Saving the Euro: Creating social regional currencies, taxes on financial transactions, and minimum income programs

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Please cite the paper as:
Leonardo Fernando Cruz Basso, (2012), Saving the Euro: Creating social regional currencies, taxes on financial transactions, and minimum income programs, World Economics Association (WEA) Conferences, No. 3 2012, Rethinking Financial Markets, 1st November to 31st December, 2012

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Abstract

in all the proposals that we have read so far to solve the European crisis, not one submitted what we believe to be an essential element: the creation of regional currencies, which we call social currencies; the name could be better but what we have in mind with this name is that this currency includes an essential social component, which is job creation; there is nothing new with alternative currencies that circulate side by side with the national currencies of countries with monetary problems, and this has already occurred in Brazil with the creation of social currencies of restricted circulation, as well as in Argentina, when the population lost its confidence in a currency subjected to ongoing and significant devaluations. These currencies should reflect three features: the first is that the exchange rate should devalue against the euro, as one of the
latter’s problems is that it prevents competition by countries with less productivity, as we have already argued in an article (Basso, 2005) on exchange rate parities (criticizing the Brazilian real / US dollar exchange rate which was at the origin of the real plan); the second is that these currencies are of a transitory nature and will become extinct when economic conditions improve in European countries; the third is that as opposed to what happened in countries that created social currencies (where creation and emissions were private) creating and issuing will be under the control of central banks in
order to prevent counterfeiting and unrestricted emissions.

The backing for this currency will be Euros collected based on the creation of taxes on regional financial transactions. We put forth a similar proposal in a previous article but our concern in that text was to collect funds in order to put in place a minimum income program for those people affected by unemployment; currently the focus is another, as the social currency is intended to reactivate the economy as well as to fund a minimum income. The second essential component in our proposal is the creation of a minimum income for those affected by unemployment; this minimum income would be funded by social regional
currencies, issued in accordance with each country’s needs; this would not be inflationary for two reasons: recent events in the United States have raised a query on the expertise of defenders of the quantity theory of money (significant emissions do not result in significant inflation); frugal emissions give rise to product increases (consumer goods in this case).

The second essential component in the proposal is the introduction of regional financial transaction taxes, because we have found that countries such as England will veto the creation of a Tobin tax for the whole of Europe; this tax, as found when implementing the CPMF (provisional contribution on financial transactions) tax in Brazil, has an excellent collection potential depending on the tax rate, and may provide funds to partially remedy problems with budgetary deficits, reducing the debt / GDP ratio to satisfactory levels. The Brazilian experience shows that there is nothing destabilizing about enforcing this tax.

Implementing this tax should form part of a broader proposal to regulate financial resources in European countries (the most
appropriate expression would be regulation of financial resources), as the very much commented solution for the social welfare state did not occur.


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