Could Greece take bitcoin as its official currency? (Picture: Reuters)
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With time now rapidly running out, Athens and its lenders – other eurozone countries and the International Monetary Fund – appear to be deadlocked over how much more Greece must tighten its belt in exchange for needed funding.
This amount of debt and interest is totally unsustainable for Greece to maintain and the country has no more to give. So what next?
Could Greece take bitcoin as its official currency?
It would not be a good idea for Greece to renounce the euro and adopt bitcoin which would mean giving up their sovereign monetary policy.
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Monetary policy, used responsibly, is useful to manage public finances, provided it is not abused to issue too much currency. Greece cannot itself use monetary policy whilst it is part of the eurozone and adopting bitcoin would put Greece in exactly the same position.
In fact, the finance minister of Greece, Yanis Varoufakis, agrees that because it is deflationary, bitcoin would be bad for Greece.
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He then goes on to say that bitcoin is a flawed currency because it is deflationary. This misses the point. Bitcoin is a global currency (or more correctly a ‘value-transfer’ system) for anyone and everyone and not a currency designed for use by a government.
What is bitcoin?
Bitcoin is a software-based online peer-to-peer payment system described by its inventor Satoshi Nakamoto (assumed to be an alias) in 2008 and introduced as open source software in January 2009. Transactions – payments and receipts – are all recorded in a public ledger (called the blockchain) using its own digital unit of account, which is also called bitcoin.
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In addition, bitcoin is deflationary with a fixed amount of regular issuance controlled by the bitcoin software algorithm. The amount in issue today is around 14m and the total amount that can ever be issued is capped at 21m – forever.
It would be far better for Greece to consider adopting the bitcoin open source protocol to create its own government-backed bit-drachma with the Greek central bank and its national banks acting as ‘validators’ with a pre-mined (ie. electronically printed) amount of bit-drachma equivalent to the amount of euros held in Greek banks.
In addition, an additional amount, say up to 10%, should be pre-mined and distributed equally to each individual Greek taxpayer with a valid social security number.
This would please everyone. It would be like QE (quantitative easing) for the benefit of the people of Greece and appeal to the philosophy of the left-wing party Syriza.
The bit-drachma would be issued as a parallel digital currency alongside the euro and help Greece to achieve a more controlled and manageable ‘Grexit’ from the euro.
So, if the Greek government issued a parallel digital currency, decreed it as legal tender and banks and businesses made to use it, this would also boost the Greek money supply in defiance of the policy of the European Central Bank and return monetary policy to Greece.
Bills and pensions could then be paid. Normality would start to return. Greek citizens would be happy and admire their government.
This could all reasonably be done by the end of June and new paper money (cash) could follow soon afterwards.