When some voices among the Italian government put forward the idea of mini-bonds, also known as mini-BOTs, many laymen asked themselves what sin they had committed to listen to such foolish proposal.
The answer to this question comes from Mario Draghi, the President of the European Central Bank, who claimed that “they either provide debts, which is unsustainable for Italy, or a new currency, which is illegal.” In fact, according to European treaties — to which Italy is bound as it is a European Union member — it is not allowed to introduce a parallel currency alongside the Euro.
Also the current Governor of both the Bank of Italy and Young Confindustria (the latter being the Association for young entrepreneurs), Ignazio Visco, spoke on the subject, and told the press that he was of the same mind as Draghi. Visco rejected in full the idea of resorting to said mini-BOTs and even compared them to board game Monopoly’s money.
Some analysts, especially those who criticize the mini-BOTs, struggle to understand why and how the Italian government is thinking of adopting a parallel currency. The reason being that these mini-bonds are seen as a worthless currency — like Monopoly’s fake money, which some deem to be an accurate comparison —, given that people would prefer storing the real trustworthy Euro instead of spending flaky mini-BOTs.
What mini-BOTs are
Mini-BOTs are low-denomination bonds with a value of 5, 10, 20, 50 and 100 euro. For people who are not familiar with the topic, bonds are instruments of indebtedness of the bond issuer to holders, who “lend” their money so that the issuer can pay back the loan with an interest. Generally speaking, bonds are issued by a State in order to finance its own activity.
Claudio Borghi, the economic “mind” of the League party and President of the government’s Budget Committee, once said that mini-BOTs are “a spare tire, in order to quit the Euro in an orderly way.”
The economist then added that these mini-bonds would be similar to paper currency. The difference with our every-day used notes lies in the fact that not only would they not expire, but they would also be used to pay commodities and services linked to the Italian state, including train tickets and taxes. As a matter of fact, mini-BOTs would be used and accepted only in Italy, as other countries would undoubtedly recognize that they have no value abroad.
According to the League, the aim is to issue mini-BOTs with the same value of the public administration’s debts to the private sector in order to meet their liabilities. And with regard to determining the value of mini-BOTs, the State should accept both euros and mini-BOTs with a change of 1 to 1. This would avoid the problem of people preferring real euros over mini-BOTs, as they both have the same value.
Claudio Borghi, the man behind the mini-BOTs idea, explained the potential consequences of introducing this new parallel currency. He said that mini-BOTs would be similar to paper currency, for they come in the form of notes, and would be commonly used.
Moreover, due to the nature of the parallel currency, mini-BOTs could represent the prelude to the so-called Italexit — a disaster for the Italian economy that must be avoided at all costs. This view is nothing new, since the mastermind of mini-BOTs clearly stated the possibility of Italy leaving the European Unionwhen speaking about mini-BOTs in the past.
It is commonly thought in Italy that the common currency is only a damage for the national economy. However, when looking at this wide-shared opinion, there’s nothing further from the truth. Although it is true that the export would increase if Italy were to abandon the Euro, there’s no question that importing goods would be dramatically expensive. After all, Italy would need to spend more of its own currency, which would have a lower value, to import commodities.
For example, we would have to spend more money to import raw materials and energy, as we all know that nothing in life comes for free. Moreover, the resulting instability triggered by such an economic reality would chase away foreign investors and would increase inflation, as the Italian government would have to issue more money to pay its liabilities.
Surprisingly enough, having a national currency will not boost economic independence; it would rather have a reverse effect that would elevate the country’s dependence on foreign countries.
There is another issue that should not be underestimated. The fact that mini-BOTs are printed on paper prevents them to join all those computerized systems used by banks and financial administrations.
Try to imagine enterpreneurs paying thousands of euros of taxes through mini-BOTs: because of their entity, people will have to physically move them from a place to another, and will most likely face all the resulting risks linked to such move.
Undoubtedly, the Italian public administration is hard to handle. And since it represents the 2.9% of the gross domestic product (GDP), it is pressed by billions of euros of debts to private enterprises.
Due to the fact that Italy is first in Europe for public administration debt towards the private sector, the government needs to take serious action. It should be useful to push on offsetting the public administration’s debts against all the claims. For instance, instead of collecting taxes from firms to which the public administration owes money, it could be easier to balance debts and claims — which is a move that would simplify the whole administrative machinery.
A simple solution to this issue could represent a relief for all the people who pay taxes and are still waiting for a payment from the public administration.
In conclusion, it is clear that the government is not pushing on this solution because of a lack of political commitment. It is probably arguable that someone is trying to exploit the Italian public debt in order to achieve its workhorse: Italexit.