I’ve been paying close attention to the situation in Greece. While I’m fascinated by the economic problem of a sovereign country being in the position of having no control over the currency it has chosen to use, the tragedy of the hardships faced by the Greek people troubles me. Watching a whole country reduced to beggar status, especially in what is hands down the most technologically advanced time in history, is both intriguing and sobering. While a situation such as Greece would be far more difficult for countries that print their own currencies, it appears to be serving as a test case for other countries reliant on the euro as their chosen currency.
In situations like this, everyone thinks they have a solution and I’m no different. I think the innovation presented in The Currency Paradox could definitely help Greece. In fact, I think it could propel Greece to become one of the strongest economies in the European Union and the world.
The fundamental problem in this situation is that Greece cannot print its own currency to address its systemic problems. Its reliance on the European Central Bank (ECB) to provide euros in a situation in which Greece is already unable to pay the interest on the euros it has already borrowed means that Greece cannot borrow the money either to pay for the obligations it already has, such as pensions, or to fund investment which could help it address its debts in the future. It is figuratively stuck between a rock and a hard place. The world, particularly other cash-strapped members of the European Union (EU), are paying attention to how this all resolves as it may provide a playbook for future crises along this line.
Many economist think that Greece will end up again printing a national currency to use in parallel with the euro. The problem with this approach is that a new Greek currency would instantly be worthless, especially in relation to the euro. With its huge debt load and sputtering economy, the incentive to buy debt denominated in a national Greek currency would be very low, even if Greece were to offer very attractive interest rates. In other words, a new Greek national currency would instantly become “junk” currency. A near valueless national currency would do little to dig Greece out of its current hole and could well make matters worse.
The innovation in The Currency Paradox is particularly well-suited to address this Greece “chicken/egg” scenario. With tremendously high unemployment and not enough euros to spur investment, it can be reasonably posited that Greece has a very high amount of pent-up productivity. In the end, when investors purchase a country’s bonds, they are investing in that country’s potential for productivity. Right now, the combination of Greece’s onerous debt load and comatose economy suggests that it’s a “money pit,” that any investment is more likely to end up servicing debt rather than going into investment that will spur productivity that will guarantee a return on investment. Under its current circumstances, Greece is largely unable to offer incentive that makes it attractive for anyone other than the most courageous to invest in its economy.
However, what if Greece’s currency was created by its own productivity? What if its currency production was the result of the efforts of its employees and entrepreneurs? Under those circumstances, it would be impossible for its currency to be worthless as each unit would represent the result of effort already expended. This would encourage full employment and, with the right regulatory climate, a tremendous increase in entrepreneurship and innovation. The key for Greece is not to use currency to spur productivity but to use its productivity to create currency.
The tricky part is exchange. How does Greece value its current debt obligations in the new currency? The innovation in The Currency Paradox provides some clues. The key factor is that the innovation allows for a means of determining the absolute price, sans profit, of any item produced within the country. Therefore, all intranational goods can be efficiently priced and an accurate picture of purchasing power, from the national all the way down to the individual’s, can be precisely determined. In other words, intranational exchange of goods and services can be priced with precision and all intranational goods and services can be exchanged solely in the national currency efficiently.
Another factor is that the currency, because it is not debt-based, is, by nature, surplus money. While most money creation is based on the issuance of credit, thus producing either neutral or net-negative money, a money that is created by effort does not inherently have a debt-obligation (though, for the purposes of managing the money supply, it can), so return on investment is guaranteed. In a world where almost all money is debt-based, a surplus money would have tremendous advantages and be extremely attractive to investors.
In the end, investors want positive return on investment. In its current situation, Greece can neither pay its debts nor secure enough euros to spur productivity-producing investment. The innovation in The Currency Paradox defeats this condition by allowing Greece to put its people to work to produce its currency. With a surplus currency secured by the efforts of its people, not only could Greece dig itself out of its hole, it could become the model for a world beyond Capitalism.