Warning: This post is science fiction (but hopefully entertaining and thought-provoking).
I was on holiday in Crete last week. Like millions before me, I fell in love with the country, but being a fintech fanatic I was also thinking about Grexit and bitcoin. The story about Greece possibly going to bitcoin if they left the euro first surfaced in this article in Bitcoin Magazine. This isn’t the first time that people have speculated about a country moving to bitcoin for various reasons:
- Secession (eg when Scotland was voting on independence from the UK)
- Failed currency (eg Venezuela or Zimbabwe)
- Currency Union (eg a Pan African or Pan Asian currency).
The Greece bitcoin story got a new lease of life with an April Fool’s joke from Greece’s finance minister. This was a savvy move dressed up as a joke. If he had issued it as a serious white paper, it would have been treated as a joke in a not-so-funny way. By issuing it as an April Fool’s joke, he gets a real laugh and gets some people speculating ‘what if and how’. It was a smart way of floating a trial balloon.
This is my ‘what if and how’ speculation. First, Yanis Varoufakis, the Greek finance minister, is hardly in the usual mould for that job. He would be more at home in a tech startup, merrily blogging about outside-the-box ideas. Here is his Twitter account with 392k followers, and it looks like he may actually write his own stuff. Here is an extract from his post that was plausible enough to work as an April Fool’s joke:
‘The Greek finance minister went on to explain what is the cryptocurrency and how it will be implemented into Greeks’ day to day life by using a special mini computerized card with a chip. All citizens will carry the card as an electronic wallet. The card will be distributed for free to all Greek citizens via the local tax offices but it will also be available for purchase at the country’s entry points for 45 euros, or 0,20 bitcoin each. The sale of the card to tourists is expected to be another form of revenue for cash-strapped Greece.’
‘This is the smartest move to beat corruption and tax evasion, all transactions will be recorded to the Greek Ministry of Finance new secure and dedicated bitcoin servers and we’ll be able to track transanctions [sic] at any given moment,’ said Varoufakis defending his decision.
Mr Varoufakis is actually quite critical of bitcoin, as he explains on his blog. He seems to favor a government-controlled digital fiat currency, which I think is a mirage. Whether it’s Fedcoin or the ‘DrachCoin’, if it’s government-issued, it’s not bitcoin. In the high-stakes poker game between Greece and the ECB, a move to a digital fiat currency may work as a bluff. However, a DrachCoin is really no different from the drachma (which may or may not be a good idea – I don’t want to get into that debate). However, a parallel bitcoin economy within the overall Greek economy is a sensible idea.
The very pragmatic, conservative Swiss have a parallel currency called the WIR, as I discovered at a bitcoin/blockchain meet-up in Geneva. This means that Switzerland is officially a multi-currency country (which doesn’t change the fact that the Swiss trust their Swiss franc currency more than most nationalities trust their currencies). What if Greece became a multi-currency country, with bitcoin running alongside the euro? I’m not a lawyer, but I think Greece is a sovereign nation that can do this if they want.
Intrapreneurial skunkworks startup economy
Bitcoin worries people because it’s deflationary; it’s a modern, digital version of the ‘cross of gold’ problem that caused Britain to leave the gold standard during the Great Recession. However, deflation isn’t all bad. Lower prices do help people. The problem with deflation is that it stops people spending in the expectation that their cash will appreciate in value. This isn’t an issue in the parallel currency model that I envisage, as bitcoin would only be used for what Brits call ‘the readies’; the immediate spending cash. If you want a pizza, you buy a pizza even if you defer the purchase of that car or house. Also in the parallel currency model, like we have within Switzerland with the WIR, the deflationary aspect of bitcoin doesn’t have to drive the whole economy. It’s more like creating an intrapreneurial skunkworks startup economy within the main economy. This is like the free zones that worked well in places such as China and India.
The real prize here is for Greece to become the bitcoin capital of the world. Necessity is the mother of invention. This won’t happen in countries with strong currencies, so this won’t happen in America, the UK, Switzerland, Singapore, Scandinavia, Australia, or New Zealand. You need a crisis. You also need a well-educated, hard-working population. Despite all the lazy stereotypes, Greece has both. The country that invented philosophy has plenty of brains (as the Greek diaspora continually proves).
So, it could happen in Greece, or it could happen in one region in Greece. For example, it could happen in Crete. This could appeal to the Cretan spirit of independence. Crete could kickstart the mainstream adoption of bitcoin and become the bitcoin capital of the world.
Here’s the science fiction part:
- Visitors to Crete are issued with a bitcoin wallet and they load bitcoins into that wallet or convert from their fiat currency into bitcoin. Or the visitor could choose their existing wallet if they prefer.
- Shops, restaurants, bars, coffee shops are told that they have to accept bitcoin. This has to be mandated to get quickly to mainstream. It’s no hardship to the merchant as long as there are good, cheap payment processing options. This would be somewhere between cash (zero processing cost) and credit card (expensive processing cost). Given that bitcoin payment processing is almost cost-free on a unit basis and that there’s free market to choose different payment processors, I would expect prices to be very low.
- Whatever sales tax is in place gets collected automatically, as this reduces evasion and collection costs there would be room to reduce sales tax. Despite this, one assumes a black market in cash to thrive, but that’s normal and maybe restricted to locals. Visitors would prefer to use bitcoin as they can refresh their wallet with more bitcoin wherever there’s wifi. As wifi is far more ubiquitous than ATM in Crete, this is a good service to visitors.
- Merchants would be offered a choice of payment processors. Some might offer payment processing tied in with legacy credit card POS. I can imagine payment processors being very keen to participate in this mass market experiment.
Crete has one other major asset for the bitcoin economy: lots of sun for solar energy to power mining operations. However, the big deal is having Crete as the world’s first mass market bitcoin economy. Direct flights from San Francisco, New York and other financial centers would bring in those high-spending VCs looking to cash in on the bitcoin economy. Techies looking for a great lifestyle while writing code would flood in, followed soon after by hipsters. The local economy would boom.
Science fiction is fun.
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article by Bernard Lunn of Daily Fintech here. Image: Freestock & Nicolas Raymond.