Good money and bad money
The letter from the lawyer Antonio de Grazia
Dear Director,
when things don't go well, you need to have the courage to discuss principles and clichés. Principles and clichés that, at times, become irrationally dogmas.
Until the entry of the euro, Italy had the possibility and the right (since 1981 through the Italian central bank) to create money out of nothing, simply by issuing and printing banknotes.
With the introduction of the euro, such autonomous activity (in hindsight monetary sovereignty is an essential form of state sovereignty, a principle of constitutional rank) is prohibited.
When Italy needs liquidity, it has to get into debt with a foreign currency, the euro: in fact, the Italian Bonds are largely purchased by the European Central Bank.
The Italian debt is in foreign currency.
And the debt will continue to expand: and so much also happens for the other member states of the euro.
In turn, the ECB does not use its assets to buy Italian Bonds: it simply creates money, now digital currency, with an almost Faustian click.
The effects are paradoxical: the assets of the ECB nominally increase dramatically, having in their portfolios innumerable bonds from Italy and other European nations adhering to the euro. Bonds that cost nothing, because the ECB buys them (or renews them) with digital money created from nothing.
It is clear that member states of the euro will usually have a lower rating than states with monetary sovereignty (UK with the Bank of England, USA with the Federal Reserve ).
A courageous, disagreeable solution? Do Europe and the EU want serious investments?
Well, each member state of the euro could have the right to issue and print money for a share of GDP, but only for investments (a share, for example, of not less than 2% of GDP).
The rise of domestic debt would come to a halt, at no cost, and the benefit for investor states would be tangible.
So it is if you like.
A warm greeting.
Antonio de Grazia
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/la-moneta-buona-e-la-moneta-cattiva/ on Fri, 27 Nov 2020 10:57:28 +0000.