As mentioned here many times for a long time, a “currency A” and “currency B” situation could be coming. This would likely be the best hedge in keeping Greece from going 110% Communist and allowing Russia to further creep into Europe, up from 100% when the Alexis Tsipras government took hold of the country. This will also keep the EU, at least for the short-term, from imploding.
As we first reported yesterday, one of the proposed measures to be implemented in Greece just before, or during its default and/or exit from the Eurozone, in addition to pervasive capital controls of course, is the implementation of a parallel “currency”, or as explained yesterday, a government paying its citizens with IOUs.
This is what we said less than 24 hours ago:
Assuming that a deal is not reached next week, there are a couple of routes that the Greek Government might take to avert disaster in the short term. First, it could issue IOUs to pay public sector workers and pensioners and free up money to repay its debts. But this could cause economic chaos if fears that the IOUs would never be paid sparked riots or public sector employees simply refused to work.
Even if Greek people accepted IOUs, they could only function for a very short period. Before long, those receiving incomes in IOUs could only afford to pay their taxes through the same medium. And given that the Government’s international creditors would not accept IOUs as repayment, this would still lead to a debt default. Effectively, the IOUs would become a parallel currency whose value was deemed lower than that of a normal euro. This would be akin to a euro-zone exit.
Today, to our dismay, we find that the ECB has not only considered a “parallel currency” alternative but for Greece this may be a reality before long. According to Reuters, the ECB “has analyzed a scenario in which Greece runs out of money and starts paying civil servants with IOUs, creating a virtual second currency within the euro bloc, people with knowledge of the exercise told Reuters.”
“The fact is we are not seeing any progress… So we have to look at these scenarios,” said one person with knowledge of the matter.
Not surprisingly, “experts at the ECB have concluded that using IOUs to pay public sector wages would probably fail to avert a full-blown crisis and could even threaten Greece’s future in the 19-country euro zone.”
Back to the ECB and its calculations:
Those officials believe that up to 30 percent of Greeks would end up receiving such government IOUs rather than payment in euros, which would only put further pressure on Greek banks because those workers were likely then to plunder their savings.
“With a parallel currency … you are getting to something so tailored that you are almost in Grexit,” said a second person. “It is something that is outside the institutional set-up.“
Full article: The ECB Is Considering A Parallel Greek Currency (Zero Hedge)