Introduction
The delicate current context due to COVID-19 seems to have awakened, through the lens of necessity, the capacity to look beyond customs, helping us to break a certain selective perception. In this sense, opportunities begin to be visible to most, and upstream, the inevitable affirmation of technological paradigms that perhaps were previously evaluated as almost exclusively pioneering. And then, like Pandora’s box that seems to represent it, the pandemic could hold a positive aspect in its depths: helping us to understand that we already had disruptive technologies available that we were not yet using properly, among which Blockchain is one of the protagonists, also thanks to the potentially unlimited ramifications of its areas of application.
To set aside the well-known aphorism that crisis is synonymous with opportunity – rightly invoked several times during this period – we can, for once, refer to Confucius: “Great is the confusion under heaven. The situation is excellent.”
The preventive quarantine in Argentina and its two sides of the balance: health and economy
The crisis that is affecting the entire world at the moment has a health epicenter, but clearly also a second level, now almost as pressing as the first: the economic one. In Argentina, national authorities have made decisions based on what is already happening in other countries, located upstream in the COVID-19 timeline: mandatory quarantine has been adopted for prevention purposes, and the internal debate has therefore had to and could immediately incorporate the two levels.
It is important to understand that thinking of the relationship between health and the economy as dualism is actually improper, in the sense that these two areas of public policy are not antagonistic, but rather inseparable (except perhaps in peculiar short-term perspectives): a wrong economic policy ends up having effects on public health policy as well, and vice versa, and therefore, just as it is evident that the intersection between these two problems can trigger a dangerous vicious circle, it can be thought that working for efficient solutions in one of the two aspects can clearly assist the other.
Focusing on the economy, it can be seen how, to date, the medical ratio has imposed almost total paralysis of people with serious consequences for the economic fabric. In a moment like the current one, it is evident that one of the main points is that concerning the circulation of goods and services (and the workforce needed to produce them) and money. Let us borrow the allegory of the physiocrat François Quesnay (not by chance, a doctor and economist) who compared its cruciality for the health of the “economic body” to that of blood for the health of the human body.
And not only that: it becomes necessary, in perspective, to consider how this circulation (goods, people, and money) will have to evolve, in a context that inevitably pushes towards dematerialization and digitization; not to mention that social distancing, although less stringent than the current one, will probably be maintained in various aspects of economic and community life.
The health of the economy: the difficult path of anti-cyclical policies.
The lower tax revenues generated by the quarantine (with the resulting pressure on fiscal balances), in a context already characterized by high fiscal deficits, make it very difficult to implement anti-cyclical policies aimed at injecting new liquidity, and present even greater complexity in a country where it is estimated that informal employment reaches peaks of over 40%. The limits on possible fiscal policies are accompanied by doubts about the risks that the necessary expansionary monetary policy of support implies in this context (the record loan received from the IMF in 2018; the historical positive relationship between the increase in monetary issuance in a situation of fiscal deficit and the devaluation of the national currency, with cascading inflationary effects).
In practice: at the fiscal policy level, the lockdown would require an expansionary intervention to avoid a blockade (firstly) and to allow the reactivation (secondly) of the economy; at the same time, with a high fiscal deficit already in place, the monetary path that must accompany this policy to generate the necessary liquidity is made difficult by the above considerations (and restrictions). The uncertainty of the present leads us to look for similarities with the past, to remember the solutions that have been effective; at the same time, it forces us to look to the future, in order to be able to decline them in the new technological paradigms that both the crisis and evolution impose and that the peculiar characteristics of the emergency catalyze. In these terms, what solutions could a tool like blockchain provide us?
Focus: the supply side: without circulation, the stock is also put at risk.
The scenario imposed by the circulation block, if not addressed in time, also brings with it the problem related to the supply side: if it is almost natural to think that a decrease in flows results in a decrease in demand, it is less intuitive (because less related to our experiences) to also consider the supply side. In a paralyzed market, where resources do not circulate – or circulate at a minimum level – and even the workforce finds itself in the same situation, it is possible to reach a situation where even in the presence of money (real demand), it is the supply that is lacking, with potentially extremely negative consequences on prices (pressure due to excess demand) from the beginning, up to the extreme of supply problems. Returning to Quesnay’s allegory: in a scenario like this, it is essential to reactivate circulation, to avoid gangrene.
The experience of the past and its possible technological articulation in the present: blockchain serving liquidity.
The current economic policy dilemma, which we have summarized, presents similarities with another moment in recent Argentine history, a moment in which the maneuvering limits for the central government were even more stringent. The financial crash of 2001: paralyzed economy, dramatic collapse of tax revenues and total impossibility of monetary issuance (a consequence of the Ley de convertibilidad within the fixed exchange rate regime between the Argentine national currency and the US dollar).
How to reactivate the flow of goods and services through public policies, with insufficient revenues to cover even already contracted obligations (e.g. public employees’ salaries) without the possibility of injecting liquidity through monetary issuance? The answer was cuasimonedas.
Cuasimonedas is the informal name given to bonds issued in Argentina (by the national government and 15 of the 23 provinces). They were bearer bonds that circulated in the same way legal tender currency circulated (being specially printed in equal sizes). Provincial bonds, therefore, were used as an alternative financing method within the economic crisis affecting the country. In this way, the national and provincial governments were able to fulfill their obligations while also supporting consumption. Once the economy began to recover, cuasimonedas were fully absorbed by the issuing authorities.
The contribution of Daniel Oscar Ramundo, currently a Mercosur parliamentarian (as well as political secretary of the Associative Movement of Italians Abroad) and at the time consultant to the President of the Bank of the Province of Buenos Aires (a public law autonomous body) and CEO of BaProMedio de Pagos (a debt and tax collection agency created by the bank), helps us better understand this experience by emphasizing the cuasimonedas issued by the Province of Buenos Aires (the district where around 39% of the Argentine population resides), the Patacon.
Faced with the impossibility of issuing currency due to the Ley de Convertibilidad and to solve the lack of liquidity, 15 provinces and even the central government issued bonds, later informally called cuasimonedas. In the case of Buenos Aires, the Patacon was issued through the Bank of the Province.
In general, cuasimonedas had an initial reference value of 1:1 with the Argentine peso that later automatically varied based on the functioning of the domestic market. Almost all cuasimonedas gradually depreciated, but this was not the case for the Patacon, as we managed to negotiate some key aspects beforehand.
Firstly, mirror current accounts were generated that could operate in the short term both in pesos and in Patacones. Then, when thanks to this system, 75% of public employees’ salaries began to be paid directly in Patacones, the next step was to agree with credit card companies, provincial and central tax authorities that the Patacon would be accepted as a means of payment, with a value of 1:1 compared to the Argentine peso.
The same agreement, secondly, was established with various sector associations, chambers of commerce, and so on. In this way, it was possible to ensure not only on the tax and clearing level but also on the commercial level that its value remained fixed. The Patacon, therefore, did not devalue, even appreciating compared to the peso in some short moments. The Bank of the Province carried out two issuances, acting as a key organization for the large distribution and subsequent absorption work, as well as, of course, as a guarantor.
What advantage could blockchain offer as a basic technology for Cuasimonedas?
What opportunities could a technology like blockchain offer if we were to evaluate it, from a present perspective, as the basis for a similar initiative? How could it not only allow for a repeat of an experience like that of Cuasimonedas, but also amplify its effects? Let’s think about the advantages that would present themselves to the issuing institution and users in the form of cryptocurrency:
- Immediate Availability: issuance does not depend on any physical steps. The printing and distribution time is virtually zero. From the outset, the issued cryptocurrency coins are available and can travel between different wallets, in the exchanges that will be carried out, without problems and costs related to time or logistics.
- Immediate Tax Collection: As mentioned, one of the central problems is the decrease in tax revenues due to reduced economic activity. In this sense, the implementation of a Cuasimoneda based on blockchain could also allow the use of smart contracts designed to transfer taxes to the government immediately after each transaction made through the cryptocurrency (in this case, in accordance with any de-taxation initiatives for certain activities that may be considered for an expansive fiscal policy with anti-cyclical purposes). Once again, there would be the advantages of instant monitoring at a time when decision-making is critical.
- Financial Inclusion: as we have indicated previously, the percentage of the informal economy (often subsistence) in the Argentine economy represents a significant number. A value that makes this issue as relevant in its social aspect as in the fiscal/legal aspect. In practice: those excluded from the formal circuit often do so unwittingly and the informal system represents their economic survival channel. The use of a cryptocurrency would allow all these subjects to be included in a sort of financial inclusion process through the use of a simple smartphone app (access to which today is almost total, even in population segments below the poverty line). It would also automatically produce (by the State) their “economic census.”
- Dematerialization of money in times of mandatory social distancing: the use of Cuasimoneda in the form of cryptocurrency would meet social distancing policies in every socio-economic sector.
- Real-time traceability: at any time, the issuing institution can follow the evolution of monetary circulation, while respecting individual privacy guaranteed by blockchain technology. Number of transactions, speed of circulation: a series of data that generally must be collected and processed and therefore give the possibility of ex post evaluations, could occur in real-time. At a time when monitoring the pulse of the patient (the economic body of society) is crucial, Blockchain could allow this to be done without delay and automatically.
- Elimination of import problems: in developing countries, even the materials necessary for printing (ink, paper money) may face external constraints and restrictions arising from a balance of payments already in crisis due to the economic context.
- Expiration and Reabsorption: the cryptocurrency could be issued with a specific expiration date, after which it would cease to be valid (and in which it would be converted back to fiat currency as previously agreed). In addition, the difficulties and costs related to the withdrawal of physical support would be avoided, as would necessarily be required for banknotes (queues at counters, storage before and elimination afterwards of physical supports; moments of “gray” between expiration and actual implementation). Consider, even just logistically, what advantages this could represent everywhere, and especially in a vast territory like Argentina.
- Impossibility of Counterfeiting: we know that it would be impossible to counterfeit the cryptocurrency; it is worth remembering, however, that physical support can present this issue to be resolved (trade-off: how much to invest technologically in printing banknotes that will have a limited life?).
- There is also the possibility of acquiring value through other markets: while the circuit of quasi-currencies has been clearly and exclusively national, and their value tied to trust in the issuing institution, in the case of a cryptocurrency, a second life for it could be imagined in the world of crypto investors. Furthermore, in addition to this possibility, which could also be defined as speculative, one could also think about the potential of the technology intrinsic to blockchain beyond the function of a monetary token, including its various applications and computing power, as well as smart contracts.
Conclusions
Now returning to the initial question: could the use of Blockchain technology empower a solution similar to that of the cuasimondeas experience? It seems evident that the answer is positive.
In Daniel Oscar Ramundo’s analysis:
The elements of a technology like blockchain applied to the issuance of cuasimonedas – or in any case, in initiatives that are only partially related – would be very important; I am thinking in particular of the effects for economies like that of Argentina – as well as for all those that have a high degree of informality. In addition to the fiscal point of view – valid also for developed countries – there would also be a second objective that the cryptocurrency would achieve simultaneously, namely to allow the design and implementation of inclusion programs. The level of formal economy would increase, thanks to the technology incorporated as a cryptocurrency, and at the same time, it would be possible to carry out high-impact social and employment policies.
And not only that: in addition to solving the urgent problem, we would also find ourselves having taken the first step in using a tool whose application would be equally important even after the crisis is over. A first step that would be a true “giant leap”.
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