We talk a lot about the ‘money system’. In what sense does money form a ‘system’? Does it have a function or purpose? Does it have interconnections? Does it have identifiable elements?

1. Elements of a money system

The elements of a money system include the structures and institutions that create it – governments, central banks and commercial banks – the ‘players’ who use it – individuals, consumers, traders, savers, investors, employers and employees, businesses, voluntary organisations, government agencies – and the processes that manage it – creation of loans, designation of currencies, transaction mechanisms, debt collection procedures and many others.

2. Interconnections in a money system

The simplest money system we might imagine would have three people who agree to use some object to ‘keep score’ of exchanges between themselves. At this level the purpose, the elements and the potential interconnections are relatively simple. Once we scale up to a nation state with millions of people using the same medium of exchange for myriad purposes with multiple elements and uncountable interconnections, it is no longer possible to analyse its complexity and feedback loops. This is why oversimplified economic ‘models’ and theories so often fail in their prognoses and predictions. Unforeseen or unintended consequences of economic or financial actions are common.

The money ‘system’ embraces multiple, often conflicting, purposes. For instance, when we use money for trade, we are not saving it for future use and when we save or invest, we take money out of general circulation, which can affect the state of the economy for everyone else. Add interest payments into the mix and investment can become a risky medium with big winners and losers. Irresponsible banks and governments can quickly corrupt the medium of exchange that everyone else depends on for exchange.

Depending where you draw the line around the ‘system in focus’, it may even be appropriate to talk about multiple money ‘systems’ serving different purposes for different users, all interacting with each other through multiple feedback loops. Clearly, money means very different things to a beggar on the street thinking about the next meal and to an investment banker looking for the next deal. Yet these two actors are part of the same money ‘system’ if they both use the same monopoly national currency to do their business.

3. Reforming the money system

The complex of these multiple purposes, elements and interconnections can lead to great crashes in which a lot of people get hurt. The 2008 financial crisis was just the latest and most spectacular in a long line of crises stretching back decades. An International Monetary Fund Working Paper identified147 banking crises, 218 currency crises and 66 sovereign debt crises between 1970 and 2011. This is ‘systemic’ – or in-built – instability1.

In the long history of money, there have regularly been calls to reform it from one group or another for whom it was not working well. Some want to keep money scarce and valuable to protect their wealth. Others want a plentiful but stable medium of exchange so they can eat or plan for the future. Money must serve many masters. You can read some of the history of monetary reform in the UK in my previous blog post.2

There has been a small but largely ignored monetary reform movement in the UK for decades. It sponsored a handful of Early Day Motions in Parliament with proposals for reforming the national money supply that gathered little support. Since the 2008 crisis, however, a new force has arrived on the scene in the form of the Positive Money (PM) campaign. It has made smart use of modern social media with short videos and bite-sized information to reach a much wider audience with messages of monetary reform.

Positive Money’s analysis and proposal

Positive MoneyPM clearly divides its website into three areas: The Issues; How Money Works; Our Proposals. Each section gives a clear overview of that theme, then breaks it down into detailed sub-sections followed by lots of helpful links to explanatory videos, books and articles.

1.The issues of our money system

The first issue raised by Positive Money is how many individuals and businesses are trapped in debt because most money in the UK is created by banks when they make loans. The only way to get extra money into the economy is to borrow it from banks. House prices have constantly been inflated by the hundreds of billions of pounds of new money that banks created in the years before the financial crisis. There is persistent inequality because our money is issued as debt and the interest that must be paid on this debt results in a transfer of wealth from the bottom 90% of the population (by income) to the top 10%, exacerbating inequality. Environmental destruction is accelerating because there is a direct link between the perceived need for continuous economic growth and damage to nature through exploiting natural resources for monetary profit. Money creation is undemocratic because banks create 97 per cent of the money supply when they make loans, so they control where newly created money goes and have the power to shape the economy. In the 5 years before the financial crisis, the banks approved a total of £2.9 trillion in loans. Over that same period, the government spent a total of £2.1 trillion. So banks’ power to create money through loans, gives them more ‘spending power’ to shape the economy than the whole of our elected government. There are regular financial crises because banks are able to create too much money, too quickly, and use it to push up house prices and speculate on financial markets. A ‘boom and bust’ economy fuelled by easy credit is bad for jobs and businesses, creates systemic instability and makes environmental sustainability impossible. Taxpayers foot the bill for financial crises because the proceeds from creating new money go to the banks rather than the taxpayer, and because taxpayers end up paying the cost of financial crises caused by the banks.

After this presentation of a range of problems created by the current monetary system, the second area of the website explains how money works.

2. How our monetary system works

Positive money also shows how most of the money in our economy is created by banks, in the form of bank deposits – the numbers that appear in your account. 97% of the money in the economy today is created by banks, whilst just 3% is created by the government as notes and coins. Bank loans create numbers in a customer account, which then act like electronic IOUs circulating in the economy until a loan is paid off, so banks can effectively create a substitute for printed money. Banks create new money whenever they make loans and there are several statements by experts from the Bank of England that confirm this fact. In short, money exists as bank deposits – IOUs of commercial banks – and is created through some simple accounting whenever a bank makes a loan.

Banks aren’t middlemen between savers and borrowers as many people think. By creating money in this way, banks have increased the amount of money in the economy by an average of 11.5% a year over the last 40 years. From the time when the Bank of England was formed in 1694, it took over 300 years for banks to create the first trillion pounds. It took only 8 years for banks to create the second trillion.

In a short historic overview Positive Money also explains how banking evolved out of the inconvenience of carrying heavy coins around and the need for better security into note-issuing and finally deposit-making. The 1844 Bank Charter Act only stopped the creation of paper bank notes – it didn’t refer to other substitutes for money, such as bank deposits or ‘loans’ so banks could still create money simply by opening accounts for people or companies and adding numbers to them. Computers revolutionised banking so that today over 99% of payments (by value) are made electronically. With the rise of computers and financial deregulation, banks received almost unlimited power to create new money and are only required to keep a tiny fraction of their liabilities in reserve for emergencies (fractional reserve banking).

Deposit money now makes up over 97% of all the money in the economyaround £2.1 trillion, compared to only £60 billion of cash. By value of payments, bank deposits are used for 99.91% of transactions and transfers, with cash being used for just 0.09% of transfers. Consequently, the physical currency issued by the state has been almost entirely replaced by a digital currency issued by private companies. The UK’s money supply has been effectively privatised.

3. Positive Money’s Proposal

Positive Money’s proposal for reform makes three fundamental demands:

1. Take the power to create money away from the banks, and return it to a democratic transparent and accountable process

2. Create money free of debt

3. Put new money into the real economy rather than financial markets and property bubbles.

PM staff have written a 64 page report “Sovereign Money: An Introduction3, which outlines their reform proposals in detail. They claim the economy would be more stable and society better off if we transfer the power to create money from the banks back to the state, working in the public interest. This can happen if the Bank of England creates money and transfers it to the government to be spent into the real economy (rather than the financial or property markets). This reform would transfer the ability to create new money exclusively to the state, creating a ‘sovereign money’ system.

Taking the power to create money out of the hands of banks would end the instability and boom-and-bust cycles that are caused when banks create too much money in a short period of time. It would also ensure that banks could be allowed to fail without bailouts from taxpayers. It would ensure that newly created money is spent into the economy, so that it can reduce the overall debt burden of the public, rather than being lent into existence as happens currently.

The power to create all money, both cash and electronic, would be restricted to the state via the central bank. Changes to the rules governing how banks operate would still permit them to make loans, but would make it impossible for them to create new money in the process.

Banks would then serve two functions:

1. The payments function: Administering payment services between members of the public and businesses, and holding funds safe until they need to be spent.

2. The lending/saving function: acting as an intermediary (middleman) between savers and borrowers.

The central bank would be exclusively responsible for creating as much new money as was necessary to support non-inflationary growth. It would manage money creation directly, rather than using interest rates to influence borrowing behaviour and money creation by banks (as is the case at present). Decisions on money creation would be taken independently of government, by a newly formed Money Creation Committee (or by the existing Monetary Policy Commitee). The Committee would be accountable to the Treasury Select Committee, a cross-party committee of Members of Parliament who scrutinise the actions of the Bank of England and Treasury.

Positive Money’s presentation of the systemic instabilities caused by the money system and the profit-seeking mechanism by which commercial banks create most of the money we need creates a compelling case for reform.

Its proposals for reform are, however, much less convincing to this writer. To be fair to PM, it has also responded to many criticisms of its proposals but even its responses leave me uneasy about several major aspects. 4

A critique of the Positive Money Proposal

In my opinion, any credible reform proposals needs to meet three criteria:

(a) they need to be ‘systemic’ ie looking at the whole system, not just a part of it

(b) they need to be economically credible

(c) they need to be politically desirable.

1. Systemic reform

PM effectively proposes replacing a banking cartel with a government cartel. It seems like a mechanistic nineteenth century solution to complex twenty-first century problems rather than a systemic response to systemic problems. PM claims that “in a sovereign money system, there is a clear thermostat to balance the economy. In times when the economy is in recession or growth is slow, the Monetary Creation Committee will be able to increase the rate of money creation to boost aggregate demand. If growth is very high and inflationary pressures are increasing, they can slow down the rate of money creation. At no point will they be able to get the perfect rate of money creation, but it would be extremely difficult for them to get it as wrong as the banks are destined to.”

This is a bold claim that does not answer a fundamental question: on any given day, how would a committee sitting in London decide how much money the economy needs? By looking at trading statistics, GDP, how exactly? There are no known instruments that can measure such a critical statistic because the economy and financial system are complex and emergent, like all systems. The myriad of purposes and connections that need to be served by a single national currency cannot be reduced to a single number.

PM goes so far as to admit that its proposal would be less flexible than the current system of banks creating money in response to consumer demand. It is not clear how a less flexible system of money creation would help the economy, individuals or the environment. Nature teaches us that more diverse, flexible systems are more resilient and better able to withstand shocks than monocultures. Any credible systemic reform needs to demonstrate how the various system elements – users of money, commercial banks, central bank and government – can be realigned to be more flexible and better serve the needs of users, rather than replacing one monopoly with another.

Another reason why PM’s proposal is not a systemic solution is that it assumes a single national currency as the norm that everyone aspires to. In fact, monetary history shows us that people will accept almost any object as money so long as everyone else does. Stones, shells, beads, copper, silver, paper and now computer digits command belief so long as belief in them as a medium of exchange lasts. Single national currencies controlled by central banks are an eighteenth century invention that paved the way for globalisation but their monopoly is bought at a price of essential economic and social diversity. Over the last thirty years people all over the world have experimented with non-national currencies – local, regional and virtual – that do not replace national currency but complement it. They fill other niches that scarce national currencies cannot fill. A truly systemic reform would allow for currency diversity, not try to impose even greater currency uniformity than currently exists.

2. Economically credible

Over the last few years, the UK has experienced some of the most economically and socially damaging policies in living memory, in the form of ‘austerity’. Many economists have condemned these policies as counterproductive and yet the government has persisted with them, dressing them up as unavoidable or blaming the poor or people in debt for systemic problems caused by the reckless lending of banks and the poor regulatory oversight of government.

PM’s proposals give government the power to create the money it needs without raising taxes or incurring debt so it could theoretically pay for all public services and stimulate the wider economy in the process. No government has ever done this – they have always incurred more debt and raised taxes to service the debt – so this would be economically unknown territory and hard for anyone to predict the effects.

What is also uncertain are the economic effects of restricting commercial banks to simply being intermediaries for existing money and forbidding them to create new money. PM claims it would prevent the chaos of irresponsible lending that led to the 2008 crisis, that better oversight and regulation of banks simply won’t work and that it would automatically create a more stable and just money system but these are theoretical assertions that have no grounding in practice yet. An economically credible reform needs to provide enough flexibility to all economic actors – businesses, individuals, government – to do their business in a complex, globally networked modern economy.

3. Politically desirable

England had a ‘sovereign’ money system for centuries – the king or queen strictly controlled the nation’s money supply and punished any counterfeiters with death. Experience showed that this system could not keep up with the complex needs of a growing economy, let alone the abuses of the sovereigns themselves, and so the Bank of England – one of the world’s first central banks – was born and the power of commercial banks grew with it. Just because this system has in turn led to great abuses is not an argument for a reactionary policy to create a new state monopoly of the money power, which in turn could lead to great abuses in the wrong hands.

PM proposes that a government appointed committee, accountable to Parliament, should alone decide how much money the nation needs to do its business. Given the increasing ‘democratic deficit’ in Britain’s political system, isn’t this a little naive? Who appoints this committee? Do members of the committee represent a true cross-section of society and economic interests or will it just be the usual members of the ‘great and the good’? What happens in the case of disagreement about how much money the country needs?

An alternative proposal

For me, there are just too many unanswered questions about the political mechanics of this proposal for it to be either desirable or credible. Government plays a critical role as a ‘referee’ and rule setter in the money system but not as a micro-manager and certainly not as the monopoly issuer of monopoly money. I fear that Positive Money’s great work of analysing the very real problems created by the current system is not matched by the credibility of its proposals. I fear that, out of desperation for something different, they are grasping for centralised solutions that, if implemented, could end up achieving the opposite of what they hope and just create new problems.

In a complex world, noone has all the answers and it is crucial that we enable systemic solutions to the multiple economic, social, demographic and environmental problems facing us to emerge naturally rather than forcing top-down solutions that people may come to regret. Complex systems require frameworks and processes rather than levers and pulleys to function optimally.

I would rather support a campaign group in drafting a piece of legislation that creates a framework for multiple money systems with equal legal status to emerge – let’s call it “The Money Diversity Bill”. This bill would allow for:

(a) government created, debt- and interest-free money for running national services

(b) more strictly controlled, interest-free, bank created money for business and personal loans

(c) city and regional currencies for regional development

(d) virtual and crypto-currencies for transnational trade.

And the government would be required by the new law to establish two agencies with branches in each UK region:

(e) a monitoring and evaluation agency using the best statistical techniques for measuring relative currency flows and economic effects

(f) an education and training agency for demonstrating the pros and cons of different types of money systems.


If you would like to comment on this article please write to the author and MONNETA expert John Rogers.



  1. https://www.imf.org/external/pubs/ft/wp/2012/wp12163.pdf
  2. https://monneta.org/en/news/history-of-monetary-reform-in-the-uk/
  3. http://positivemoney.org/our-proposals/sovereign-money-introduction/
  4. http://positivemoney.org/our-proposals/sovereign-money-common-critiques/

Faro de Barra, one of the landmarks of Salvador

Every two years, a dedicated international conference for research into complementary currencies and for exchange between academics and practitioners takes place. The first event of this kind was in Lyon, France, in February 2011, followed by a second conference in the Hague, Netherlands, in June 2013. In 2015, researchers from around the world met in Brazil, one of the countries with the most active complementary currencies scene. Over 60 academics, practitioners and complementary currency experts met in Salvador de Bahia, a coastal metropolis.

40 researchers presented their latest research findings on the main conference themes:

1) Complementary currencies in the context of development

2) Studies of effectiveness

3) Contextual differences and case studies

4) Typologies, models and innovations.

Individual contributions can be downloaded from the conference website.

Palmas App

“Classic“ Banco Palmas notes and the new mobile app for electronic transactions

Another main focus of the conference was the community banks of Brazil and their local currencies, of which there are now over 100 in the country. The idea began in the year 2000 in a small community near Fortaleza in the north of the country and these banks are now well organized and continue to develop. A local development project in Conjunto Palmeiras began to experiment with complementary currencies and first tried to establish a currency in the form of an exchange ring. Then it began to issue start-up loans in the form of local vouchers backed with national currency, like the Chiemgauer in Germany, but only valid at local businesses. The local ‘multiplier effect’ of this currency, called Palmas, made it quickly successful and, after the Brazilian central bank became convinced of the positive effects and the legality of this monetary instrument – after first trying to prosecute it – the project grew rapidly in Palmeiras. All around Brazil there were ever more voluntary organizations that wanted to implement the idea. The national Instituto Banco Palmas has now existed for several years and coordinates networking, training and educational work for these widely distributed projects.



João Joaquim de Melo Neto

João Joaquim de Melo Neto, cofounder of the first Banco Palmas and today the coordinator and spokesman for the Instituto Palmas, presented the history of local currencies in Brazil along with new developments. The latest developments in electronic, internet and mobile banking with apps offer new possibilities for the use of new currencies and have raised hopes of multiplying the current number of around a million users.

Marusa Vasconcellos Freire of the Brazilian Central Bank reported on the development of the dialogue between the community banks and the financial authorities, which was at first confronatational but has now become very open. A new law on the social and solidarity economy has given the community banks official recognition and special regulations that put them on a par with commercial banks.



Geovanny Cardoso, Ministry for Social Economy, Ecuador

Geovanny Cardoso from the ministry for social economy in Ecuador described similar developments. Although its official currency has been the US Dollar since 2000, the central bank has introduced an electronic currency http://www.dineroelectronico.ec to support the development of new possibilities in the social economy. This currency is still tied to the dollar but is meant to help combat the chronic shortage of cash, above all in the informal sector and amongst small businesses and help them take a first step towards monetary sovereignty.



RAMICS founding board takes its first vote

The highlight towards the end of the conference was the founding assembly of the new worldwide research body for complementary currencies that will arrange future conferences in partnership with local universities. This is an important consolidation of research work in the area of monetary diversity and complementary money systems, which have had no consistent representation in the international research community up to now.

The association will be hosted in France, with representatives from several countries on the board. Members of the founding board include the main organizers of the first three conferences, Prof. Jerome Blanc (Lyon), Dr. Georgina Gomez (Netherlands) and Dr. Ariádne Scalfoni Rigo (Brazil) as well as Prof. Makoto Nishibe (Japan) and Rolf Schröder (Germany).

A brief notice about the establishment of the new association can be found on its website www.RAMICS.org. The next conference of this kind will take place in Barcelona, Spain in 2017.


We accept Conchas!


The community bank in Ilhamar

The excursion led us to the small community of Ilhamar on the island of Itaparica near the coast. Here, as in most of Brazil’s successful currency projects, the monetary component is only one of many activities of the project, which sees itself as a citizens’ initiative for sustainable development of the community. Alongside the local currency “Conchas”, which also gives out micro-credits, as in other places, activities such as environmental protection, a community garden, computer training programs and businesses for sustainable tourism are also part of the project.

At least in the discipline of complementary currencies, Brazil still seems to be a world champion of sustainable, local economic development. Maybe Barcelona at the conference in two years time will be able to demonstrate similar world-class contributions if the recently elected city council manages to realize its plans for a local currency.

Greetings from Brazil, Leander Bindewald

Original article by Christian Gelleri published in German in the magazine of INWO (Initiative for a Natural Economy), September 2015

Christian Gelleri and Thomas Mayer proposed a ‘second currency’ for Greece in 2011, which was followed by lots of media reports in March 2012. Greece’s problems have still not been solved. The country is still close to bankruptcy. A socalled “NEURO” could help to avoid the worst.


Schematic flow diagram of the Neuro (German)

The crisis in Greece is now entering its eighth year. Per capita Gross Domestic Product (GDP) in 2008, the first year of recession, was about 23,200 Euros. Taking into account taxes and duties, a Greek earned an average of 1,000 Euros per month. In the wake of the economic crisis, GDP fell to just 16,500 Euros in 2014 and disposable income to about 700 Euros per month. If the price of goods had fallen at the same rate, that would not be worth mentioning. However, a look at the cost of living index in Greece for the same period shows an increase in prices. By comparison, the average German income for 2008 was about 1,500 Euros and is currently at about 1,600 Euros per month.

Limiting outflow of money is the highest priority for Greece

What would happen in Germany if the average income dropped (at constant prices) to 1,000 Euros? We have to look back a long way before we find something comparable in Germany: the economic crisis of 1929 to 1933. During this period, per capita GDP also fell by a third. Most Germans lost patience after four years and chose Nazism, which both economically and morally completely wrecked the state within twelve years. In Greece, however, people have now trusted the established political parties for eight years but the rapid drop in income has left a deep mark on the people of Greece. Parents who cannot feed their children and have to send them to SOS Children’s Villages, sick people who are not treated anymore and many other examples show that a decrease in income levels of 30% has caused a number of human tragedies. At the end of 2014, the Greeks brought the left-wing Syriza party to power and set high hopes on the new government. Prime minister Tsipras appointed economist Yanis Varoufakis as finance minister of the new government. This is remarkable for in February 2014 Varoufakis posted a proposal for a parallel currency for Greece at his blog (http://yanisvaroufakis.eu). What was this proposal?

The Varoufakis proposal

For Varoufakis, the starting point is the downward trend of the Greek economy and deflationary tendencies in the Euro area since 2013. In his view, the monetary expansion of the European Central Bank was too small in comparison, to the US, which has responded very expansively since 2008. While the US Federal Reserve “printed” dollars to buy large quantities of US government bonds, the European Central Bank reacted slowly to economic weakness and falling prices. The south of Europe was particularly affected. Varoufakis draws an interesting comparison to the crypto-currency Bitcoin. The amount of Bitcoins is absolutely limited to 21 million. There is no possibility of achieving growth momentum by increasing the money supply. Similarly, the money supply is fixed in the southern countries of Europe. The strength of the northern economic regions draws money out of the southern regions, which is lacking there more and more. Varoufakis did not consider in his analysis that the European Central Bank has also greatly increased the quantity of money, similar to the US Federal Reserve. Very little of this increase has arrived in Italy, Spain and Portugal. On the contrary, money has even flowed away from these countries. The most massive drain happened in Greece. Thus an even greater influx of Euros would not have reached the Greeks either. Despite his incomplete analysis, Varoufakis came to a correct conclusion, namely the introduction of a parallel currency could help to stabilize cash flows.

Inspired by the debate about the crypto-currency Bitcoin, Varoufakis developed the concept of “FT-Coins”. FT stands for Future Taxes. Money is created in expectation of future tax revenues. Varoufakis was aware that paying taxes is not particularly popular in Greece, so he tried a stimulus: “You pay, say, 1,000 Euros for 1 FT-Coin issued by the Spanish, Greek, Italian or Irish Treasury etc. This process is connected with the following agreement: The FT-Coin can be redeemed at any time in 1,000 Euros or, after two years, it induces a tax credit of 1,500 Euro. Each FT-Coin carries a time stamp, which ensures that the additional taxation value will take effect no earlier than two years later. After redemption of the FT-Coins new FT-Coins can be issued. This ensures that the total amount of FT-Coins is no higher than, say, 10% of Greek GDP.

The concept reveals much about Varoufakis’s thinking. The guarantee to redeem FT-Coins without deduction in Euros at all times depends on a high level of trust. If this trust were tested in practice and many participants exchanged the FT-Coins for Euros, one would probably discover that not so much liquidity is available. The second assumption is that the 50% bonus increases the willingness to pay taxes. The danger is that those who still pay taxes take the reduction of one-third and that those, who pay no tax today will not do so in future either. This would therefore potentially reduce the state budget further. The third issue is the appeal of hoarding money for those who have to pay taxes in the near future.

Varoufakis’s suggested parallel currency has strong disadvantages:

  • In an atmosphere of impaired trust the newly created parallel currency would be changed back very quickly.

  • The bonus indeed benefits honest taxpayers, but if the overall willingness to pay taxes does not significantly increase then a poor state will get even poorer through the FT-Coin. This increases the probability of bankruptcy and the preference to change the FT-Coin into Euros immediately.

  • The FT-Coin tends to slow velocity of circulation because it is more likely to be hoarded due to the tax credit.

Through this proposal we can well see that a parallel currency is not automatically an improvement. It depends very much on the specific design. A bad design cannot only fail to achieve its intended effects but even cause the whole thing to backfire. In technical terms it is called a negative money multiplier when the new money set into circulation causes a reduction in economic performance. In this case, Goethe’s “force which always wants evil and yet creates the good“, would be exactly reversed. Perhaps we also can want the good and then create the good?

A parallel currency would increase the money supply 2,000 NEURO per head

Back to the diagnosis of the patient: it is obvious the Greek economy is terminally ill. Economic output has fallen by one-third. Factories are shut, workers sit at home and young people have the choice between unemployment in their own country or uprooting by emigration. Does the problem maybe lie in wages or the economic structure? In 2013, Greece was the first in terms of reforms and reduction of labor costs (study by the Lisbon Council). Nevertheless, the economy did not recover. In the media it was said the reforms must continue and the cuts were not deep enough. If unit labor costs compared to the Euro area have fallen by 15% over 2 years (2011-2013), then the problems in Greece do not have much to do with the allegedly high labor costs, but with a profound crisis of confidence. This can be seen very well from the currency measures:

Between 2009 and 2014, the money supply per capita was increased in the Euro area to 5,600 Euros per capita. Even more of this increase remained in Germany, namely 6,700 Euros per capita. In Greece, there was nothing left of this increase. On the contrary, a serious outflow of funds at the rate of 2,900 Euros per capita was measured. The “free movement” of the Euro had a positive effect for Germany. For Greece, however, the Euro is a disaster. From the German perspective, the current situation in the Euro area can easily be handled. The German economy continues to benefit from the cash inflows and the received loan guarantees for the southern European countries currently do not (yet) lead to payment obligations for the German government.

Limiting the outflow of money should be the highest priority for Greece

The limitation of cash outflows should be the highest priority for Greece. A possible parallel currency must therefore be designed to prevent leakage. In the first proposal for a NEURO (see Gelleri / Mayer, 2011 “Express money for Greece” and Gelleri 2012 “NEURO for Greece” at www.save-the-euro.org) an exchange fee of 10% for the exchange of a parallel currency into Euros was advocated. This proposal is useful for crisis-hit countries such as Italy, Spain and Portugal, who can still hold plenty of Euro reserves. This was also the case in Greece in the years 2011 and 2012. Meanwhile, the economic and political situation has become so acute that the original proposal has had to be modified until the situation stabilizes. It should also be noted that the impression is that the “child has already fallen into the fountain”. Let us imagine the Greek central bank, the Greek government, the European Central Bank and the Euro partners agree on the following schedule:

  • The Greek central bank is given permission to emit a parallel currency to the amount of 12% percent of Greek GDP. This corresponds to a value of about 22 billion Euros.

  • The parallel currency is named NEURO, the new Euro for Greece.

  • The parallel currency is published purely electronically and is not convertible into Euros. There are no paper notes and no coins.

  • The Greek State guarantees the acceptance of NEURO for the payment of taxes, duties and benefits 1 to 1 against the Euro. The official value of 1 NEURO is 1 Euro.

  • Trading of NEURO is allowed. The exchange rate develops according to supply and demand. For each trade transaction, a tax of 3% is payable.

  • The NEURO is provided to the Greek government interest-free for three years. After two years, the results are evaluated. The rules are optimized and a new optimal money supply is determined for a following period.

  • In parallel to the existing Euro accounts, commercial banks keep NEURO accounts with a circulation incentive (storage fee) of initially 3% per year. This “storage fee” stimulates the circulation of the currency because the earlier the money leaves the liquidity account for payment or lending, the less costs arise. Transactions to Euro accounts should at first be made technically impossible. One-third of the circulation incentive rate flows to the commercial banks for the operation of the accounting system. There are 200 million NEUROs available to cover costs of an estimate of four million accounts, each with a cashless payment card. The commercial banks are not allowed to charge any additional fees for account management and the issuing of debit cards. One-third of the income from the circulation incentive rate flows to the Greek central bank for the development of infrastructure for the parallel currency. If a drop in the velocity of NEURO money occurs, the central bank can increase the circulation incentive rate.

  • By law, all (domestic) creditors of the Greek state will be obliged to accept NEURO at a fixed ratio. The initial rate for the first six months is 10%. As soon as the money circulation has accelerated in Greece, the rate is gradually increased. Members of Parliament and government officials get paid from the start 75% of their net salary in NEURO.

  • Much of the NEURO is used for investment and social programs. An example would be the reactivation of night allowances for police officers. Another example would be interest-free loans for small and medium businesses. Even social programs to alleviate the worst misery could be subsidised in NEURO.

The NEURO could strengthen the community in Greece. With such a parallel currency, the money supply is increased per capita up to 2,000 NEURO. The expected high velocity of NEURO could stop the economic decline in the short term. The NEURO would primarily strengthen the revival of the domestic economy. Farmers, craftsmen, transport operators, retailers and domestic service providers and producers would benefit most. Through electronic payments all transactions are accurately recorded. To avoid the circulation incentive fee, NEURO would preferably be used for tax payments. The NEURO would not be suitable for hoarding, but only for paying, investing and giving. It would create an “easy” money, which would be spent willingly and quickly. Once the tax bill arrives, NEURO are immediately transferred. The Euro would remain strong in tourist regions and in export-oriented companies. In the area of domestic economy, the NEURO could become a popular means of payment because it would be available for the majority of the population and not scarce like the Euro.

The problem of cash

A major issue is the Euro banknotes and coins, which have become very popular in Greece since the Euro was introduced. In 2007 about 1,000 Euros per person were in circulation, in 2014 it was more than 2,000 Euros. Average Greeks, however, do not have 2,000 Euros in their wallets, but less than 100 Euros. So where is all the cash? A small proportion circulates in the black economy, a large proportion is hoarded in vaults. This is reflected in the high number of 500 Euro notes, which are rarely used by the normal population for day to day payments. The Greek government has proposed to limit payments in Euro banknotes and coins to a maximum of 70 Euros per transaction. Payments beyond that would be punishable by law when using cash. Whether such a ban can be implemented and monitored, however, is very doubtful.

The Harvard professor Kenneth Rogoff calls for the abolition of cash, because thereby the black money economy and crime could be reduced and secondly, the introduction of circulation incentive rates would be facilitated. In 2009, he was still ridiculed for this proposal. Now he receives prizes and awards, most recently in December 2014 as a “Distinguished Fellow” in Munich. Greece alone cannot solve the Euro banknotes and coins issue. Therefore, the development of the Euro banknotes and coins must be closely monitored. As the largest economic player, the Greek State can significantly contribute to the promotion of cashless payments. All expenditures in NEURO and Euro could be made without cash. On the revenue side, the state may charge a transaction tax for cash payments. Thus, paying taxes with Euro cash would become more expensive than with NEURO and NEURO salaries would be a bit higher than the Euro salaries, which would mean further incentives for the use of the parallel currency. Another aspect is effective taxation. Which taxes are bypassed and which are effective for all? Maintaining social balance is the task of a more just political system.

Need to create a positive mood

Most important is the creation of a positive mood and awareness in the population that only by rapidly spending the means of exchange will there again be revenue for entrepreneurs, citizens and the state at the end of the day. If 11 million people in Greece were to accept the NEURO, they would take their fate into their own hands again. Germany could contribute to a positive mood by restructuring the claims against Greece as follows: Germany waives interest and offers postponement of debt repayments until 2020. From 2021, Greece would be obliged to pay 5% redemption per annum, payable in NEURO. This conscious step would prevent a disorganized bankruptcy and would ensure that the Germans receive repayment from Greece for their years and decades long export services to approximately the same degree. For this purpose, however, it is first of all necessary to consolidate the structures in Greece and rebuild the domestic economy. This type of restoration from the inside with the outside only assisting could serve as a model for other countries in crisis.

In conclusion, a small model calculation shows which value added effects a parallel currency might have. The effects would be built up gradually. After 2 to 3 years, GDP could again reach the level of 2008.

A parallel currency would cost the individual citizen an average of about 50 Euros per year, but on the other hand, a value of 6,000 Euro-equivalent is generated. This is such an impressive ratio between expenditure and revenue that the question arises why such a measure has not already been implemented a long time ago. The answer is simple: thinking differently is hard work. If we continue with our existing thinking, then we print 60 billion Euros per month and buy up old debt with it. Thus indeed share prices rise astronomically but it brings virtually nothing to the normal citizen apart from the fact that we all end up paying the bill: 2,000 Euros as down payment so to speak for even greater bills later. We and our bankers and politicians have learnt one thing: to pay for debt with yet more debts. The idea of trapping money in Greece and forcing it to circulate assumes that we stop the money printing machine for a while and even maybe destroy some of the excess Euros that were printed. Crazy, isn’t it?


About the author

Christian Gelleri, born 1973, is a trained business teacher and Master of Business Administration. He is the initiator of the Chiemgauer, the most successful regional currency in Germany. As a founding board member of the Regional Currencies Association, he has significantly influenced the dissemination of the idea of local currencies in Germany. He has a broad knowledge of the status and prospects of new currencies.