Hail the euro: EU's funny money
By Gwynne Dyer
LONDON (JP): The precedents are not promising, given that some older people in France still quote prices in the "old francs", worth one-100th of a new franc, that were abolished back in the 1960s. It's very hard to sell the French people on change (unless it was their own idea, in which case we call it a "revolution"). That may be why the French government has effectively moved the deadline for converting to the euro up by four months.
The official date on which 12 of the European Union's 15 countries (all except Britain, Denmark and Sweden) exchange their old currencies for the euro is Dec. 31, 2001, but beginning this weekend 2.5 million French government employees, one-sixth of the country's working population, will start getting their pay- cheques in euros.
Euro-denominated stamps are already in circulation, new cheque books are already only in euros, and price tags now only show the old franc price in small print in the corner.
When dealing with a population as individualistic and recalcitrant as the French, publicity overkill is never a relevant concept. But no amount of preparation can stop the change-over from causing major disruptions in the real economy -- like property values, for instance.
Everybody knew that millions of French, Spanish and Italian citizens hid much of their income from the tax man by the simple expedient of keeping it in cash. But the Masters of the Universe had not understood that their wonderful new euro posed a problem for people who keep large sums of cash in socks under their mattresses.
They can't change it into euros at a bank without explaining where it came from. If they don't want it to turn into fairy gold at the stroke of midnight this New Year's Eve, therefore, they have to turn it into real property before then. The main evidence of the panic is that hundreds of thousands of people have piled into the real estate market at once, waving large sums of cash. So prices have suddenly shot up.
It's even worse for Russian mafia bosses and Albanian cigarette smugglers. The German mark has largely replaced the US dollar as the currency of choice of Eastern Europe's shadier customers over the past decade, and they now face the problem of how to turn their marks into euros.
If central bankers could smile, the mandarins at the European Central Bank would be beaming from ear to ear as they contemplate the panic and despair that their new baby euro is spreading among the ranks of the wicked. Every thug in Eastern Europe faces the worst money-laundering problem he ever dreamt of -- and millions of German tax-dodgers are in trouble too.
Up to 500 billion German marks are on deposit in foreign bank accounts. That money has to surface and come home to be turned into euros. If the law on tax liability is strictly applied the potential losses are so great that Otto Solms, treasury spokesman for the opposition Christian Democratic party in Berlin, has proposed that the government make a deal with "tax sinners", letting them repatriate their money in return for a reduced tax rate and no questions asked.
All good clean fun -- but this is probably the last decade in which the central banks can manipulate a currency and catch the tax-dodgers out.
A Europe-wide currency like the euro eases a lot of transactions that used to involve foreign exchange calculations and gambles, and increases competitiveness by making prices in different countries more transparent. But it's still the same old paper money, and the same clumsy, expensive and easily monitored transactions between banks. Once we get global internet currencies run by offshore-based independent companies, not national banks, then the old game will really be over..
The first generation of internet "virtual" currencies, like Cybercash, Digicash and Beenz, all sank without a trace, but a new wave of gold-based internet currencies has the potential to transform the whole business of money. GoldMoney in the Bahamas, E-gold on the Caribbean island of Nevis, and Standard Reserve in the Virgin Islands are all less than six months old, but they all have a credibility that the first wave lacked because they are based on gold stored in vaults in the main gold-trading centers of London, Zurich and Dubai.
Internet users buy notional pieces of that stored gold (which never actually leaves the vaults), and use them their GoldGrams (a gram of gold is worth about US$8.50) to make purchases anywhere in the world. No exchange problems, $1 per transaction -- and virtual untraceability.
The first thing the Internet did to government was to kill secrecy. When any individual can leak information directly to an instantaneous, uncontrollable global network, that old game was up.
The next thing it is going to do is to destroy the state monopoly over money -- and make the incomes of the better-off (and especially the self-employed) impossible to document. The tax man will find ways to cope, no doubt, but they will involve taxing expenditure, not income. Income tax worked in 20th- century; it will not work in the 21st.