Francesco Carraro – Fabio Dragoni.

The "black swan" represented by the Covid-19 epidemic has had a positive side effect: that of clearing customs issues hitherto relegated to the internal debate in niches of enthusiasts. One of the rediscovered issues is that of money and, in particular, of the so-called "state currency". Moreover, it has returned to current affairs with the possibility of the transfer and monetization of some tax credits as required by the Relaunch Decree currently being approved.

Recently, even the Vice-President emeritus of the Constitutional Court, Paolo Maddalena, gave his endorsement to the idea of ​​printing "State-notes". Now, the question must be faced from a two-fold profile: legal and economic. We must first ask ourselves whether, according to the legislation (including European) in force, the known States are admissible. Secondly, we must ask ourselves what could be the (beneficial?) Effects on the real economy. Let's start from the first point and from an elementary observation.

Italy, by joining the European Union, has not given up its monetary sovereignty at all, although it has seriously compromised its exercise. Moreover, a transfer would have been constitutionally inadmissible pursuant to article 11 of the Supreme Charter where "limitations" are allowed, and not "transfers" of sovereignty. If we then look at the treaties, we find that article 3 of the TEU (Maastricht) has given the EU exclusive competence in the field of "monetary policy". The currency whose governance is attributed to the EU (via the ECB) is obviously the euro. Very well; but what is the euro? It is a typical "bank-centric" currency, ie generated by a central bank with a "double entry" logic. The ECB issues (or authorizes the central banks of the individual eurozone countries to issue) euros only by inserting them as liabilities in its balance sheet and placing assets in the assets, which correspond typically (but not only) to the government bonds of the member countries.

We now come to the concept of "legal tender currency". Legal tender coins are considered to be only the metallic and paper coins that a state requires by law to use in their own territory. The legal tender currency is the only one that citizens have an obligation to accept (and, therefore, the convenience to use) to pay any services, including taxes. If we read the first paragraph of Article 128 of the TFEU (Lisbon) we discover that euro "banknotes" are the only legal tender "banknotes" allowed in the eurozone. As for coins, the same second paragraph of Article 128 entrusts their creation directly to the States, except for clearances (as regards the volume of minting) by the ECB itself.

Well, it is clear that neither Article 3 TEU nor Article 128 TFEU make mention of that other type of currency which is represented by state tickets. So, we must ask ourselves two things: a) if the state has ever issued money in the form of known-states; b) if, in the current legal framework, it can start doing it again. As for the first doubt, it is quickly dissolved. Italy issued state tickets thanks to a law, the number 171 of 1966, which authorized the Treasury to print the tickets that went down in history as the famous "Cinquecento lire" by Aldo Moro. That law remained in force until 1998 when it was repealed by the decree L.vo nr. 43 of 1998. The content was "implemented" through three implementing decrees: the DPR 20.06.1966 and the DPR 20.10.1967 for the 500 lire "Aretusa" series and the DPR 14.02.1974 for the 500 lire "Mercurio" series ".

In short, we have the historical demonstration that the law authorizing the issue of state tickets (money issued directly by the state outside the double-entry logic of bank-centric currency) has "coexisted" for decades with a central bank ( Bankitalia) exclusive holder of monetary policy (just like the ECB). And this even after the signing of the Treaty of Maastricht.

On the purely legal level, however, the decisive topic is that of the hierarchy of sources. In Italy, at the top of the "pyramid" of rules we find the Constitution. And Article 117 unequivocally assigns exclusive legislation on "money" to the State. This prerogative was made explicit, through a targeted modification of the aforementioned article 117, with the reform of Title V of 18 October 2001 (constitutional law number 3). The reform took place between the entry into force of the euro on the financial markets (January 1, 1999) and the start of its circulation in our pockets (January 1, 2002).

Therefore, on the basis of an elementary legal hermeneutic operation, it means that – even in a regulatory context such as the Community one, to which Italy must adapt – the possibility for the State to issue known States is absolutely integral. All the more so when it is considered that the TFEU was approved "after" the 2001 reform, that is December 13, 2007, and entered into force on December 1, 2009.

Furthermore: according to the granitic jurisprudence of our Judge of the Laws (that is, the Constitutional Court) European law can never violate the insurmountable "counter-limits" represented by inviolable principles (articles 1-12) and fundamental rights (articles 13-54) of the Supreme Charter, among which monetary sovereignty cannot fail to be included. The judgment of the Karlsruhe Court should instill the courage that is lacking. Therefore, the Italian Republic can issue state tickets, even under existing treaties.

Obviously, the known states should circulate only in Italy, but their use could be encouraged if the state undertakes to accept them for the payment of taxes. One last word. The state currency could also be "conveyed" electronically on the basis of art. 114 bis of the Consolidated Law on Banking issued with Legislative Decree of 385 dated 1st September 1993: “The European Central Bank, the Community central banks, the Italian State and the other Community States may issue electronic money, in compliance with the provisions applicable to them, state, regional and local public administrations, as well as the Italian Post Office ".

What could be the economic consequences of such an operation at this point? The press release 83 issued by the Treasury on April 23, 2020 notes that there are over twelve million taxpayers who boast tax credits for "around 9.9 billion euros" in the form of the Personal Income Tax Bonus plus about 49.2 billion in " Total VAT on credit ".

A total amount of almost 60 billion in receivables from the tax authorities that spill over the balance sheets of companies and taxpayers in a moment of marked scarcity of money. Added to this is the provision formulated by article 122 of the latest troubled relaunch decree which aims to introduce "on an experimental basis until December 31, 2021" the transfer, even partial, of the tax credits introduced to deal with the COVID-19 emergency to banks and financial intermediaries.

A big step forward that however clashes with the unreasonable prediction that only a part of the tax credits can be monetized. A manifestly unfair inequality. The issue of about 60 billion state-notes to be delivered to the bearers of a tax credit is therefore a good thing (for the economy) and right (for taxpayers).

The irreducible defenders of the single currency themselves must accept the need for such a measure just as an extreme attempt to defend the current monetary structure. Already in 2013 Matthew Forstater – professor at the University of Kansas City – participated in a public meeting concerning the reconstruction of the earthquake zones through an expansionary policy to be implemented through the issue of money intended to rebuild the city of L'Aquila. Today a country has to be rebuilt, other than a city. “It is not just me in hindsight that highlights the euro's congenital defects,” said Forstater, “but there are a lot of scientific papers on the subject. Already in 1998 I had focused on these real structural problems of euro architecture. Not because I'm a genius. Let me be clear. But as modern monetary theory gives us the tools to understand how money really works and the systems that revolve around it. The euro does not work and could not work not because there were bad people in charge. The single currency is like the gold standard. That is, the system in which the only currency is the precious metal par excellence: gold. As long as things are going no problem. But when the situation turns for the worse it becomes a system no longer bearable. Replace gold with a single currency for many. The result does not change. It is a problem that affects not only Italy. But the whole eurozone and consequently the whole world ".

Never were words more prophetic. After all, Eurocentric architecture puts the possibility of collecting adequate tax revenues at the center of the State's possibility of spending – an act with which the monetary base is put into circulation and therefore created – thereby preserving the absurd self-imposed limit of equilibrium budget. But right now that these constraints have been suspended, as a result of the explosion of the COVID epidemic, the time has come to unlock the true potential that the state still has available.

How? Going "creatively" beyond the limits of the "new gold" of this system (represented by the tax revenue) made impossible to find by the arrest of the real economy. This can be done precisely thanks to the issue of the State-Notes. With this further respecting another founding principle of our Constitution which reads in article 53: "Everyone is required to contribute to public expenses because of their contributory capacity". Mind you: the rule does not say "cover", but "compete", thereby admitting, even invoking, the need for the State to spend more than it collects even with the direct issue of money. Both through its central bank and directly through the known States. All the times in which any gold standard has been set up, it has irreparably collapsed, leaving room for rubble, but also for extraordinary seasons of economic growth. The time has come to pick him up again. Ad maiora.

Francesco Carraro – Fabio Dragoni

Thanks to our Telegram channel you can stay updated on the publication of new articles of Economic Scenarios.

⇒ Sign up now


This is a machine translation of a post published on Scenari Economici at the URL on Sun, 14 Jun 2020 17:05:26 +0000.