
The NNB will take over major simple functions of the regular banks. It will (1) pay interest to money borrowed from the bank account holders, (2) charge interest on money
lend to bank account holders; the amounts that can be easily borrowed will depend on the tax paid by the account holder. The NNB will make a profit on the difference in interest rates. The philosophy of the tax office and the NNB must be, certainly in a period
of deflation, to keep its 'clients' alive.
After the start-up, the NNC would be exchangeable with the Euro. The NNB will make a small profit on each transaction, also to decrease volatility of the exchange rate.
In times of deflation, the amounts that can be borrowed may be increased. Specific, stimulation of economic sectors becomes possible.
The proposed measures are easily implementable
by software, at relatively little cost. It would concern the development of a new set of instruments for the tool box of governments. The new instruments are needed because of (1) the failure and (2) vulnerability of the existing banks/financial systems.
Face the problems, don't ignore them
Denial is not the answer. The answer consists of an open-minded attitude, with a willingness to initiate publicity that in
turn leads to analysis in depth, further discussion and collective decision making, which eventually effects appropriate action.
If a functioning Euro++ system could be constructed, a significant improvement would
have been obtained, with the advantages of centralization and decentralization having been combined.
Amsterdam, August 2012