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Could bitcoin become Greece’s next official currency? Probably Not.

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Greece is on the verge of being booted out of the Eurozone, and potentially even the European Union itself. Its EU creditors, the IMF, numerous analysts, heck even Greece’s own central bank has acknowledged this. If Greece is shown the door, the country will find itself in need of a new currency, and some within the bitcoin community are speculating that bitcoin could actually become the country’s next currency.

But before we jump to any dramatic conclusions, however, let’s take a deep breath. Bitcoin is arguably the world’s best non-government backed currency, and for good reason. The system was designed from the ground up to protect against inflation by limiting supply, isn’t subject to the frequent financial mismanagement of governments, and is highly anonymous, among other things.

All of these strengths, however, doesn’t mean that bitcoin is ideal for a national currency. The lack of government control makes bitcoin perfect for people looking for an alternative to government-backed currencies. For a government, however, this lack of control could turn out to be a huge problem.

Indeed, one of Greece’s biggest problems right now is that it lacks control over the euro. If Greece controlled its own currency, market fluctuations would adjust the value of its currency to the overall performance of the country. Countries that are struggling generally suffer from weak currencies, which then make it easier for countries to export goods because exchange rates make it cheaper for foreign countries to purchase goods. Increased exports can then bolster economic growth and help struggling countries get back up on their feet.

This is a simplification of some very complex trends and tendencies in global finance, but you get the point: markets are often capable of self-adjustment. One of the principle problems currently being faced by Greece is the fact that its economy is tied to a currency that is also being used by Germany, France, and other country’s with stronger economies.

Long story short, Greece has been suffering from economic contraction, but is tied to a strong currency that is being bolstered by the stable economies found in Germany and the rest of the Eurozone. This makes it more difficult for the euro to adjust to Greece’s economic weakness.

Likewise, bitcoin will never be beholden to national level occurrences in Greece, or anywhere else for that matter. This is great for bitcoin investors, who don’t have to worry about their wealth being tied to any national government and the policies of often dysfunctional political systems.

For Greece, however, if the country adopted bitcoin as its currency, it wouldl find itself facing a similar challenge as it does with the euro. The country will be tied to a currency that is not linked to its own fiscal policies and economic performance. This will essentially rule out any market-based currency adjustments, making it difficult for Greece to be in charge of its own economic destiny.

Should bitcoin users be offended that their currency isn’t up to snuff to be a national currency (or at least that I allege it isn’t)? Nope. Bitcoin isn’t meant to be a national currency, and it never should be. Following the increased mismanagement of national finances by various governments, the world needs a currency that transcends national-level politics, and bitcoin might just be the answer.

So if not bitcoin, what will happen if Greece leaves the Eurozone?

If Greece is kicked out of the Eurozone, the country will most likely issue its own national currency, probably under the moniker of “drachma.” The drachma was Greece’s currency up until 2002, when the euro came into circulation. If Greece exits the Eurozone, it will most likely issue its own national currency, rather than use bitcoin or any other currency.

If the exit does happen, by the way, bitcoin could enjoy a considerable bump. Some speculate that the Eurozone could collapse if Greece leaves. Others believe that the Eurozone will survive, but could be hit by an unprecedented wave of instability.

The more turbulence there is in global financial markets, the more attractive the government-free bitcoin will become. This is a different analysis for a different day, but it’s something every bitcoin investor should be aware of.

An international financial analyst and writer. He has consulted for the Malaysian government, various MNC's, and other organisations. He focuses on currencies, commodities, and emerging South East Asian markets.

View all Posts by Brian Booker

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