Desperate times result in desperate monetary measures. During the French revolutionary and Napoleonic wars, the Bank of England suspended payments for over two decades. US greenbacks (national fiat paper) were first created to pay for the American Civil War. The outbreak of the first world war closed the London and New York stock exchanges.
Now Italy’s governing coalition is talking of issuing low-denomination, non-interest-bearing treasury bills (so-called mini-BOTs) — to circulate alongside euros. Proponents argue the Italian economy needs more money and that the public-spending cuts and tax increases the EU insists upon will only make matters worse. As a member of the euro, Italy cannot legally issue its own currency. But if the government paid its creditors in mini-BOTs — and if it agreed to take them back again as payment for taxes or train tickets — then total liquidity could increase without expansion of the official money supply.
This is hardly the first time a cash-strapped polity has sought to monetise an unlikely asset. Italy’s plan recalls the introduction of a land-backed paper currency known as the assignat during the French Revolution. France in 1789 had creditors and empty coffers; revolutionary turmoil made borrowing funds or collecting taxes impractical.
Enter the idea of paying with something “solid” — the extensive real estate holdings seized by the revolutionaries. Since it would take time to auction properties, assignats were issued backed by their value. That paper was then accepted as payment for the properties themselves. In theory, once all properties had sold, there should have been no more assignats in circulation.
In practice, the system did not work so smoothly. There was no obligation to accept assignats at their face value and from the beginning they were heavily discounted. Thousands of bodies issued their own smaller denomination papers as change. With multiple parallel currencies in circulation, every transaction became an extended negotiation.
The effects were socially and regionally differentiated, depending on attitudes to the revolution, the extent of wage labour, and access to foreign currency. By the late 1790s, only the poor held paper. When bad money chases out good, it inevitably pools in the hands of the marginalised — what makes a currency “bad” is not any intrinsic quality, but that the rich and powerful refuse it.
With mini-BOTs, as with assignats, monetary ingenuity furthers political polarisation. The assignats were issued against newly nationalised properties that had been owned by the church. For many French Catholics, that meant they were backed by nothing but sacrilege. Similarly, Mario Draghi, the president of the European Central Bank has said that whether mini-BOTs are money or debt, they violate EU rules.
Before they came to power, Italy’s far-right League party was already asking Italians to vote on mini-BOT designs. Its leading economics adviser, Claudio Borghi is a fierce advocate. Last week, neo-fascist Roberto Fiore (head of the Forza Nuova party) tweeted that mini-BOTs, “will be a revolution. And we will be in the streets to defend [them].”
What is happening may look distinctively Italian, but is better understood as part of a wider revolt against “money as usual”. Be it via local exchange trading systems like London’s Brixton Pound or the pyrite of cryptocurrencies, fantasies of self-sufficiency are often articulated in terms of independence from central governments and their banks.
The term “siege money” is used to describe currencies issued in times of crisis, intended to circulate only briefly. It is too soon to know whether mini-BOTs are money, siege money, or nothing at all, but that the time has come for a new, more equitable, version of money seems obvious. That it might become politicised indefinitely is a prospect too terrible to contemplate.
The writer is the author of ‘Stuff and Money in the Time of the French Revolution’
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