” Bitcoin is too deflationary by nature to act as a widespread currency alternative to the dollar or the euro, its design can be used profitably in order to help the Eurozone’s member-states create euro-denominated electronic payment systems that help them, at least in the medium term, overcome the asphyxiating deflationary pressures imposed upon them by the Eurozone’s Gold Standard-like (and, indeed, Bitcoin-like) austerian design.”
Almost exactly a year ago, Yanis Varoufakis outlined a proposal that may well be implemented if the negotiations with the EU break down:
“Is there something that the peripheral countries can do to give themselves a chance to breathe better and to act as a bargaining chip that will make Berlin, Frankfurt and Brussels take notice? The answer is yes: They can create their own payment system backed by future taxes and denominated in euros. Moreover, they could use a Bitcoin-like algorithm in order to make the system transparent, efficient and transactions-cost-free. Let’s call this system FT-coin; with FT standing for… Future Taxes.”
Yanis Varoufakis explains the characteristics of the FT-Coin:
The “FT-coin could work as follows:
You pay, say, €1000 to buy 1 FT-coin from a national Treasury’s website (Spain, Italy, Ireland etc. would run their separate FT-coin markets) under a contract that binds the national Treasury: (a) to redeem your FT-coin for €1000 at any time or (b) to accept your FT-coin two years after it was issued as payment that extinguishes, say, €1500 worth of taxes.
Each FT-coin is time stamped i.e. in its code the date of issue is contained and can be used to check that it is not used to extinguish taxes before two years have passed. Every year (after the system has been operating for at least two years) the Treasury issues a new batch of FT-coins to replace the ones that have been extinguished (as taxpayers use them, two years after the system’s inauguration, to pay their taxes) on the understanding that the nominal value of the total number of FT-coins in circulation does not exceed a certain percentage of GDP (e.g. 10% of nominal GDP so that there is no danger that, if all FT-coins are redeemed simultaneously, the government will end up, during that year, with no taxes).
Once in possession of an FT-coin, you can either keep it in your FT-coin e’wallet or you can trade it. To make sure that the system is fully transparent and that transactions are completely free, FT-coin could be run by a Bitcoin-like algorithm designed and supervised by an independent non-governmental national authority. Just as in the case of Bitcoin, the total amount of FT-coins can be fixed in advance, at least in relation to a variable not in the government’s control (i.e. nominalGDP), while every single transaction (including the tax extinction using FT-coins) is monitored fully by the community of FT-coin users on the basis of the blockchain pioneered by the infamous Mr Nakamoto.
As an FT-coin is about to ‘mature’ (i.e. to reach two years of ‘age’), the demand for it will obviously rise from those that do not possess FT-coins of that vintage (as it allows for a major reduction in their current taxes). FT-coin owners with equivalent tax liabilities will have no reason to sell (as they will want to use it themselves to extinguish their own taxes) but those who have ‘stocked up’ on FT-coins (to a tune beyond what they need to pay their taxes), as an alternative to putting their money in the bank or in the stock exchange, will be selling; possibly with a view to buying freshly minted FT-coins.
The great advantage of such a scheme is that it creates:
* a source of liquidity for the governments that is outside the bond markets, which does not involve the banks and which lies outside any of the restrictions imposed by Brussels or the various troikas
* a national supply of euros that is perfectly legal in the context of the European Union’s Treaties, and which can be used to increase benefits to society’s weakest members or, indeed, as seed funding for some desperately needed public works
* a mechanism that allows taxpayers to reduce their inter-temporal tax bill
* a free and fully transparent payment system outside the banking system, that is monitored jointly by every citizen (and non-citizen) who participates in it.
While the Eurozone’s most stressed governments get much needed degrees of fiscal freedom, taxpayers are offered an opportunity to reduce significantly their long-term tax burden and to make electronic payments in euros that bypass banks altogether. At a time of ultra low interest rates, large tax bills and high bank fees, these are benefits not to be scoffed at. Moreover, a liquid new market for FT-coins is created, with zero transaction costs, and good prospects for gains for those who participate in it, on the back of the underlying tax savings and the state guarantee of convertibility at par.”