Back in the summer of 2019 the idea of Mini-BOTS, an alternative Italian currency, was a hot topic of conversation.
At that time, the idea was being pushed by Claudio Borghi and the Five Star Movement, and largely met with skepticism by ECB president Mario Draghi and a host of others. Proponents saw it as a creative means of addressing national debt and giving Italian citizens another means by which to make state-related payments. Skeptics saw the concept as something akin to “Monopoly money” — possibly illegal and destined, as explained in a mini-BOT analysis by The Street, to “break up the Eurozone.”
Despite the heated nature of the debate between these sides, the issue faded somewhat in the face of the crises we saw in Italy and around the world throughout 2020. It goes without saying that poor economic situations within the EU were made worse by the spread of COVID-19 — particularly with Italy experiencing such an early and brutal impact.
The consequences of the pandemic are by no means behind us yet in Italy or around the world. But as we at least begin to look ahead to a long-term return to normal, it is worth revisiting the notion of a bond-oriented, national alternative currency — specifically from the standpoint of investing interests. Somewhat overshadowed by the big-picture issues of the mini-BOT conflict (such as whether or not it would lead to an “Italexit” or break up the Eurozone) was the fact that this idea poses currency investment issues on numerous fronts.
The core issues with regard to investment concern international interest in Italy. While it is understood that mini-BOTs would have parallel value to the Euro, it is also clear that the bonds would carry no value outside of Italy. This could hypothetically result in a situation in which Italy gradually transitions to the use of a currency that holds no external value, which in turn would complicate international investments. Italians holding mini-BOTs would be unable to spend beyond borders, and foreign entities investing in Italian goods or interests might ultimately have to go through an exchange process. Neither of these factors makes international investment impossibly by any means, but both complicate the flow of funds from Italy into Europe and vice versa — effectively introducing the potential of a largely isolated Italian economy.
Individual Forex Traders
Individual investment would also be impacted by the advent of mini-BOTs, particularly where private forex trading is concerned. As of now, forex remains the busiest trading market in the world, in part because it is so accessible. FXCM’s MetaTrader4 trading platform shows how it easy for traders to download and set up a forex program and begin dealing in currencies in no time at all. Furthermore, once this is done, the markets make it easy to access and deal in different currency pairs at all hours of the day. This has long enabled millions of Europeans to trade currency on a regular basis. Mini-BOTs, however, would be excluded from this platform. This does not mean Italians couldn’t engage in the forex trade, nor that they couldn’t buy and sell euros. But they would be in a unique situation as Europeans unable to trade in their primary national currency on an international forex market — which could well lead to a decrease in forex activity from Italians.
Finally, the aforementioned question of legality also looms large with respect to the mini-BOT concept. Reuters’ write-up on Italy’s mini-BOTs did a nice job of exploring this aspect of the debate, reminding us simply that the European Commission states that there can only be one legal tender within the currency bloc. Now, the article also notes that mini-BOT proponents argue that a “legal” tender refers to one sellers are obliged to accept — which would not be the case with mini-BOTs. Nevertheless, that simple restriction by the European Commission will lead many to question the legality of mini-BOTs even if and when they are adopted. This too will impact the extent to which many are willing to invest in the Italian economy, for fear of doing so through less-than-legal means.
These may seem like relatively small issues next to those of the internal Italian economy or the larger question of breaking up the Eurozone. But rest assured, negative impact on investment potential is a significant factor. Due to exchange complications, a lack of forex market compatibility for bonds, and questions of legality, it is possible that mini-BOTs would lead to a broad decrease in investments in Italian goods and currency.