With a cryptocurrency à la Bitcoin Catalonia could reduce its economic dependence on Spain and the euro. The separatists are not lacking in thinking about this – the problem would rather be implementation.
An independent Catalonia would have two fundamental economic problems. On the one hand, there is logically a very close link with the rest of Spain, especially in finance. On the other hand, it is unclear whether the breakaway region, if it were a republic of its own, automatically became a member of the eurozone from day one.
Members of the – now non-functioning, because detached – regional government have therefore seriously explored the idea of using a cryptocurrency in the style of Bitcoin a parallel monetary system to raise. A virtual financial system based on blockchain technology would be a challenge to Spanish banks, which dominate Catalonia’s economy.
Parallel currencies are nothing new
Attempts to create parallel and new currencies have been many in history. In earlier times, such as the end of the Austro-Hungarian monarchy in 1918, such a process was painful to the newly emerging countries, but not overly complicated: they simply over-printed existing notes with new symbols and created their own central bank over time could make its own monetary policy.
In today’s world of highly networked systems, this is more difficult. In 2015, the Greek government had plans to launch a physical parallel currency for the “Grexit”. The exit of Greece from the Eurozone was a real scenario at that time, but to create a “Neo Drachm” would probably have ended in chaos. The plan for a digitized currency for Catalonia is a bit cleverer in concept.
The “Estcoin” as a role model
As the London daily The Daily Telegraph writes, Catalan independence politicians have spread the feelers to Estonia. The small Baltic state, also part of the eurozone, has quickly become a fintech hub. There, they thought about using an initial coin offer to create a cryptocurrency called “Estcoin” to provide the country with additional funds and attract tech investors.
Estonia would be the first country in the world to make such a move. The problem is that Mario Draghi and the European Central Bank (ECB) would ban it. In addition to the euro, no other currencies are tolerated. However, a Catalan blockchain currency with the decentralized accounting system that is characteristic of this technology would – at least theoretically – be without its own central bank.
If Catalonia were to “scramble out” of Spain, it would not automatically be a member of the European Union and therefore not bound to Mario Draghi’s rules like Estonia. But a whole series of other problems would come to the country.
Financial transactions would have to be converted relatively quickly, ideally overnight, to the new cryptocurrency. The implementation of this plan is hard to imagine. The Spanish banks in Catalonia may refuse to recognize the new cryptocurrency. This would mean that a new banking system would have to be built very quickly around the new currency.
Other open questions would be: how could Catalonia introduce capital controls if necessary? And could the public debt simply be transferred into the new currency? And in what currency would the Catalan government pay salaries to its officials? Would it need financial supervision for the new currency?
Daily currency would be needed
In everyday life, a physical currency would be missing. The population would have few alternatives to continue using the euro as a means of payment. In principle, this is possible because non-euro members Montenegro and Kosovo are also using the single currency as a means of payment. Whether such a de facto currency could be used in a developed economy like Catalonia is an open question.
Nevertheless, the Catalan cryptocurrency dreams are not pure megalomania. Currently, as described, such a conversion would be practically impracticable, because crypto currencies are not yet widely established and because in this specific case, the Banco de España and the ECB in monetary policy leverage in hand. In the future, if crypto currencies really take hold, it is conceivable that certain economies will circumvent traditional systems thanks to digitization, blockchain & co.