17 Sept 2012

EUREKA! - Replace the Euro with the N-Euro

It's 4am in the morning, but I've just got to get this written down. It might just be that I have an idea that could fix the economic crisis (Yes, I know, yet another one - sorry.....)

So, what's the recipe today Jim?

Well, in case you haven't been following this, it is now abundantly clear that there is one big problem that is at the root of virtually all our woes. It's the fact that 97% of the money in circulation in the economy is created as interest bearing debt by commercial banks. When governments need money, they have to go cap in hand to the banks, and ask - no beg - them for money. Those banks then create the money out of thin air and then  lend it to the governments. The problem is that the banks then charge governments (and hence taxpayers) interest on those loans. And so, in the European Union, governments have handed over €5.6  trillion in interest charges since 1995 - more than half the total government debt which currently stands at €10.4 trillion.

How can we end this insane system?

Here's my proposed solution.

Governments should introduce a parallel currency called the N-Euro - for National-Euro. This parallel currency would be handled by a special National Citizen's bank, that would be the only financial structure with the right to use the N-Euro. Any citizen or business would be allowed to open an account at the Citizens bank, and accounts would be automatically opened for all public sector workers and people receiving state payments such as pensions or benefits.

All those people receiving money from the government would have the option of receiving a proportion of their payments as N-Euros on their citizen's account - the rest would be paid into their standard bank account in conventional Euros.

The percentage paid in N-Euros could be modified at will by each person, from 0% (in which case there would be no change from the current system), to 100%.

N-Euros could be used to pay any government charges including taxes (income tax, local property taxes, television licence fees, hospital charges, fines etc). It is this fact that gives the N-Euro its value. And, indeed, it would have exactly the same value for these transactions as the conventional euro.

Indivduals would also have the right to transfer N-Euros from their own account to anyone else's account. This means that N-Euros could be used for making payments for other items including food, clothing, or other services. Since the N-Euros could be used for paying tax bills, they would be welcome as a means of payment by many businesses - even those not directly connected with the state.

Individuals and businesses with an N-euro account can at all times decide to convert their N-Euros into conventional Euros on their normal bank accounts. However, there would be a fixed percentage cost to making this convertion which could be for example 5%. The ability to convert N-Euros into conventional Euros would be guaranteed by the government, which again would be part of giving the N-Euro its value.

The critical feature of N-Euros is that the government would be able to use them without having to borrow them from the commercial banks. Indeed, there would be no real limit to the number of N-euros that could be generated. But here's the vital point - there would be no interest to pay on them. They can be created debt-free!

Note that there would be no actual N-Euros printed - no N-Euro notes and coins. N-Euros would only be numbers on accounts in the National Citizen's bank.

Account holders could be provided with special N-Euro payment cards that could be used to pay merchants (shops, restaurants etc) if the merchants had a sign saying "N-euros accepted here". The government could make this particularly attractive by not charging the merchants for running the system. This would give them an incentive to allow people to use their N-euro cards rather than Visa or MasterCard who both charge the merchants 3% or more on every transaction. 

Note also that you could never have a negative amount on your N-Euro account. You could never get into debt, and you would never have to pay any interest.

In principle, N-Euros would only be used within the country, although it is not inconceivable that they could end up being used elsewhere if non residents were permitted to open up an N-Euro account.

Could this work? I sincerely believe that the answer is yes. It could be an immediate solution for countries like Greece where the government is simply unable to obtain euro loans on the open financial markets without paying extortionate rates. 

What percentage of their salary would public sector workers choose to receive in N-Euros? Well, you might as well at least receive enough to pay all your taxes in N-Euros - since this would cost you nothing at all. But beyond that, as long as you had enough conventional euros on your standard bank account, you might as well get paid all the rest in N-Euros. It's likely that before long you would be able to pay for all sorts of things with your N-Euro card because merchants might well appreciate not having to pay fees to the credit card companies. And you would no doubt be happy to be paid in N-Euros, safe in the knowledge that your government didn't have to go into debt to the commercial banks to produce them.

Who knows - within a few years, many citizens might find that they are much happier being paid entirely in debt-free N-Euros. 

Since a very large proportion of government expenditure is in the form of salaries, pensions and other benefits, this means that the government would be able to make very substantial savings by not having to borrow from the banks. And indeed, there would be nothing to stop the government increasing the money supply by generating even larger quanties of N-Euros to get the economy moving again.

Could it work? I really hope so....

And I must admit that, as a neuroscientist, the idea of using Neuros as a currency system is rather amusing....


  1. ". When governments need money, they have to go cap in hand to the banks, and ask - no beg - them for money." Nope. In the case of quantitative easing or when reducing interest rates, central banks just create money out of thin air. If you Google the phrases "quantitative easing" and "thin air" you find hundreds of people agreeing with me.

  2. Well, when central banks create money out of thin air (like the ECB did when it created €1 trillion), they hand the money to commercial banks. The governments in the Eurozone then have to try and get some of that money by effectively going cap in hand to the markets. And, unfortunately, it doesn't always work....

    The Lisbon treaty actually formally prohibits central banks from lending directly to governments (although, as I have argued, it should be possible to get round this using paragraph 2 of article 123 which allows lending to "publicly-owned credit institutions"


  3. Excellent idea Simon. Here is my translation and Portuguese


  4. Thanks! Portugal would be a great place to try the idea out... I hope you can get some support for it. I really do think that every eurozone country could introduce the system on their own without having to wait for the others. After all, if Portuguese public sector workers are happy to be paid (at least partially) in debt free government produced money, then it seems that should be their choice!

  5. The N-Euro goes on, Simon! :)