A Bitcoin Loan for Greece?
https://lefans.wordpress.com/2015/06/25/a-bitcoin-loan-for-greece/Greece is under financial siege and it will take considerable courage and ingenuity on the part of the Greek government to break it. Could the solution be for the Greek government to reach out to the crypto community for an emergency Bitcoin loan? Could this be how Bitcoin is introduced as a parallel currency in Greece?
There is currently considerable sympathy with Greece’s plight from within the Bitcoin/Crypto community particularly in the light of the blatant double standards in policy applied by the European Central Bank in its discriminatory use of quantitative easing. The ECB has printed over a trillion Euros to prop up Brussels’s equally distressed but compliant friends whilst throwing Greece to the lions.
For the Greek government an emergency Bitcoin loan could be used to buy more time for negotiating a fairer deal. A portion of salaries and pensions for state employees could be paid in Bitcoin thus saving Euros for essential external payments and debt servicing. The loan could then be repaid by levying certain taxes in Bitcoin. This could provide an alternative stop gap to the government issuing its own tax backed IOU which is likely to have uncertain exchange value.
Could Greece be a viable place to park one’s Bitcoins?
The Bitcoin market capitalisation is now approximately 3.2 bn USD however as yet there is no single asset denominated in Bitcoin of sufficient investment grade to match even the ‘junkest’ of corporate junk bonds. In theory the Greek government could issue a some sort of Bitcoin denominated debt instrument, a kind of Bitcoin sovereign Bond if you like, the first of its kind. Given the correct safeguards and oversight it is not unfeasible that such an instrument could provide a relatively attractive asset to park one’s Bitcoins in.
Furthermore the blockchain protocol that underpins Bitcoin can be implemented at every stage to ensure maximum transparency and oversight. All government spending and taxes in Bitcoin would be registered on the blockchain and investors in such an instrument could be repaid directly from taxation via a system of smart contracts established from the outset. At any given moment via the blockchain, it would possible to obtain a real time snapshot of the Greek government’s Bitcoin denominated fiscal position. This would impose strict discipline on the Greek government to make good on its obligations. Similarly each investor’s holding could be registered on a blockchain type ledger enabling the debt to be traded on an entirely transparent open source exchange thus facilitating efficient price discovery.
There is no financial asset in existence today that can offer such level of transparency and efficient price discovery.
Such an instrument could represent a significant breakthrough in the Bitcoin space not only as a unique asset class but could also provide an essential benchmark against which all Bitcoin denominated loans could be measured. Such a development is also only likely increase investor appetite for Bitcoin and therefore have a positive effect on it’s exchange value oversus the Euro. As demonstrated with Cyprus the value of Bitcoin can increase (or decrease) exponentially in a few days, ten fold in this case.
The benefits to Greece of such a strategy could also be considerable. Greece has now been frozen out of traditional capital markets for the foreseeable future given that a deal with the Troika is unlikely to materialize. Greece needs more time to negotiate, however the Troika are banking on the Greek government running out of money and the inevitable weakening of it’s hand.
Greece could approach Russia or China for an emergency loan however there are likely to be considerable strings attached and such a move is unlikely to be popular with the Greek people who still consider a natural affinity with their western European brethren.
Under current orthodoxy we have therefore been lead to believe that the only option left for Greece is to default on its external liabilities, introduce capital controls, leave the Eurozone and issue a new domestic currency which will inevitably plummet in value, leading to hyper inflation thus imposing an even more austere form of austerity on the average Greek.
Now let us take a minute to consider an alternative scenario…
The Greek government announces that it will be issuing the world’s first Bitcoin denominated bond, and that it will levy a proportion of certain taxes in Bitcoin (including perhaps VAT on fuel, previously subject to massive tax fraud) in order to service/ repay the debt. The entire process will be transparent and visible on the blockchain from every Bitcoin invested right down to every Bitcoin spent and raised in taxation. Anyone anywhere in the world with a wallet and a few Bitcoins can participate without the need for any financial intermediary.
The issue is massively oversubscribed. The next wave of investors rush to invest in the secondary market for the bonds. The value of Bitcoin to Euro increases tenfold, perhaps more. The Greek government pays part of its salaries and pensions in Bitcoin at the new Euro\Bitcoin exchange rate therefore saving Euros for external payments and debt servicing and thus buying more time for negotiation.
A network of bitcoin\Euro exchange shops pop up for governmentt employees and pensioners to exchange their Bitcoins for Euros to meet everyday purchases. Similarly tax payers will be able to exchange their Euros for Bitcoin in order to pay Bitcoin denominated tax obligations. This creates immediate private sector employment and commercial opportunities. Greek banks can also engage in these transactions. The government also exchanges Bitcoin for Euro via these channels. Given the increased Bitcoin to Euro exchange rate the Greek government is now able to pay ten times (perhaps more) of its Euro denominated liabilities than it was able to before thus staving off default and still remaining in the Eurozone.
Yanis Varoufakis argues that one flaw of Bitcoin, a deflationary currency, is that it will lead to people delaying purchases today to take advantage of greater purchasing power tomorrow. This may be the case in the long term however at least in the short term the average Greek state employee or pensioner, being naturally risk averse, is likely to exchange their Bitcoin income for Euros immediately in the belief that holding Euros is relatively safer. Receiving an increasing number of Euros for their Bitcoins increases their purchasing power creating a short term wealth effect, thus reversing the devastating effects of austerity on demand and Greek businesses.
With certain taxes denominated in Bitcoin, now a currency on a deflationary trajectory, tax payers are incentivized to pay their taxes sooner rather than later before they become more expensive in Euro terms leading to an improved government fiscal position. Businesses are also increasingly encouraged to accept payment in Bitcoin in order to pay taxes. With correct monitoring software in place Bitcoin transactions will also be easier to track leading to less tax evasion. As Bitcoin continues to appreciate vs the Euro, Greeks will begin to favor holding Bitcoin leading to wider Bitcoin adoption by businesses.
With the economy and Government fiscal position improving wealthy Greeks return their money to Greek banks which can now extend credit to Greek businesses once again . Tech entrepreneurs also rush to invest in Greece’s emerging Bitcoin ecosystem. Global investors flock to purchase Bitcoins and Bitcoin denominated assets and other countries, perhaps starting with Spain, take the lead from Greece in issuing the same kind of bonds. Bitcoin comes of age and moves from the margins to the heart of global finance.
Or is this somewhat optimistic…?
