The Parallel Punt

Sep 17, 2011 7 Comments by

For the layman, getting past our ‘one currency fits all’ model can be a challenge. Money is so firmly embedded in our daily lives that we give as much thought to money-itself (as opposed to the lack of it) as we do to the air that we breathe.

Pointing out that there are other well established currencies (like Airmiles, Tesco points, timebank hours, Brixton pound) helps a bit, but these operate in niches. The Swiss WIR experience is not widely known or talked about. Even the terminology is instructive – there are ‘alternative’ currencies (read this as ‘wacky’) and complementary currencies (read as ‘non-threatening: we’ll just work away; you wont even notice we’re here’).

For the sort of serious currency suggestions being explored by Feasta and others, I prefer the term Designer Currencies. They are ‘designed’ for a specific purpose.

Here we are up against the idea that money is ‘value-free’ – that it is a neutral entity that just facilitates exchange. But the current debt crisis gives a lie to this. National (and international) fiat currencies are closely linked to debt because money is created in the form of debt. That debt requires interest to be paid, and the exponential growth of this compounded interest means there must be growth in economies or it cannot be repaid.

Early sessions at the Feasta Autumn Conference will explore Ireland’s strategies for dealing with the current convergent crises, but the Friday afternoon session will concentrate on the potential for a Parallel Punt – a separate national Irish currency working alongside the euro.

The existing national strategy has been described (perhaps unkindly) as ‘relying on the kindness of strangers’. The political attraction of the Parallel Punt addresses this perception – of a national government sitting on its hands waiting like children for arcane Eurozone conversations in darkened rooms to produce economic rabbits out of the hat. It would be taking action, but action to do what?

The principle objective of such a currency is to increase national liquidity in the teeth of the austerity measures that are underway and which are set to continue. Euros in Irish accounts would be converted to Punts on a 1:1 basis, as would existing loans from Irish institutions. The government would ask the Central Bank to manage the exchange ratio within set bounds. The Punt would be the accepted currency for intra-Ireland exchange. Direct taxes however would still be payable in euros, and the euro would still be accepted for international exchange. The government would then have some choices – for example it could issue Punts as a non-debt currency by spending them into circulation on strategic projects (e.g. infrastructure, green technology) or it could embark on a ‘traditional’ quantitative easing programme in Punts via the banks.

The approach appears to offer the national government a way of taking some independent proactive responsibility for its own economic future without showing a loss of solidarity with its Eurozone partners. A Designer Currency for National Liquidity. But maybe that’s too simplistic. Friday’s session should shed some light.

More about the conference
Conference programme

Graham Barnes
Senior Policy Advisor, Feasta
Managing Partner, Feasta Sustainability Consulting LLP

http://www.linkedin.com/in/grahamjbarnes

gb@feasta.org

http://www.feasta.org

00 44 1747 821480 (UK)
00 44 7768 291125 (mobile)
00 353 1 657 1909 (Ireland)

Disclaimer: Feasta is a forum for exchanging ideas. By posting on its site Feasta agrees that the ideas expressed by authors are worthy of consideration. However, there is no one 'Feasta line'. The views of the article do not necessarily represent the views of all Feasta members.

Commentary

About the author

Graham Barnes is a Currency Designer. @GrahamJBarnes He is a Member of Feasta's Co-Ordination Group and co-organiser of the Feasta Currency Group. He holds a PhD in Computer Science and worked at a senior level in IT and online marketing in a previous life. His current projects include the detailed design and delivery of currencies to be sponsored by a local authority; by a social entrepreneur to complement and enhance a well established sustainability methodology; and by a restaurant chain.

Feasta is an open, membership-based organisation. If you're interested in supporting our work please consider joining Feasta or making a donation.

7 Responses to “The Parallel Punt”

  1. Caroline Whyte says:

    It seems sensible to try to get beyond the ‘one currency fits all’ model. However, I’m puzzled by a few of the ideas in this article. How would people be able to pay taxes in Euros if all their money had been converted into punts? If the government is allowed to issue new punts whenever that seems necessary, wouldn’t that undercut the central bank’s mandate to preserve the currency’s value ‘within set bounds’? Also, if the punt was available in cash form, mightn’t it be vulnerable to the same kind of black-market shenanigans as happen with the Cuban peso?

  2. Tommy Burke says:

    Pure nonsense! Wouldn’t be at all surprised if there was a UK influence here….quantitative easing! Does the writer understand the concept of printing money? A few years ago this was called taking out a large mortgage and look where that got the country. Printing money has serious long term consequences. De-basing any currency undermines its long term credibility as a store of wealth. Hyper inflation is not too far down the road, followed by greater social unrest as the price of staple items (food) soar in price. After our recent experience of showing the world how not to manage your money, does anyone really believe that a Parallel Punt would be taken seriously by international markets….come on.

  3. Graham Barnes says:

    Tommy – if we are too dismissive about new ideas we may miss a trick or two. Hopefully you’ll be at the conference on Friday to hear Charles Goodhart speak but if you’re not theres a full article at http://www.ft.com/cms/s/0/5ef30d32-0925-11df-ba88-00144feabdc0.html

    The effective devaluation route chosen by the UK isnt open to Ireland, and while the Irish population seem quite passive about accepting the debts of others, the squeeze is only just beginning.

    A parallel currency attempts to separate the internal national economy from the external trading of the country, allowing some degree of revaluation of the internal currency while still honouring external debts.

    The dangers of inflation are of course there, but arguably the country needs more liquidity more than a completely stable store of value.

    Caroline – people would be able to buy euros to pay their taxes or take abroad at the rate set by the Central Bank. The government would only be able to spend a limited amount of punts into circulation without making it impossible for its target euro-punt exchange rate to be maintained. The government would set the target exchange rate and ask the Central Bank to operate it. It is obviously a question for government to decide how much the effective devaluation should be.

    Both – this is just one of the scenarios to be explored at the conference.

  4. gillies says:

    look, i was in romania. they have a currency and the first thing you do in the country is go into the bank and exchange your euros for some. but offer a taxi driver euros and he will be delighted. so in practical terms there are two currencies in circulation. it’s like newry.

    don’t ever sneer at the black market. every single person in the black market does something useful. there are no useless passengers. black market earnings find their way into the regular economy and pay their v a t at some point. it is the governments, not the black marketeers, that are parasitical.

    interest repayments do not require eternal growth. in a true capitalist environment a proportion of people / businesses / banks go bust making new opportunities for expansion on the part of the survivors. the crash is an essential part of the system. wealth creation is balanced by wealth destruction. we live in a finite world. exponential growth plus crashes is the natural rhythm. silly to go against it. if interest is unpayable, don’t worry. debts can be repayed at par while asset prices gently deflate, as they often have done over decades at a time.

    also – lots of nonsense is talked on the assumption that printing money and creating new credit are the same thing.

    printing money is a physical act. creating or seeking credit and circulating printed money or coinage are acts that are based upon trust and confidence. thus merely printing money does not cause inflation. physical money, like gold bars buried in the garden, lacks momentum. put all your blood into a blood bank – it lives. you die. circulation is all.

    people have been saying for years that the dollar will crash. maybe so. maybe not. i think that it is credit (trust, confidence) that will crash. and if credit gives way to cash-on-delivery, currency of many kinds will harden, not soften.
    diesel could halve in price, if credit vanishes altogether.

    my garage says people are going cash-on-delivery already. that is bad news for people who have fallen for the delusion that all wealth is based upon acquiring debt.

    wait and see what the ‘cash only’ price of property is . . . when people go back to saving and property prices go back to gently contracting.

  5. Sean says:

    Great idea. The WIR system is one of the secrets of Switzerlands economic stability. Interestingly, the Swiss are considering issuing another gold backed currency.
    Given the current precarious nature of the Euro this may be a great asset to our economy and could aid to counter inflation which seems increasingly likely.

  6. Antoin O Lachtnan says:

    It would be a lot more straightforward for the government to pay its salary and trade creditors in Irish two-year bonds. The value of the bonds would be in proportion to the strength of the economy and could be devalued. The bondholders would effectively be lending to the government (rather than lending to the ECB as they would be doing if they held euros).

    You cannot pay for infrastructure projects in soft currency, at least not as soft a currency as you are proposing. These projects require technology and energy inputs, which require purchases from abroad.

    The Central Bank cannot ‘manage the exchange ratio within set bounds’. The market sets the exchange ratio, not the bank. If you try to do this, all you will end up with is ERM-style speculation against the currency.

  7. Graham Barnes says:

    Antoin : Your idea is another form of borrowing and we are anxious for the govt. to spend a form of money which it can create and which it doesn’t have to repay.

    The primary driver of a parallel currency is to increase liquidity, so using the PP for large scale capital projects isn’t a fundamental for the PP. The government could use a mix of currencies as appropriate and would have to use euros for imported technology and energy as you suggest.

    Its not the same as the ERM situation because the PP is not the only national currency in use. Speculation is an issue for any currency. Just as the PP is not a vehicle for capital investments, it shouldn’t be designed to be easy to speculate on. Volatility in exchange rates due to speculation can undermine its primary purpose of increasing liquidity. Exactly what measures could be put in place to mitigate the negative effects of speculation is open to discussion, but a ‘designer currency’ has to be properly… designed.

    The exchange rate between the euro and the PP could be controlled. If the govt. put a lot of PP into circulation, the level of activity in the economy would rise, increasing the demand for euros but also increasing tax collections and reducing the deficit. If there was demand for euros from holders of PP, the govt would simply issue less and could withdraw some from circulation.

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