Alternative Currencies Rise as the Eurozone Crisis Worsens

The advantages of non-political innovations and cryptocurrencies

For weeks commentators have been discussing the possibility of Greece leaving the eurozone and how a return to the drachma might be facilitated. But when it comes to currency, the drachma is not Greece's only option. If Greece does exit the eurozone an alternative currency could emerge or an already existing one could be adopted. In some parts of Greece social entrepreneurship, technology, and skepticism of politicians have already given rise to alternate trading mechanisms and created an environment where cyrptocurrencies could become increasingly popular.  

As the euro crisis worsened many Greeks began hoarding euros, and more recently there have been small runs on banks. Spending on goods has gone down and prices have been rising. In the Greek city of Volos social entrepreneurship has resulted in a modest but inspiring solution to this trend. One Volos resident started TEM, an online bartering system that allows residents to purchase groceries and other goods in exchange for services while keeping their euros to pay the rent.

With a Greek exit form the eurozone a very real possibility such examples of social entrepreneurship may well become more and more common as the crisis deepens.

Greeks have contradictory opinions on the euro. While the overwhelming majority of Greeks want to stay in the eurozone, a majority of the Greek public is also strongly against the austerity measures required in the bailout agreement. George Zarkadakis, a Greek novelist, journalist, and entrepreneur, explained the political paralysis in Greece to Reason. “The Greek idiocy was that nobody wants to reform," he says. "Greece is a state-controlled economy, the Greek political class wants to rescue their civil service and nothing has been done in the past two years.”

The euro crisis provides an example of the kinds of situations where competitive currencies might prove useful. Modern technology has only made the development of these "currencies" easier and in many ways more desirable. Safe from the level of regulation suffered by government-issued money, cryptocurrencies are more flexible and convenient for purchases and sales.

The most prominent of these cryptocurrencies is bitcoin. Bitcoin frees those who use it from political uncertainty, fiat policies, and is less affected by international money markets than traditional currencies. Isolated from the political environment in Europe, bitcoin offers Europeans a viable alternative to the euro and to a return to traditional currencies. There have been reports of more Europeans using bitcoin as their confidence in political solutions diminishes.

(Article continues below video "Bitcoin and the End of State-Controlled Money.")

Both TEM and bitcoin offer some welcome relief from the current situation in Europe. There is no government interference (yet) and transactions are free.

This is not to say that there are not concerns over bitcoin. George Selgin, professor of economics at the Terry College of Business at the University of Georgia, points out that bitcoin breaks the dichotomy of fiat vs. commodity money proposed by the pioneering Austrian economist Carl Menger. Selgin calls bitcoin a “quasi-commodity system” and argues that it is not money. Bitcoin is not widely used for transactions, and according to Selgin the euro crisis is not serious enough for bitcoin (or something similar) to spontaneously emerge with any degree of influence. Even in the Weimar Republic Germans resorted to using already existing currencies like the British Pound rather than creating a new currency. For Selgin the unorthodox status of bitcoin, the lack of historical precedent, and its mono-linguistic culture makes a mainstream bitcoin emergence in Europe unlikely.

Jerry Brito, senior researcher at the Mercatus Center, agrees that bitcoin is not a viable rescue tool for Europeans, but he does see bitcoin as money. According to Brito, one of the main advantages of bitcoin is its power to overcome regulations. There is no central bank or regulator with bitcoin, and it will exist as long as the Internet is around. It is open source and peer-to-peer. While bitcoin might not take off en-mass in Europe, Brito notes, some German and Greek companies are already using it, and there is no reason to think others will not begin to do so as well.

Greece will almost certainly leave the euro. How ordinary Greeks react will define their economic livelihood for decades to come. The use of TEM in Greece and the rising appeal of cryptocurrencies are some indication of the non-political solutions some Europeans have in mind. While cryptocurrencies have not yet been widely adopted, the euro crisis provides an ideal environment for them to flourish. With governments inflicting a huge amount of damage, currencies without central control look increasingly attractive. 

At the moment it is hard to see what silver lining there might be in the current situation in Europe. While politicians are typically pushing for closer fiscal union, social entrepreneurship and peer-to-peer innovation and cooperation are producing safer and revolutionary solutions.

 Matthew Feeney is assistant editor of 24/7 News at Reason.com.

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  • Restoras||

    At the moment it is hard to see what silver lining...

    I see what you did there...

  • Gladstone||

    I thought the worst is that it could cause King Barack to lose?

  • ||

    As soon as governments figure out it is hard to tax Bitcoins and there is money to actually tax there is when Bitcoin dies.

  • R C Dean||

    The whole point of exiting the Euro is for the Greek government to get its very own fiat currency to debase in order to rip off its bondholders.

    So, no, there won't be any alternative currency adopted there. It will be the drachma.

  • ||

    The whole point of exiting the Euro is for the Greek government to get its very own fiat currency to debase in order to rip off its bondholders.

    You are confusing government actions and hope with individual actions and hope.

    People have money and if they perceive that their money is more safe as Bitcoins or some other currency they will convert their money, regardless of what the government does and wants.

  • DJK||

    This is adorable. You think the Greek government will allow Bitcoins to prosper in the country? I'm sure the goldbugs thought they were safe until FDR signed Executive Order 6102.

  • Juice||

    What can they do about it?

  • Paul.||

    Demand that bitCoin hand over all records of all participants, then force those participants to pay a tax (in real dollars/Euros/Drachmas) or simply create a law saying any business that knowingly takes bitCoin will be shut down or fined or both.

  • Malvolio||

    Demand? Demand of whom? There's no "BitCoins Corporation"

    Demand what? There are no records of who has which bitcoin.

    That's the whole point.

  • ||

    You think the Greek government will allow Bitcoins to prosper in the country?

    Read my above comment the third down from the top.

    So to answer your question; Yes in the short and mid term individuals could get away with it. In the long term if Bitcoins does take off yes i agree as i stated above:

    As soon as governments figure out it is hard to tax Bitcoins and there is money to actually tax there is when Bitcoin dies.

  • DJK||

    It may be viable in the short or medium term. Definitely not in the long term. However, one shouldn't forget that one of any currency's primary functions is to act as a store of value. In order to do so, it needs to be stable. I would hardly consider any currency that could be made illegal to trade at any instant by government mandate to be stable. As such, Bitcoins are not a very good store of value. And definitely not a very good currency.

  • ||

    ...so no currency is a good store of value since ANY currency could be declared illegal to trade.

    Fuck, the US government could institute a NEW Dollar, and declare today's dollar the illegal OLD dollar, and mandate that only NEW dollars be used in trade and all old dollars must be turned over and converted to NEW dollars.

  • DJK||

    Meh. The US government has a fairly great incentive to maintain their backing of the dollar and not to declare it illegal. I see no such incentive with Bitcoins.

    Face it, people. Bitcoin is a Fed-hating libertarian's wet dream. In the end, all it will do is leave a mess on your (balance) sheets.

  • Paul.||

    I wonder (just a thought exercise) what it would be like if they just issued gold as currency. Or made it gold-backed.

  • Juice||

    Worse.

  • ||

  • ||

    Also kidding aside....can't you already buy and sell gold?

    How would a private gold backed or gold minted currency be any different then simply buying and selling gold which anyone can do right now?

  • Paul.||

    How would a private gold backed or gold minted currency be any different then simply buying and selling gold which anyone can do right now?

    It wouldn't be. But since it's not in readily tradable form (coins of predetermined weight) it's a logistical problem. How many pairs of pants can you buy with that ounce of gold? What about next week?

    I'm no expert on the matter. But to answer your question, aside from the logistical issues I just mentioned... the answer should be "none".

  • James Anderson Merritt||

    The point of any minting of coins is to create items that are physically convenient, of standard weight and purity, and stamped to provide that information along with the "brand" of the entity that vouches for it. If people had ubiquitously available "assay machines," which could verify purity and weight of precious metals, as well as divide larger masses into smaller ones, we really wouldn't need "coins" at all. But as a solution to a real-world problem of value exchange, coins -- whether produced by governments or private mints -- have always done pretty well.

  • Paul.||

    Read it. Not a bad book.

  • NotSure||

    The one silver lining could be that the eurocrats are put to the sword, other than that the current situation is grim indeed.

  • ||

    The Euro collapse is the slowest fucking collapse ever.

    How long have we been reading about this? 2 years? 3?

    I am beginning to think that this whole thing is inevitable yet pretty orderly...and all we have been hearing for the past couple of years is the shrill scream of statists coming to grips with the facts that their statist utopias just don't fucking pay for themselves.

  • James Anderson Merritt||

    It does seem a lot like the slow-speed White Bronco chase, doesn't it?

  • Malvolio||

    The collapse may happen, as Hemingway wrote, gradually then suddenly.

  • James Anderson Merritt||

    1. It is tantalizing, to think of Bitcoin perhaps being adopted as de facto national currency by Eurozone refugee countries, echoing what happened in the American colonies, who informally settled on the severable, Spanish silver Dollar when home-grown currencies crashed, bequeathing us the expressions "pieces of eight" and (no pun intended) "two-bits."

    2. Speaking of alternative currencies, how is Ron Paul's "Competition in Currency Act" doing in Congress, these days?

  • Stephdumas||

    For question #2, I wondered that too, maybe the "Liberty Dollar" might return and they might have other alternate currencies coming listed at http://www.opencurrency.com/directory/currencies/ with the John Galt, Lakota bank, etc....

  • ||

    Liberty Services' original name was "National Organization for the Repeal of the Federal Reserve and the Internal Revenue Code" (NORFED). Since its founding, the organization asserted that the Federal Reserve was unconstitutional and harmful. The company is now in a series of legal battles both defending their exchange service and challenging exclusivity assertions made by the US Mint (see Legal issues).

    I wonder if the liberty dollar's fate would not have been so bad if they had just mellowed out on the rhetoric.

    How about instead of being "the nail in the coffin of the Fed" you sold the idea as "a competitive alternative that will strengthen America's economy."

    I don't know. Results would have probably been the same but no guarantee and at least they could have gotten a bit more sympathy from a jury.

  • ||

    I want a Texas republic silver coin.

  • BMFPitt||

    There have been reports of more Europeans using bitcoin as their confidence in political solutions diminishes.

    [Citation please]

  • ||

    "While the overwhelming majority of Greeks want to stay in the eurozone, a majority of the Greek public is also strongly against the austerity measures required in the bailout agreement. "

    Hmmm. They want to stay in so that the germans will pay their bills, but they dont want to quit spending more than they earn. I am sure it will all work out well in the end.

  • Roger_Murdock||

    Excellent primer on bitcoin from a libertarian perspective: http://evoorhees.blogspot.com/.....ction.html
    I liked this quote:

    Instead of trying to change governments with a useless vote, or pathetic pleading, we merely abandon the government's powerbase - the power derived from control of exchange and currency.
  • Libertarius||

    5000 years of human civilization have demonstrated (time and time again) that gold has no competition. Gold always wins.

    Aristotle defined the four criteria of money 2400 years ago, and every nation which has deviated from his criteria have been destroyed by hyperinflation and collapse.

    Fiat money is a political tool which is used first to buy votes, and then as a noose with which the voting public hang themselves.

  • C.D. Lake||

    Agreed. The worst part is most people don't realize the national security implications of fiat money. Lately I've really taken to the phrase "financial warfare." The Chinese are in a great position to wage financial warefare against the U.S. due to the Fed's automatic response of printing more money everytime we hit a bump in the road. Good book on the subject that paints a pretty clear picture of how it all plays out. The Chinese Banker. Found it on amazon.

  • jason||

    The European crises are on the highs and currencies problems are rising in the entire area, now we all have to say where the solution come from.

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