Tax anticipation notes

KomradeBishop · 16-02-2015 7:25pm

Yep - looks like this idea has legs; Rob Parenteau has just put out a new article on this, and it's been endorsed by the Financial Times associate editor Wolfgang Münchau in another article.

Since the Greek Finance Minister (Yanis) himself also advocated a very similar idea this time last year, and since the Greek government today seem to be setting a hard line on conditions they will not accept from other EU finance ministers (possibly launching Greece into economic turmoil), we might see something like TAN's come into use in Greece soon.

Not a certainty - Yanis himself said it was 'no panacea' - but will be very interesting to see if something like this does happen.

Highly recommend people follow the Naked Capitalism blog - Yves Smith (who runs that site) is very well connected, is in regular personal correspondence with Yanis, and has had excellent critical analysis of events surrounding Greece - it is by far the most informative economic/political website I know of, with a focus on fostering/applying critical thinking on these subjects.

KomradeBishop · 23-02-2015 10:09am

This is gaining even more steam now - Paul Mason (Channel 4 News economics editor) has just promoted Yanis' version of this idea, the 'FT-coin' which I mention a couple of posts up - and he gives a shout out to Modern Monetary Theory (he seems to regard Yanis as an MMT'er), giving it some mainstream attention; really good article, a snippet at the end:

...
If a parallel currency ever happens (I am writing this on Friday: anything could happen by Monday), it will dramatise one of the key arguments of anti-establishment economists like Varoufakis: that states – not markets – create money.

Money only has value, say these economists, because states decree it. Furthermore, the state is not just standing above the market, regulating the currency: the act of taxing and spending is what creates money, not the act of buying and selling in a marketplace. It’s called “modern monetary theory”, but it’s no mere theory.

If it is right, the obvious practical conclusion is that a state with its own currency is always solvent. It can always create more money and pay people in that money. Therefore, it can always run a deficit – always use state spending to suppress unemployment. The only condition is that people must believe the state will exist in future.

And this is where it gets dicey for both the eurozone and Greece. If the Germans kick Greece out of the euro, that raises a big question mark over whether the euro quasi-state will permanently stand behind the currency as designed. The euro might come under speculative attack, as investors seek to pick off the next Greece, and place bets on the value of any new currencies that might emerge.

But the risks are even higher for Greece, should it start issuing a parallel, digital euro. Because Varoufakis’s digital currency is only redeemable against future tax revenues, you would have to believe the Greek state could not collapse.

Given these doubts, another of Syriza’s big-hitter economists turned politicians, Costas Lapavitsas of Soas, points out, the use of a digital currency would have to be just a transition phase to euro exit and a new Greek currency.

Bizarre and mind-boggling as the parallel currency idea is, my experience in the eurocrisis makes me think it’s likely to happen at some point. So, as you observe me and my fellow eurocrisis tribespeople eking out our lives in dank hotels and lobbies, do not pity us. All the shouting and the whispering only looks like mental torture. It is, in fact, a grand philosophical debate about the nature of money.

http://www.theguardian.com/commentisfree/2015/feb/22/can-a-parallel-digital-currency-solve-the-greek-financial-crisis

KomradeBishop · 24-04-2015 3:29pm

Here is another new proposal, which borrows heavily from (but was developed separately to) TAN's - the article also gives a good overview of other similar options:
http://www.ideaeconomics.org/blog/2015/4/23/a-detailed-proposal-for-a-complementary-currency-for-greece

There's a lot more mainstream talk lately, of Greece utilizing something like TAN's to get by as they run out of funds - and they really are getting extremely close to a serious public financing crunch/endgame now, so it's seeming more and more likely that they are going to be forced into doing this.

Their financial situation is so bad now, and their inherent need for Euro's to make all the creditor payments that are due, means any use of TAN's at this stage would be more about providing 'damage control/limitation' than recovery - it would help them get to recovery faster while in the EU (unless it led to political sanctions from Europe - which I'd judge as not unlikely), but they are still screwed for a long time no matter what they do.

KomradeBishop · 26-05-2015 2:20pm

Another similar proposal 'Tax Credit Certificates' (TCC's) published on VoxEU, which presents a more restricted version of this idea - and directly mentions and compares it to both Robert Parenteau's TAN idea, and Yanis Varoufakis' FT-Coin idea:
http://www.nakedcapitalism.com/2015/05/a-parallel-currency-for-greece-part-i.html
http://www.nakedcapitalism.com/2015/05/a-parallel-currency-for-greece-part-ii.html

Even the German Finance Minster Wolfgang Schaeuble (all of these people have tricky to spell names

) is now citing the idea of Greece operating a parallel currency - though without endorsing it:
http://www.bloomberg.com/news/articles/2015-05-22/schaeuble-said-to-cite-option-of-greek-parallel-currency

Since an actual parallel currency would be illegal under EU laws, that means the only options are TAN-like ideas - quasi-currencies, which effectively use bonds as money.

KomradeBishop · 04-06-2015 5:12pm

Keeping more tabs on this: As Greece is more and more running out of Euro's, for funding IMF repayments - possibly coming to an endgame at the end of the month (though the 'endgame' date seems to keep on shifting) - more and more discussion of parallel currencies is coming up.

This article goes into greater detail than previous ones, in examining how a parallel currency may play out - including giving mention of TAN's, Yanis Varoufakis' FT-Coin, and the above TCC idea:
http://www.nakedcapitalism.com/2015/06/the-economics-of-parallel-currencies.html

The article also mentions a few new details/twists that could be applied to optimize some of these plans - and mentions historical examples of similar plans in action in the past, and of details that will make successfully implementing these plans difficult/challenging - particularly, the risk of the Greshams Dynamic.

It's the best analysis of the potential flaws/drawbacks with these plans, that I've seen so far. No matter what Greece does, it is going to be in a bad situation and that makes the risks higher - though countries that are not as bad off, like Ireland, could undertake a TAN-based spending policy, with far less risk, seeing as there is no expectation/speculation, about us leaving the Euro.

KomradeBishop · 05-07-2015 11:52pm

Yanis Varoufakis has made the first mention as Greek finance minister, of possibly implementing something like this now - but under the worst imaginable conditions, with Greece just having voted 'No' to accepting their creditors deal, and with the ECB at risk of cutting Greek banks off from 'Emergency Liquidity Allowance' tomorrow (i.e. the ECB ending its role as 'lender of last resort'), which would collapse the Greek banks and their economy - forcing them into using IOU's:

"If necessary, we will issue parallel liquidity and California-style IOU's, in an electronic form. We should have done it a week ago," said Yanis Varoufakis, the finance minister.

http://www.telegraph.co.uk/finance/economics/11719688/Defiant-Greeks-reject-EU-demands-as-Syriza-readies-IOU-currency.html

The California-style IOU's are not the same as TAN's, but they are a very similar method of launching a de-facto parallel currency, without breaching EU laws on the Euro currency monopoly:
https://en.wikipedia.org/wiki/IOU

If Greece do end up outside the Euro under current circumstances, it's highly likely that they may become a failed state, due to the poor shape their economy is in - the original idea of TAN's is to use them while staying in the Euro, so any potential benefits of such a parallel currency, are lost in Greece's current conditions.

KomradeBishop · 26-07-2015 11:41pm

Yanis Varoufakis outlines preparations he made as Greek Finance Minister, to prepare an IOU based parallel currency for rapid deployment (including having hacked into the Troika-controlled Greek public revenue office, to gather data), before the plan was axed:
http://www.telegraph.co.uk/finance/economics/11764018/Varoufakis-reveals-cloak-and-dagger-Plan-B-for-Greece-awaits-treason-charges.html

So this came very close to happening (though still far too late to be able to provide any benefit, just an emergency measure) - all prepared and ready to begin activating it, but rejected by Tsipras on the night of the Greek referendum victory.

Tax anticipation notes

Comments