By Bernard Lunn
I wonder what Yannis Varoufakis is working now that he is no longer playing high stakes poker with Greece’s creditors.
Maybe he is figuring out how to turn his Bitcoin April Fools prank into reality.
This post goes beyond the fun science fiction speculation to look at some practical issues. This could also apply to any country with a failing currency (e.g Argentina) or any other country that wants to secede and therefore needs a currency (such as Scotland).
Greece has 4 currency options:
- Hybrid of 2 & 3. Lets call this the BitDrachma for now.
The first hurdle is political.
If you don’t like the “won’t inflate” inflation hawks at the ECB, you will really hate the mathematics of “cannot inflate” Bitcoin with maximum 21 million Bitcoin.
The ECB, under pressure, is inflating a bit. Bitcoin cannot inflate.
The ECB nightmare is the Hyperinflation in Weimar era Germany. The US Federal Reserve has the opposite nightmare – the Deflation of the Great Depression.
The US remedy was printing money and as the US$ is still the Reserve Currency, the rest of the world has to follow albeit more slowly and cautiously.
Most readers of Daily Fintech will gravitate towards Bitcoin and the view that deflation is less of a concern than inflation. A bit of deflation is good – savers are rewarded and consumers get lower prices. However the nightmare of serious deflation is real. This is what happened in the Great Depression. A farmer with food to sell cannot sell it because the potential customers (who really need food) delay buying because they think it will be cheaper tomorrow. Business stops, jobs go. This deflation nightmare is as bad as hyperinflation.
More practically, no politician will choose an option that takes away their options and their power. Turkeys do not vote for Thanksgiving.
So, Option # 2, pure Bitcoin, won’t come from the top. It might come from the people via emergent behavior, but that is more likely to happen in Argentina and I do not think that is likely in Argentina in the near term.
The big prize for Greece is to become the country where Bitcoin and Blockchain technology goes mainstream. That will be a huge boost to the economy – replacing dependency on tourism and agriculture.
So simply getting control of the printing presses and rooting around in the cellars for the old Drachma designs is not enough.
The real prize is being able to advertise Greece as the country where you:
“Leave your credit cards behind and never have to find an ATM”.
Here is how that could work:
- Visitors to Greece 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. Of course, you would still bring your credit cards as backup, but maybe you leave them in the hotel safe. When heading out of the hotel/villa you bring your phone or watch or whatever device you use to communicate with digital networks. A cheap Android powered smart watch that is waterproof would be perfect for beach holidays.
- Shops, restaurants, bars, coffee shops are told that they have to accept Bitcoin and BitDrachma. This has to be mandated to get quickly to mainstream. It is 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 is a 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 is normal and maybe restricted to locals. Visitors would prefer to use Bitcoin as they can refresh their wallet with more Bitcoin wherever there is Wifi. As Wifi is far more ubiquitous than ATM in Greece, 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.
- You can pay with Bitcoin or with the Greek version of Bitcoin (BitDrachma) and there is automatic free conversion between the two. If Bitcoin goes mainstream globally, people will use Bitcoin. If not, they will use the Greek version of Bitcoin when they go to Greece.
- When they return home, they can buy the souvenirs from the places they visited online – that local Olive Oil from the farm you visited makes a perfect gift. Merchants you had visited in Greece are automatically enrolled in your loyalty card scheme.
Greece 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 Greece as the world’s first mass market Bitcoin economy. Flights from San Francisco, New York, London 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.
Turning that dream into reality will need new Bitcoin enabled EPoS terminals installed by Merchant Services Providers. These could come from the traditional EPoS terminal vendors who will be upgrading their merchants for the October 2015 end of the swipe and sign credit card in America.
Those EPoS terminals could still process legacy credit and debit transactions. The mandate would be on the merchant to accept Bitcoin and BitDrachma; the consumer could choose.
Legally, Greece could stay in the Euro and do this. This is the parallel currency model that conservative Switzerland has thanks to the WIR. Conceptually, the BitDrachma would be a nationally accepted local currency. Or Greece could leave the Euro.
Turning Greece into the first mass market experiment in Bitcoin is independent from the high stakes negotiation between Greece and its creditors.
Daily Fintech Advisers (the commercial arm of this open source research site) can help implement strategies written about here. Contact us to start a conversation.