Parallel currencies are currencies that are issued by the state as an official second currency alongside legal tender currency and can also be designated as legal tender. A parallel currency can be a stable, hard currency (e.g., a foreign currency) that is used alongside a weak national currency, to combat hyperinflation in the national currency for example. On the other hand, a weak national currency can be used as a parallel currency in order to stimulate the national economy and to make the export economy more competitive again. In the literature (Hahn 1969) a distinction is often made between parallel currencies (with flexible exchange rates) and ‘double’ currencies (with a fixed exchange rate to the official first currency). Double currencies were widely used up until the 19th Century, particularly in the form of gold and silver coins or tokens, which were traded, calculated in and accepted against a fixed standard of value. In the years preceding the introduction of the Euro on 1 January 2002, national currencies were also tied as double currencies to the Euro exchange rate. Many economists see this in hindsight as a ‘birth defect’ of the Euro currency because when diversely efficient economies are tied together in a single currency zone the common currency is equally suboptimal for both strong and weak economies. Either the strong or the weak economy has to meet the common standards or becomes dependent on wealth transfers. (Frankel 1999, Jacobs 1984). The common currency zone is thus not an “optimal currency area”. On the other hand, with a national currency – or a parallel currency with a flexible exchange rate or one tied to a prescribed ‘devaluation spectrum’ exchange rate – each state can, through targeted monetary policies, influence both its domestic and foreign economy and thus free itself from dependence on both wealth transfers and exports. During his time as finance minister in the German government, Oskar Lafontaine argued for keeping the East German currency Ostmark as a parallel currency to the Deutschmark in the wake of German reunification in 1989. His intention was to prevent the ‘structurally weak’ new German states from being bled dry and to enable them to carefully match the competitive market conditions of the West but he was not able to realize his proposal. Long before the introduction of the Euro there were also official discussions about first introducing the ECU as a parallel currency to the national currencies of the European Economic Community (Graumann 1979). Not long after the introduction of the Euro this topic also flared up again briefly in some non-parliamentary circles, for example in Britain (Boyle 2003). In several South American countries the US Dollar is used as a parallel currency to the national currency. Cuba first stopped using its US dollar-backed parallel currency “Peso Convertiible”in 2015. In the summer of 2009, Gov. Arnold Schwarzenegger went back to the idea of state bonds, so-called IOUs, as a parallel currency for the state of California, in order to bridge a liquidity crisis. Finally, parallel currencies have often been mentioned in discussions following the Euro crisis, especially for Greece. According to a study by the Swiss bank UBS, the finance markets reckon controls on movement of capital and the introduction of a state-issued parallel currency on the basis of future tax credits (IOUs) is one of four realistic future scenarios for Greece – provided there is no ‘Grexit’ or state bankruptcy. A talk by the former chief economist of Deutsche Bank, Thomas Mayer, caused a furore when he talked about the “Geuro”. MONNETA associates have also made their own proposals (Schuster/Kennedy, 2011 and Gelleri, 2012). Even the former Greek Finance Minister Varoufakis had published his own idea for a parallel currency (FT-Coins) based on tax credits and the new blockchain technology pioneered by Bitcoin before he came into office. On 1 April 2015 he jokingly announced its actual introduction. Well over 30 different proposals for parallel currencies for Greece and the Eurozone are currently known, as MONNETA expert Ludwig Schuster discovered in his research for a study for the German National Association of SMEs (BVMW). Proposals for parallel currencies come from the most diverse economic and political perspectives and are sometimes drastically different in their motives – “what is the purpose and who should be helped by it?” – but also in their concrete proposals. Despite this diversity, the proponents agree on one thing, that in the face of the most diverse economic conditions in the member states of Europe parallel currencies can be a means for economic self-help and ‘catch-up’ development. According to the signatories of a joint declaration on parallel currencies, they are fundamentally united in their goal of strengthening the domestic economic foundations of individual member states and stabilizing the common currency and economic area.

Related literature

BVMW Sammelband (2013): Die Parallelwährung. (PDF)

Frankel, J. A (1999): No Single Currency Regime is Right for All Countries or at All Times, Essays in International Finance No. 215, Princeton.

Gelleri, C und Mayer, T (2012): Expressgeld statt Euroaustritt. Gelleri, C (2015): Parallelwährung für Griechenland, INWO.

Graumann, D (1979): Die Parallelwährung als Europäische Integrationsalternative.

Hahn, H (1969): Geld- und Währungsrecht, München.

Jacobs, J (1984): Cities and the Wealth of Nations, New York.

Schuster, L und M. Kennedy (2011): Mit einer Komplementärwährung kann Griechenland abwerten und in der Euro-Zone bleiben, ZfSÖ 170/171.(PDF)

Schuster, L (2014): Parallel Currencies for the Eurozone. An outline and an attempt at systemization. Veblen Institute. (PDF)

Vaubel, R (1990) Currency Competition and European Monetary Integration, In: The Economic Journal, Vol. 100, No. 402, pp 936-946.

Further Weblinks

MONNETA Aufruf: Ja zu einer Parallelwährung für Griechenland, 2012 Ludwig Schuster, Vortrag bei Ergänzungsveranstaltung zur VfS Jahrestagung in Göttingen, 2012 (PDF-Präsentation, Youtube Video)

Ludwig Schuster, Vortrag bei Veblen Institut, Paris, 2013 (PDF-Präsentation)