The proposed Greek bailout deal is now a done Greek bailout deal. And equity-market traders around the globe heaved a giant sigh of relief today.
As for the terms of the deal, well, it’s hard to get excited if you’re a Greek citizen.
Euro-zone leaders have agreed to give Greece up to €86 billion (about $96 billion) in new loans. That’s if the Greek government implements some rather severe, almost punitive, austerity measures over the next couple of days.
The rescue deal … requires the Greek left-wing government’s near-total surrender to its creditors’ demands. But it gives the country at least a fighting chance to hold on to the euro as its currency.
So, in order to "hold on to the euro" Greece will have to implement an austerity plan that is almost guaranteed to lead to a further and deeper recession.
Not that a curtailing of government spending is recessionary, at least in the long run. But the austerity measures also include sales-tax increases such as a value-added tax.
That’s precisely what you don’t want to have implemented when you’re trying to dig yourself out of a fiscal hole.
But for the Greeks, it’s all about staying in the European Union, and being able to maintain the euro as its currency.
Yet what if there were a solution to the euro’s hold on Greece, and on all countries?
Wouldn’t an objective currency untethered from political and central bank controls be one possible way around the political wrangling that effectively shut down the banking system in Greece?
The question of an objective and truly democratic currency — one that’s unaffiliated with quasi-governmental or explicitly governmental bodies such as a central bank — is what the crypto-currency Bitcoin is all about.
And, according to the most objective measure of value (i.e., price), there’s been a distinct move toward Bitcoin. It has moved higher since the recent Greek turmoil really ramped up.
According to the website CoinDesk.com, the digital currency has gained momentum in the wake of the Greek crisis, but after today’s news of a bailout Bitcoin’s value sold off.
Image Credit: Coindesk.com
According to CoinDesk, there’s a debate on whether the recent spike in Bitcoin value is due to Greece.
Some media reports have suggested Greece’s likely exit from the Eurozone could be behind the cryptocurrency’s recent price movements as people look to it as a viable alternative to the euro or the drachma — the country’s former currency.
Despite a lack of consensus as to whether the Greek crisis has really influenced Bitcoin’s price movements, it must be noted that today’s decline in value coincided with the announcement that Greece had reached an agreement with Eurozone leaders over a possible third bailout.
But could something like Bitcoin …
Or even just the architectural underpinnings that make the electronic currency possible …
Be the ultimate solution to countries scrambling for an alternative to central bank-issued, and politician-controlled fiat currency?
Did you catch the article in the Wall Street Journal that’s aptly titled, "How Future Bitcoin Can Prevent a Future Greece"?
Technology writer Christopher Mims tackled the possibilities of Greece (or other countries) being emancipated from having to use the euro with the help of digital currency and its technological underpinnings.
According to Mims, the recent bank restrictions in Greece have forced businesses there to basically pay suppliers and employees in IOUs, or scrip. These are promises to pay back a debt as soon as the banks unlock a firm’s money.
But could a new kind of scrip be issued using Bitcoin’s "blockchain" technology … or an altered version known as "sidechains"?
Here’s how Mims explains it:
To understand sidechains, it helps to know how Bitcoin itself works. Broadly, transactions are recorded on a main digital ledger, called the blockchain, which is like any other account of transfers going back to the clay tablets that recorded pharaoh’s stores of grain.
Bitcoin’s ledger isn’t processed or stored by one central body. Rather, it is distributed across a global network of computers, some of which are granted an economic incentive to keep the whole system running. Owing to this and other characteristics of Bitcoin, no one on the system has to trust anyone else, neither a central transactional authority or the person sending them Bitcoin, for the system to work.
Later in the article, Mims explains that Bitcoin protocols can be modified for use in just about any kind of transaction.
They could represent any kind of currency, from dollars to frequent-flier miles.
Because Bitcoin is becoming not a currency unto itself but a protocol, like the communications protocol that makes the Internet possible … the kinds of transaction systems developers could build on top of it are limited only by our imaginations. …
Greece could create a "collateralized currency" backed by state-owned assets. Cryptocoins representing a fraction of all the country’s islands, ports and factories would hold their value as long as people believe the underlying assets do.
Thinking even further into the future, it isn’t hard to imagine a way to use digital tokens to permanently institutionalize the last resort in all currency crises — barter.
When you actually think about the basic principle of money involved here, we shouldn’t be at all surprised that humans are trying to employ technology to solve that basic premise.
That premise, of course, is that money is a tool of exchange.
A better tool of exchange that liberates citizens from government control will almost always be an improvement to top-down management.
As Mims writes:
The most exciting thing about Bitcoin’s blockchain technology is that it has the potential to democratize how money is created. And that, for many observers, is fundamentally what the debate over Greece and the fate of the entire European Union is about.
I couldn’t agree more.
Do you think technology such as Bitcoin will ever supplant fiat currencies such as the euro and the dollar? Are you suspicious of technology employed to the realm of money?
U.S. stocks spiked Monday after Greece reached a bailout deal with its Eurogroup creditors. Stocks in Europe also experienced a relief rally on the Greek news.
• The benchmark S&P 500 gained 1.1%, ending the day at 2,099.60. Utilities gained the least today, with the Utilities Select Sector SPDR (XLU) adding just 0.05%.
• Meanwhile, technology did the best, with the Technology SPDR (XLK) gaining 1.52%. The broader Nasdaq gained 1.4% today to end at 5,071.51.
• Nasdaq component Netflix (NFLX) gained nearly 4% in today’s trading to hit an all-time intraday high at $716.16. The company is on track to reach 65 million streaming subscribers around the world this quarter. Shares ended the day at $707.61.
• Hillary Clinton called for "progressive, principled and pragmatic policies" aimed at boosting middle-class incomes, as she laid out her vision of the American economy in the first major policy speech of her presidential campaign.
• Oil traded lower today as talks progressed on an Iran nuclear deal. The West Texas Intermediate August contract closed lower by 54 cents to end the trading session at $52.20.
Good Luck and Happy Investing,
Uncommon Wisdom Daily