In Joseph Stiglitz's recent article for the POLITICO Global Policy Lab (“How to Exit the Eurozone,” June 29, 2018), the Nobel-prize wining economist proposes that Italy issue a parallel currency as a way to retake control of its monetary policy.
It's an insightful idea, and one worth exploring. However, Stiglitz is wrong when he suggests that “introducing a parallel currency, even informally, would almost certainly violate the eurozone's rules and certainly be against its spirit.”
Our organization — the Group of Fiscal Money — has been very active in developing and promoting such a dual-currency scheme. We call it “Fiscal Money” and believe it could be used to avoid the uncertainties of exiting the euro while allowing Italy to recover economically without breaking any EU rule.
Our proposal is for government to issue transferable and negotiable bonds, which bearers can use for tax rebates two years after issuance. Such bonds would carry immediate value, since they would incorporate sure claims to future fiscal savings. They could be immediately exchanged against euros in the financial market or used (in parallel to the euro) to purchase goods and services.
Fiscal Money would be allocated, free of charge, to supplement employees' income, to fund public investments and social spending programs, and to reduce enterprises' tax on labor. These allocations would increase domestic demand and (by mimicking an exchange-rate devaluation) improve enterprise competitiveness through a reduction in the cost of labor. As a result, Italy's output gap — that is, the difference between potential and actual GDP — would close without affecting the country's external balance.
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