“Grexit” and parallel currencies

Would an introduction of a parallel currency have been a solution for Greece?


The agreement that has been reached at by Greece and its creditors after a lengthy negotiation is actually a bad agreement, and this is Yanis Varoufakis opinion[1]. The 85 billions foreseen in this agreement are, at present, woefully insufficient to cure situation of Greece. It could not have been otherwise. For this text is the logical conclusion of the diktat imposed on Greece on July 13th, 2015, by its creditors. And this diktat was never conceived with the aim of bringing true support to Greece, even at the price of enormous sacrifices, but solely in order to humiliate and discredit its government. This diktat is the fruit of a political vengeance and is plainly devoid of economic rationality.

Doubts have been voiced on this agreement. It has been denounced at length in various columns[2]. It will increase austerity in a country where the economy is in a free fall since the maneuverings of the European Central Bank beginning on June 26th. The shock on the Greece economy has been tremendous. Provisional data on July and August are pointing to a massive negative effect on industrial production. The IMF is already forecasting another round of depression for year 2015, with a fall of GDP of -2,5%, and another one in 2016. And it is clear that such estimates are conservative. The actual truth could be considerably bleaker. In such a context it is clear that increasing the tax levy in an economy in recession is nonsensical. The VAT hike is to destroy what was left of output potential. One should, in the contrary, massively inject liquidities into the economy in order to jump start production. Everybody knows this[3], the Greek government as well as its creditors. Yet the latter persevere in their error.

This is raising the issue of how such a disaster could have been avoided. To a large extent the discussion then focuses on the so-called “Varoufakis’ secret plan” and the possible introduction of a parallel currency in Greece.


Varoufakis’ secret plan

One possible way to avoid this result could have reposed on the famous Varoufakis’ Plan B, a plan subject to a lot of debate since last July. This plan would have involved the creation of a dual monetary circulation system, with the creation of a parallel currency. The intent was in no way to explicitly exit form the Euro (or more precisely form the European Monetary Union). It is to be reminded that Yanis Varoufakis – and this is making a big difference with other radical economists like Costas Lapavitsas – is a staunch defender of the Euro. However such an exit could have been contemplated at any time. At that point, it is interesting to have a look on what Varoufakis said when discussing with OMFIF people[4]: “What we planned to do was the following. There is the website of the tax office, like there is in Britain and everywhere else, where citizens – taxpayers who go to the website – they use their tax file number and they transfer to web banking moneys from the bank account to their tax file number so as to make payments on VAT, on income tax and so on and so forth. We were planning to create, surreptitiously, reserve accounts attached to every tax file number without telling anyone, just to have this system functioning under wraps. At the touch of button that would allow us to give pin numbers to tax file number-holders (tax payers). So take for instance a case where the state owed a million [euros] to some pharmaceutical company for drugs purchased on behalf of the National Health Service, we could immediately create a transfer into that reserve account of the tax file number of the pharmaceutical company, and provide them with a pin number. They could use this as a kind of parallel payment mechanism which to transfer whichever part of those digital moneys they wanted to any tax file number to whom they owed money. Or indeed to use it in order to make tax payments for the state[5] ».

It is obvious that, in Yanis Varoufakis’ mind, the system (called “Plan B”) was intended to alleviate the European Central Bank pressure upon Greece and specifically to solve the liquidity crisis engineered by the ECB through its imposed “capitals control”. Varoufakis then add: “That would have created a parallel banking system while the bank were shut as a result of ECB aggressive action to give us some breathing space[6]. Note then that it was not technically a parallel currency but only a parallel banking system. However, in the next paragraph, Varoufakis admits: “And of course this could be euro-denominated, but at the drop of a hat it could be converted to a new drachma”.

It is very clearly stated then that the development of a parallel payment system was not intended as a step to move out from the EMU but could have become one at short notice. This raise of course the whole issue of parallel currencies and the possible option of a “Grexit”.


Parallel currencies

The very notion of possible parallel currencies has been raised as a tool to solve the issue of Greece remaining in the Eurozone and of managing a possible break with the Eurozone. But parallel currencies have a long history in economics. In historical times bullions emitted by different countries have freely circulated in a given one. The issue came up as a specific one when paper money was introduced[7]. Experiments with parallel currencies were not a plenty in the XXth century. One well known and quite publicized was the so-called “Dated Stamp Scrio”, which circulated concurrently with Canadian dollars, in the Canadian province of Alberta in 1936-1937[8]. This attempt ended up in a failure and most of the paper refused to stay in circulation. But, it is interesting to look at because economic problems in Alberta were mirroring in some ways what is happening in Greece. Alberta has been beset by seven years of distress associated with low farm prices and bad crop yields in the wake of 1929 crisis. Unemployment was pretty high by 1935. The new government elected at Provincial elections was not ready to implement a truly radical reform. It decided then to implement a system of “stamp” to pay for public works done by unemployed people, with e redemption delay of two-years. But, by the end of 1936, it offered the possibility for Albertans to redeem their certificates for Canadian dollars, and most of people chosen to do so[9]. This proofs that confidence in this parallel payment system was quite low. The main reason was that most banks refused to take any part in this system. Irving Fisher has forecasted this development in a book he wrote in 1933 about the stamp scrip system[10]. Actually, we were facing a special kind of the Gresham law. It was no more a case of the “bad money” outstings the good one. Coe himself went so far to write: “Bad money obviously does not drive out good money when the government is willing to redeem the bad money in good money.[11]

Another experiment with parallel currency has taken place in Soviet Russia when the government introduced the Tchervonetz. The monetary reform that took place at the beginning of the NEP is a very interesting one[12]. In 1922 the Soviet government introduced a parallel currency, named “Tchervonetz”, which was not (at first) legal tender but could bee freely traded against the Ruble then the SovZnak. The introduction of the Tchervonetz parallel to the “SovZnak”[13] was an attempt to cure the huge hyperinflation crisis at the end of the Civil War. It worked, but progressively the “SovZnak” disappeared and the Tchervonetz was called just the Ruble[14].

The idea of parallel currency refloated at different times since World War II but essentially as a possible solution either to hyperinflation or to dollarization in emerging economies[15]. The reasons behind the development of parallel currency markets ranges from the sudden influx of worker remittances[16] to the development of drug trafficking[17]. Such a development is frequently blurring the difference between le legal and illegal, and leading to a huge fragmentation of capital circulation[18]. By the way, all known examples are stressing that the development of parallel currency markets is a highly unstable situation.


The case of Greece

The idea of parallel currencies was refloated in the context of the sovereign debt crisis in the Eurozone[19]. Two issues were actually mixed. The first one was how to avoid engaging into painful and not very effective internal devaluation. This is why parallel currencies were mostly proposed to “Southern” Eurozone countries[20]. But a second issue came to front then: could the Euro be transformed into a kind of supplementary currency, to be used only with non-Eurozone countries? Then every country would recover its own currency for internal trade and inter-Zone trade, and would use the Euro only for trading (in goods and financial operation) with non-Eurozone countries.

Actually the first issue has concentrated most of attention. A great number of the authors who are considering parallel currency proposal are actually focusing on a mechanism that will facilitate economic recovery in the crisis-struck countries. Introduction of parallel currencies are seen as able to boost domestic economic activity and to reduce the dependence on imports. It is then expected that, in return, parallel currencies will increase the export performance and competitiveness of these countries[21]. Some authors are also seeing the introduction of parallel currencies as a mean to allow the affected states to reduce the interest rate levels for loans and investments and to systematically increase the amount of money in circulation, both for state debts and in the private sector[22]. Around one third see the parallel currency as a way of setting free non-used capacities[23]. One important opinion is that in view of the extremely differing economic situations in the European member states, parallel currencies might be a tool for economic self-help and a means of boosting economic recovery[24]. But, this implicitly means that for a large number of economists there is no hope for economic recovery under the current Euro system.

Still, the parallel currency idea raises the issue of how and by whom it is to be introduced. One possibility is of course that the parallel currency is being brought into circulation via the usual channels of the two-tier banking system. But this implies that the banking system would either agree with such an idea or could be coerced to implement it. The other possibility being that the State itself would play banker role and act as the issuer. In the great majority of plans we are seeing a process to bring the parallel currency into circulation on the basis of loans. This was the case for Varoufakis’ Plan B and these loans would have been, at least at first, Euro denominated.

It is to be understood that would the State be the issuer, as in proposed IOU in Greece the issue of what role is to play the banking system would still be pending. Actually in Varoufakis’ Plan B, the State would have played the main role because the Greek banking system was disabled by ECB actions. But, such a system is clearly just a stopgap. Its main role is to allow economic agents to work for some weeks, but it would be not quite a sustainable system. As noted above Varoufakis himself was admitting that the result could have been a fast Greek exit from the Eurozone. The main reason is that would a parallel currency system be implemented it would have implied some form of state control upon the Greek banking system. But, this control could not have been implemented without shortcutting the ECB (and this was part of the plan) and depriving it of its power on the Greek banking system. Then the ECB would have, quite probably, reacted by calling Euro circulating in Greece “false money” and cut all transactions (Target-2 accounts) with Greece. The only possible then solution would have to be renaming the currency “drachma” to circumvent ECB action.

For all its alleged interests a parallel currency system is both highly dependent of the banking system and highly unstable, but if it backed by a strong government will to make the “second currency” the first in a given time. This is one lesson we could draw from Alberta. May be the parallel currency could have been implemented in Greece with ECB approval but certainly not against its will. Then, the only advantage of the parallel currency for a country like Greece would have been to allow for an exit from the EMU in quite an orderly way. But this was a point were opinion clashed inside the Syriza government and even Varoufakis was not, at least till end June 2015, ready to face this reality. One of closest Varoufakis collaborators admits to have changed his mind about the so-called “Grexit”[25].


The ongoing debate on Varoufakis’ plan “B”

As the story goes, a parallel currency system was never implemented in Greece. But this was mainly for political reasons and not for economic or technical ones. In a more profound way Alexis Tsipras’ capitulation on July 13th has provoked a deep change in mood and mind about both the Euro and the EU. The idea of a “left exit” or “Lexit” is now open on the table[26].

Yanis Varoufakis, as Minister of Finances, took the decision with the approval of the Prime Minister, Mr. Alexis Tsipras, to have the computer system of the Greek tax administration covertly penetrated. He took this decision about the computer system of the Greek tax administration because the latter was in reality under the control of persons of the « Troika », that is, of the International Monetary Fund, of the European Central Bank and of the European Commission. This was reported to be the famous« plan B »[27]. And this is what he is being reproached for. It is therefore the conservative Prime Minister, M. Samaras, who was beaten in the elections of January 25th, who in reality has committed this act of High Treason in entrusting the tax administration to one (or several) foreign powers. It is he, and he alone, who carry the total responsibility for what happened then.

Varoufakis’ decision aimed at implementing a parallel payment system, which would have allowed the Greek government to circumvent the blocking of the banks, which was organized by the European Central Bank starting at the end of June 2015. This would have been necessary in order to avoid the destruction of the Greek banking system provoked by the action of the European Central Bank. This actually illegal action of the ECB imperiled the whole banking system, when one of its very missions, duly inscribed in the charter of the ECB, was precisely to ensure the good and regular functioning of this banking system.

If Yanis Varoufakis were to be indicted, it would then be logical and just for the President of the ECB, M. Draghi, as well as the President of the Eurogroupe, M. Dijsselbloem, to be indicted too. It is true, as we demonstrated, that this parallel payment system could also have allowed a very rapid shifting from the Euro to the Drachma, and would probably have triggered such a shift, but Varoufakis, according to his statements reported by The Telegraph, considered this only as a very last extremity[28].


An absurd decision

Indicting M. Varoufakis is therefore absurd. The fact that he is now being defended by personalities such as Mohamed El-Erian, the chief economist of Allianz and President of a comity of economic experts around the President of the United States[29] indeed goes to show that what he did, he did for the greater good of the State which he was serving as Minister of Finances. This indictment, should it be confirmed, could only happen with the complicity of Alexis Tsipras who would then have dropped his Minister of Finances and would not be taking on his own responsibilities. This indictment, were it to happen, would be an odious act, an act of pure political justice and of vengeance on the part of the European authorities, against a man who dared, with the support of his people, to defy them.

Whatever the difference we could have with Mr. Varoufakis, and definitely I don’t share his affection for the Euro as it has very deleterious effect on many Eurozone economies[30], whatever the judgment we could form about his own reluctance to implement this alternative course of action, there is nothing in what he has done that could be considered as High Treason. All economists have to stand up and be counted in support of Yanis Varoufakis. Such an indictment would also be very revealing of the neo-colonialist attitude of the European authorities today towards Greece, as well as towards other countries.

But what happened in Greece has also other implications.

Stefano Fassina, former Vice-Minister of Finances of the Italian government, an MP and one of the prominent members of the Italian Democratic Party presently in power, wrote in a text published on the blog of Yanis Varoufakis[31]: « Alexis Tsipras, Syriza and the Greek people have the undeniable historical merit of having ripped away the veil of Europeanist rhetoric and technical objectivity aimed at covering up the dynamics in the Eurozone ». He adds: « We need to admit that in the neo-liberal cage of the euro, the left loses its historical function and is dead as a force committed to the dignity and political relevance of labor and to social citizenship as a vehicle of effective democracy.» He concludes: « For a managed dis-integration of the single currency, we must build a broad alliance of national liberation fronts ». These are strong words.

But, this perspective is at present entirely justified. The Eurozone has indeed revealed itself to be a war machine at the service of an ideology, neo-liberalism, and of vested interests, those of finance and of an oligarchy without borders. The perspective offered by Stefano Fassina is the only one at present open to us, meaning, constituting an “alliance of national liberation fronts” of the countries of the Eurozone to bring the tyrant to bend and to dismantle the Eurozone.


The German responsibility

One often points at the responsibility of Germany. In fact, Germany insists on tying this agreement down to a strict conditionality, when the conditions put to the previous help plans since 2010 have resulted in a 25% drop in GDP and an explosion in unemployment. Similarly, Germany wants to impose on Athens an important pensions-reform, when these same pensions are playing the role of shock absorbers in the crisis, in a country where intergenerational transfers are replacing unemployment benefits, which have become very scant. This will result in impoverishing a little bit more the population and deepening the recession. Finally, Germany wants to impose wide-ranging privatizations. It is clear that the latter would allow German companies, which are far from being choir-children when it comes to Greece (the Greek branch of Siemens being at the heart of an enormous tax scandal) to proceed with its shopping-list at ramshackle prices. One can see that incompetence seems to reach hands with cynicism.

The responsibility of Germany is evident. In fact, the only hope – if Greece were to remain in the Eurozone – would be to annul a large part, between 33% and 50%, of the Greek debt. But the German government wants to hear nothing about this at the very moment when it is becoming known that it has drawn large profits from the Greek crisis, as acknowledged by a German expertise institute[32]. Yet, there is something in the murderous obstination of the German government towards the Greek people that is going far beyond the « rules » of a very conservative management, or of special interests. In fact, the German government wants to punish the Greek people for having brought to power a party of the radical left. In this, there is a clearly political will at work, not an economic one. But the German government also wants to make an example out of Greece, while putting its sight on Italy and France, as noted by the former Minister of finances Yanis Varoufakis[33], in order to show who is the boss in the European Union. And this is most alarming, indeed. It is to be noted that even Romano Prodi, a former Italian PM and European commissioner is actually deeply worried by the turn taken by German policy[34]. But, if Germany is acting in such a way that’s because it has no other choices. For to act differently would be tantamount to accepting what Romano Prodi is implicitly proposing namely a federal organization of the Eurozone. However, this is not possible for Germany. If one doesn’t want the Eurozone to be the straightjacket which it is presently, allying economic depression to austeritarian rules, it would be necessary indeed for the countries of the North of the Eurozone to transfer between 280 and 320 billion Euros per year, over a period of at least ten years, to the countries of Southern Europe. Germany would have to contribute to this sum probably to the tune of at least 80%. This means that it would have to transfer every year 8% to 12% of its GDP, depending on hypotheses and estimations. One must state flatly that this is not possible. All those who burst into the great lamento of federalism in the Eurozone with sobs in their voices or with martial posturing have either not done the sums, or they cannot count very well. One can, and one must criticize the German attitude towards Greece because it amounts to a political vendetta against a legally and legitimately elected government[35]. But to demand from a country that it transfer voluntarily such a proportion of the wealth it produces every year is not realistic.

For a third time in a century, Germany is actually destroying Europe but this time not by design but by incapacity to exert a sensible view of its hegemony.



[1] http://www.lepoint.fr/economie/grece-le-plan-d-aide-ne-marchera-pas-affirme-yanis-varoufakis-12-08-2015-1956351_28.php

[2] Evans-Pritchard A., « European ‘alliance of national liberation fronts’ emerges to avenge Greek defeat », The Telegraph, 29 July 2015, http://www.telegraph.co.uk/finance/economics/11768134/European-allince-of-national-liberation-fronts-emerges-to-avenge-Greek-defeat.html

[3] http://russeurope.hypotheses.org/4148

[4] Telephone conversation of July 16th, 2015, between Yanis Varoufakis and OMFIF senior adviser

[5] Transcript of the phone conversation, page 3, §1.

[6] Idem.

[7] Ögren, A. “Free or central banking? Liquidity and financial deepening in Sweden, 1834–1913.” Explorations in Economic History, vol. 43, 2006, pp. 64-93

[8] Coe V-F, “Dated Stamp Scrip in Alberta”, Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique, 4, 1938 pp 60-91.

[9] http://jpkoning.blogspot.fr/2015/05/alberta-prosperity-certificates-and.html

[10] Fisher, I., Stamp Scrip, 
New York, Adelphi Company, 1933

[11] Coe V-F, “Dated Stamp Scrip in Alberta”, op.cit., p. 88.

[12] Goland, Diskussii ob economicheskoi politike v gody denezhnoi reformy 1921–1924, Moscow, Magistr,

2006 ; See also Goland, Currency Regulations in the NEP period, Europe-Asia studies , vol. 46, no. 8, 1994, p. 1272.

[13] As was called the Ruble after the coming to power of Bolsheviki.

[14] Voznesensky, N.A., “O sovetskih den’gah”, in Bol’chevik, n°2, 1935

[15] Agenor P-R, « Parallel currency markets in developing countries », Essay in International Finance , Princeton University, n°188, December 1992.

[16] Banuri T., « Black Markets, Openness and Central Bank Autonomy », World Institute for Development Economies Research (WIDER), Working Paper n°62, Helsinki, 1989.

[17] Thomas C.Y., « Foreign Currency Black Markets : Lessons from Guyana », University of West Indies, Kingston, Jamaica, 1989.

[18] Lindauer D.L., “Parallel, Fragmented or Black ? Defining Market Structure in Developping Economies », in World Development, n°17, December 1989, pp. 1871-1880.

[19] Andresen, T (2012) What if the Greeks, Portuguese, Irish, Baltics, Spaniards, and Italians did this: high-tech

parallel monetary systems for the underdogs? In: real-world economics review, issue no. 59, March 12th, 2012, pp 105-112. Download: http://www.paecon.net/PAEReview/issue59/Andresen59.pdf

[20] Butler, M (2011) Parallel currencies could boost euro. Comment in Financial Times, 10 Jan 2011.

Accessible at: http://www.ft.com/intl/cms/s/0/fdafbb0e-1cee-11e0-8c86-00144feab49a.html

[21] Vaubel, R (2011) Plan B für Griechenland. Working paper, 19 Oct 2011. Download: http://vaubel.unimannheim.de/publications/plan_b_fuer_griechenland_19_10_11.pdf

[22] Goodhart, C and Tsomocos, D (2010) The Californian Solution for the Club Med. In: Financial Times, January 24th,

  1. Accessible at: http://www.ft.com/cms/s/0/2074e990-0952-11df-ba88-00144feabdc0.htm

[23] Schuster L., Parallel Currencies for the Eurozone, The Veblen Institute, http://www.veblen-institute.org/IMG/pdf/schuster_parallel_currencies_for_the_eurozone_final.pdf

[24] Butler, M (2011) Parallel currencies could boost euro. Comment in Financial Times, 10 Jan 2011.

Accessible at: http://www.ft.com/intl/cms/s/0/fdafbb0e-1cee-11e0-8c86-00144feab49a.html

[25] Daniel Munevar, http://www.socialeurope.eu/2015/07/why-ive-changed-my-mind-about-grexit/

[26] Jones O., « The left must put Britain’s EU withdrawal on the agenda” in The Guardian, July 14th, 2015, http://www.theguardian.com/commentisfree/2015/jul/14/left-reject-eu-greece-eurosceptic

[27] http://russeurope.hypotheses.org/4148

[28] http://www.telegraph.co.uk/finance/economics/11764018/Varoufakis-reveals-cloak-and-dagger-Plan-B-for-Greece-awaits-treason-charges.html

[29] http://www.project-syndicate.org/commentary/varoufakis-agenda-defended-by-mohamed-a–el-erian-2015-07

[30] Bibow, J., “Global Imbalances, Bretton Woods II, and Euroland’s Role in All This.” in J. Bibow et A. Terzi (edits.), Euroland and the World Economy—Global Player or Global Drag? Londres, Palgrave, 2007.

[31] See Fassina S., « For an alliance of national liberation fronts », article published on the blog of Yanis Varoufakis by Stefano Fassina, Member of Parliament (PD), on 27 July 2015, http://yanisvaroufakis.eu/2015/07/27/for-an-alliance-of-national-liberation-fronts-by-stefano-fassina-mp/

[32] « Greek Debt Disaster: Even If Greece Defaults, German Taxpayers Will Come Out Forward, Says German Assume Tank » in Observer, http://www.observerchronicle.com/politics/greek-debt-crisis-even-if-Greece-defauts-German-taxpayers-will-come-out-ahead-says-german-think-tank/58504/

[33] http://www.omfif.org/media/1122791/omfif-telephone-conversation-between-yanis-varoufakis-norman-lamont-and-david-marsh-16-july-2015.pdf

[34] Prodi R., « L’Europa fermi l’inaccettabile blitz tedesco », Il Mesaggero, 8 août 2015, http://www.ilmessaggero.it/PRIMOPIANO/ESTERI/europa_fermi_inaccettabile_blitz_tedesco/notizie/1507018.shtml

[35] As done by Nicole Gohlke and Janine Wissler, two Bundestag MP belonging to Die Linke in Jacobin, https://www.jacobinmag.com/2015/07/germany-greece-austerity-grexit/

Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s'est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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