Socialist mayor to fulfill campaign promises by “printing” money.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Over the next six months, Barcelona’s left-wing city council plans to roll out a cash-less local currency that has the potential to become the largest of its kind in the world. The main goal of the project, according to a council spokesperson, is to boost economic opportunities for local businesses and traders.
The idea is for local stores and residents to be able to exchange euros for the new currency at a one-to-one parity, and use it to purchase products and services at a discount or with other kinds of incentives. But it doesn’t end there: the new parallel currency may also be used to pay certain subsidies, taxes and local services such as public transport, reports El País. Municipal workers could also receive part of their salary in the new money.
Barcelona will not be the first European city to launch such a scheme. Local currencies are all the rage these days. There could be as many as 3,000 forms of local money in use around the globe, says Community Currencies in Action, a global partnership promoting such schemes that is part-funded by the European Union’s Regional Development Fund. Which begs the question…
Why’s the EU promoting parallel local currencies around the world?
According to the official blurb, it is to support local small and medium-size enterprises (SME) as well as offer new tools for social inclusion and environmental protection. This comes from an organization that has so far shown scant regard for SMEs [read… Small Businesses Dread the Wrath of US-EU “Free Trade” Deal], social inclusion and environmental protection (read this and this).
Perhaps there are somewhat less altruistic motives behind the EU’s agenda — motives such as encouraging people to embrace cashless currencies. As I warned in The War on Cash in 10 Spine-Chilling Quotes, the war on cash has moved from one of words to actions. As such, is it pure coincidence that most of the local community currencies that have been launched so far are in purely digital format, as would Barcelona’s?
Perhaps that explains why local currencies have captured the interest and support of organizations like the Long Finance Group, whose sponsors include the City of London Corporation, and which recently echoed the Bank of England’s calls for the UK government to adopt a purely digital currency in order to save the national economy (no, seriously).
The EU could also have another hidden motive in promoting community currencies: strengthening regional identity, at the obvious expense of national identity. Strong regional identity certainly helps with uptake, which is why you often find the most successful community currencies taking root in regions with a proud traditional heritage. Europe’s biggest experiments with local currency to date include the Chiemgauer in the German state of Bavaria (total amount in circulation: €521,000), the Eusko in France’s Basque region (€370,000 euros), the WIR in Switzerland, and the Brixton Pound in South London (€150,000).
The Chiemgauer, like many local parallel currencies, has a built-in “value loss” of 8% per year – a sort of automatic inflation – to induce people to spend this money as fast as possible before it corrodes away. That’s why it’s sometimes called the “rusting money.” It’s a heck of a lot worse than the negative deposit rates at some German banks (the hated “punishment interest“). Convert this money into euros to avoid this loss? No problem, just pay a penalty fee of 5%. So users – consumers and SMEs – get screwed, but they’re submitting to it voluntarily and can’t bitch about it.
“Direct Assault on Global Trade”
The biggest inspiration for Barcelona’s community currency is an experiment launched three years ago in Bristol, a medium-sized city in the South West of England. Under the scheme, people can purchase Bristol Pounds, either in cash or digital format, at a one-to-one rate with sterling and spend it with one of roughly 800 businesses. After three years in operation, the currency is now the UK’s largest alternative to sterling.
At the time of its launch in 2012, the BBC called it a “direct assault on global trade,” a statement so loaded with hyperbole as to be risible. Since its inception only £1 million has been issued in the Bristol Pound. Not one to be outdone in the hyperbole department the UK Guardian recently ran a piece headlined (I kid you not), “The Bristol Pound Gives Sterling a Run for Its Money” – all £1 million of it.
But the Bristol Pound has survived for three years, which is a heck of a lot longer than most of these schemes. Indeed, so popular has the Bristol Pound become that a large supermarket chain, a number of high street retailers and a budget airline have asked to be included in the scheme, according to the currency’s co-founder, Ciaran Mundy. They were turned down on the grounds that they were either not based in the area or were quoted on the stock exchange.
A Whole Different Magnitude
While the Bristol Pound experiment has been a big success on a tiny scale, Barcelona’s move toward adopting its own currency is a proposition of a whole different magnitude. With a metropolitan population of 3.2 million people, Barcelona would be far and away the largest city council in the West to trial such a scheme. The council is also proposing using the currency to pay some salaries, social benefits and public services, which could propel the amount in circulation well into the millions, if not billions of euros.
Predictably,the opposition to the scheme in Madrid is fierce. In June, the Bank of Spain’s deputy governor Fernando Restoy delivered a shot across the bow by warning that the scheme proposed by Barcelona’s activist mayor, Ada Colau, was “impossible” as well as “undesirable.”
To launch its own currency Barcelona City Council would have to go directly against the wishes of both national regulators and the central government. It would hardly be the first time in history that it had. Indeed, many of the leading figures of Catalonia’s pro-independence movement, including the region’s premier, Artur Mas, have already called for mass civil disobedience of Madrid. And there are few more potent acts of disobedience than the creation of one’s own currency.
Which begs the question: could Barcelona’s local city currency serve as a springboard to a region-wide parallel currency? After all, if Catalonia’s leaders are genuinely serious about breaking away from Madrid and creating a new nation-state (still a sizable”IF”), they will need to dramatically reduce Catalonia’s financial dependence on the central government’s treasury, the Bank of Spain and by extension, the European Central Bank. The only way to do that is to launch its own currency. As Greece’s Syriza party learnt the hard way, it’s no good threatening to go your own way without first having a parallel currency in place.
Granted, this is the grandaddy of all nuclear options. It is far more likely that Colau’s primary motive in launching a community currency on this scale is somewhat more mundane: i.e. increase local government spending. It’s what she pledged to do before the municipal elections. And there’s no easier way of increasing government spending than printing your own money and then using it to pay salaries, benefits and public services!
The big challenge will be getting local people and local businesses to trust the new form of money, as well as finding a local financial institution willing to back it up with euros. Without that, the currency could lose credibility. Without credibility and trust, fiat money loses value very quickly. And that’s when seemingly easy solutions give way to excruciating pain. By Don Quijones, Raging Bull-Shit.
ECB is “powerless” to reduce wealth disparities its policies create, it says. So here are the ECB’s Winners & Losers. Read… Euro Sinks Deeper into Limbo
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Everyone is printing, what could possibly go wrong? :-)
How about using gold or silver coin, instead of digital toilet paper?
Have you ever heard of Gresham’s Law? ;)
Regarding the issue of the Chiemgauer and the WIR. They are considered halfway between a novelty item and a complete joke. Nobody has ever taken them even remotely seriously. And considering my euro has lost 5.8% of their value per year between 2003 and 2014, the idea of “value loss” is nothing new. But at least the people behind the Chiemgauer don’t attempt convincing me there is “no inflation and a serious risk of deflation”. They inflate honestly.
I can understand why the Catalans may want an alternative currency and could attach a powerful meaning to it.
I may also understand why they may want to go full electronic: it’s a whole lot cheaper and faster than printing notes and striking coins.
But electronic has some serious risks. To stop me from using physical cash, somebody has to stop me on the road and confiscate my money. Stopping electronic transactions is a whole lot easier and cheaper.
I won’t even dwell into the inflationary risks here: governments everywhere are not known for being parsimonious. The temptation to issue more and more currency to cover deficits or increase spending even further would be irresistible. People would soon look back at the euro, with its yearly 5.8% loss of purchasing power, do the math and see it as the Greeks did: the less dirty shirt in the laundry.
As bad as the euro is when it comes to loss of value (and it is), it’s a bastion of monetary soundness when compared to Italian liras, Greek drakmas and Spanish pesetas. Am I the only one remembering Italian notes in 50,000, 100,000 and 500,000 denominations? This was happening less than fifteen years ago, not in the 20’s.
Catalonia has to be very, very careful or they risk having this whole independence shtick backfire upon them.
Hyperinflations do not result from printing money.
Also see this Cato institute paper:
Its an Austrian economic myth based on a plausible thought-experiment, not data. With the Eurozone in such crisis as it is, Greece being around 44% of population below the poverty line, there are greater things to worry about than the risk of inflation. Furthermore, private lending done to offset lack of public investment actually does correlate to asset price inflation, according to Steve Keen. The only non-inflationary money is debt-free public issuance, such as that we would have in a Universal Basic Income.
Deficit hawks are the final barrier to the public sector stimulus/redistribution which will make life liveable again for people in the European periphery. Its useless talking about market discipline when we have 30%+ youth unemployment and tens of millions in poverty; these people can’t even participate in ‘The Market’.
Venezuela, for example, tried that program. It worked for years. But now look how it turned out!
Because they don’t have it
I go along with that, @AC.
Avoiding situations like in Zimbabwe and S.Africa.
Only the smart people with the gold Kruger Rands were saved from
Only problem with Catalonia is : Not much gold or silver available…
massive DEBT, yes!
Once again you can’t trust governments they just print money were as gold they can’t print or make it .but what gets me is we as people let them get away with it yet we are prepared lock people up for a few hundred dollars. The hipocricy makes me shake my head in same
I do agree with you that the push for digital currencies is to be regarded with suspicion. This should not be done unless the users can verify that the original hard currency is being held in reserve to back the digital credits.
Instead of trading hard currency, Euros, for digital basically worthless credits, why not just trade Euros for any and all other currencies. They can adopt a foreign currency locally and still maintain relative value. In this regard the Yuan is probably the strongest because you can actually buy stuff with it. But it can be any of the other widely accepted ones.
I think this is the biggest joke of the year.
Spain, according to the union of Spanish tax officials, has a black economy of about 25%. Purely personally, I would put it at about 30%, but then I’m not a tax inspector.
With digital transference it is very very very difficult to push 100 euro notes under the table or in a plain brown envelope. Unless you actually own a bank.
So there are all the big Catalunya politicians being accused of giving and receiving brown envelopes, and from now they can’t any more. Not with digital transfer, which does leave a “trail” – one reason (perhaps the main one) why the EC is pushing digital cash.
Like I said, the biggest joke of the year.
Personally, I would rather hold rupees than digital credits.
“Will this be cash, charge, or digital”?
I don’t think so. Govt will need a lot of luck trying to wipe out the black economy by bogus means and threats. People are inventive. I remember when I was in my twenties and between jobs I renovated a friend’s basement for a woodstove and a piano. When I turned 50 and my kids were long gone I had a contest at work for whoever wanted the piano. Anyone who wanted it simply had to email me why they should get it for free. The winner was a young dad with an autistic son who was looking for something to engage him in life. The woodstove was sold with the house. The dad did not have enough money to buy a piano from a store and we had long since used up our required value from it.
There is always a formal economy and an informal economy. You can call it black, but I think of it as something else. When I was still working almost 1/2 my income went to taxes, pension contributions, and other deductions at source. Now, when I buy something at a ‘formal store’ I pay a total of 13% Provincial and Federal taxes. But when I buy lumber from my buddy who owns a sawmill I simply drive into the yard, go to his storage shed and leave an account of what I took on a bulletin board beside the saw. Once in awhile I drop off $1-200 and a case of beer. A couple times a year I get an email from his wife with the balance owing. I pay him in cash the next day. For big jobs when I need graded lumber or plywood I go to an outfit in town and simply pay the entire bill plus all taxes…as I should, in cash or by debit. It is a blend of opportunity and obligation. If someone ever wanted to pay me in digital they would receve a big big laugh. They can tell me they will pay me next week or next month when they get the money, but cash or personal cheque is the only money I want. Or, they can trade me something….like a piano. The work I still do, now that I am retired, is what we term as ‘side jobs’. I don’t need the work but usually people need something done. The last job I did I was paid in Crown Royal and a gift certificate for a sporting goods store I like.
What’s next? We pay the kids cutting lawns in digital so they can be taxed by Govt? I don’t think so.
Bartering will be the way to go when physical cash is eventually phased out.