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Will Greek Finance Minister Varoufakis Support a New Fedcoin or Eurocoin?

Op-ed - Will Greek Finance Minister Varoufakis Support a New Fedcoin or Eurocoin?

Commentary by Giulio Prisco

One of the first actions of Greek PM Alexis Tsipras, after the January 25 elections that brought the “anti-establishment” party Syriza to power, was to appoint renowned economist Yanis Varoufakis as Finance Minister. Since the elections, the European media has been full of reports about the financial situation in Greece, and the efforts of Tsipras and Varoufakis to renegotiate the Greek debt with European Union (EU) authorities. Rumors of a possible “Grexit,” the exit of Greece from the EU, keep surfacing.

Syriza – officially known as “Coalition of the Radical Left” – is usually considered a political force of the left, as its formal name implies. However, Tsipras formed an “anti-austerity” government coalition with the Independent Greeks of Panos Kammenos, a political party very much on the right. Actually, categorizing Syriza as either right or left would be inappropriate – the party is a political movement unique to the 21stcentury, beyond the old categories of right and left, with a radical and unconventional approach to contemporary political issues.

Varoufakis , the new Greek Finance Minister, is no stranger to radical and unconventional thinking. In 2012, he became Economist-in-Residence at Valve Corporation, creators of the popular video games Half-Life, Portal and Counter-Strike. At Valve, Varoufakis researched in-game digital economies and maintained the Valve Economics blog. He praised the very informal management structure at Valve with words that one wouldn’t expect from a politician of the left.

“Now read my political economy analysis of Valve’s management model,” he wrote. “One in which there are no bosses, no delegation, no commands, no attempt by anyone to tell someone what to do. Can useful lessons be drawn about not only Valve’s inner workings but, importantly, regarding the future of the corporate world?

“I realized that this bunch of people were not just weird but also wonderful and, to boot, that what they were describing, the digital community they had facilitated into existence, was an economist’s dream-come-true,” Varoufakiswrote in an account of his first contact with Valve. “Think of it: an economy where every action leaves a digital trail, every transaction is recorded.”

In the Bitcoin block chain, every action leaves a digital trail and every transaction is recorded, so here Varoufakis is describing something very similar to Bitcoin as an economist’s dream come true. It’s therefore interesting to learn what he thinks about Bitcoin, and whether he sees something like Bitcoin – or, more likely, a state-controlled “Fedcoin” – playing a role in the (necessarily creative) rescue of the Greek economy.

“It is quite natural that many dream of a currency that politicians, bankers and central bankers cannot manipulate; a currency of the people by the people for the people,” Varoufakis wrote in 2013. [But] there can be no de-politicized currency capable of ‘powering’ an advanced, industrial society.”

According to Varoufakis, Bitcoin is intrinsically deflationary and essentially a digital equivalent of gold, which can’t provide solid foundational support for a modern economy. He added:

“Would it be possible to calibrate the long-term supply of bitcoin in such a way as to ameliorate for the deflationary effects described above, while tilting the balance from speculative to transactions demand for bitcoin? To do so we would need a Bitcoin Central Bank.”

We are definitely in Fedcoin territory here. In a 2014 follow-up article titled “Bitcoin: A flawed currency blueprint with a potentially useful application for the Eurozone,” Varoufakis keeps endorsing Fedcoin, or perhaps “Eurocoin.”

“[T]he technology of Bitcoin, if suitably adapted, can be employed profitably in the Eurozone as a weapon against deflation and a means of providing much needed leeway to fiscally stressed Eurozone member-states,” he says. He goes on to explain in detail how peripheral EU countries could create their own payment system with a Bitcoin-like algorithm to make it transparent, efficient and transactions-cost-free.

He concludes, “[W]hile 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.”

When Varoufakis wrote these words in 2013 and 2014 he was just another economist, with a reputation perhaps slightly tainted by association with the video-gaming industry. But now he is the Finance Minister of a nation forced to consider new solutions to heal its collapsing economy, and in possession of considerable negotiating power with the EU authorities that wish to avoid the prospect of “Grexit.” It will be interesting to keep watching.

Image of Varoufakis via Wikimedia Commons.