Argentina and Greece: Parallel paths
To digress into the world of macroeconomics there are two interesting currency “works in progress” at the moment, and these are Argentina and Greece. I won’t give a long disquisition here but… the British Foreign Office has now warned holidaymakers to take a lot of cash in euros, enough for several days, on their summer trips. The clear message here is that Grexit may be imminent and when it comes a total paralysis of the Greek banking system might ensue with ATM cards AND credit card transactions ceasing to function. Speculation has also included rumours that in such a situation the state might start issuing IOUs which would become the “new drachma” and a medium of exchange.
All this reminds us of the pseudo-currency BoCones (Bonos de consolidacion) that became a widespread means of exchange in the wake of the 2001 meltdown. The government of the largest province (Buenos Aires) paid its suppliers with these who then used them to pay their own taxes and utility bills and around and around they went with civil servants using them to pay their bills and eventually becoming a parallel currency in the whole community. This was Gresham’s Law at work where bad money pushes out good. Frankly Greece adopting something like this would be the “soft” way of breaking in a new currency. After all, Greece and Argentina have followed parallel paths since the start of the 19th century with defaults and devaluations being meat and drink to the both of them.
That brings us to the current state of things in Argentina. Curiously BoCones are not the pseudo-currency of choice any more, Bitcoins are. Yes, apparently Bitcoins are becoming a favored means of exchange. We suppose it’s the spread of the internet and the fact that no provincial government would dare fly in the face of Cristina F. de K in issuing BoCoes-like instruments again. Things are also different in that it’s not exactly an internal meltdown going on and inflation is steadily rising but not soaring. Now it is primarily foreign exchange restrictions and the heavy burden of taxes and levies that are driving the desire to transact certain barter-like transactions in the latest fiat pseudo-currency.
Little does the man in the street in Argentina realise that Bitcoins are having their own swoon at the moment. So it could be out of the frying pan into the fire. However, one might speculate that if Greece goes over the edge then Bitcoins might have to duke it out with “new drachmas” printed on toilet paper for the affections of the Greek public (and the visiting tourists) over the summer season.
To paraphrase Gresham, let the worst currency win!