Mini-BOT

Mini-BOT in the government programme of the Five Star Movement and the League

The economic evaluation of mini-BOT very much depends on its specific characteristics. Overall it appears to be a blend of an inferior security and inferior money. More important than its specific characteristics is the message that the implementation of the mini-BOT would send about Ital-exit: inevitably, given what the League and its representatives have said and written, the mini-BOT would be seen as a first step in the exit of Italy from the euro, rekindling denomination risk attached to Italian securities.
BY: FRANCESCO PAPADIA AND ALEXANDER ROTH
Introduction

Italians, fellow Europeans, savers and financial markets as well as the entire global community are eagerly looking at Italian political developments to try to understand the direction the country with the third largest economy in the euro area will take. Among the issues on which they are seeking more clarity, there is one that has taken different names over time: It started with the pompous and threatening denomination of parallel currency before it was more modestly renamed as the mini-BOT[1] by Claudio Borghi Aquilini of the League. Finally, it was further downgraded to “government bonds of small cut” in the latest “contract” agreed to as a basis of the new Italian government.

As we could not find an official English translation of the program agreed to between the League (La Lega) and the Five Star Movement (Movimento 5 Stelle or M5S), we provide below our translation of its part on mini-BOT[2], which proposes:

“… instruments such as government bonds of small cut, even by evaluating the definition of public debt in the appropriate instances.”
Description of the proposal (as far as we know)

We present here the mini-BOT proposal drawing principally from the book of Borghi Aquilini[3].

Mini-BOT are planned to be a type of IOU[4] (“I owe you”) that will be issued in paper form and small denominations (€1 to €500). Borghi even presents facsimiles of the new mini-BOT mimicking the euro banknote in his book. In a first step, the government would use mini-BOTs to pay public arrears. Mini-BOT, unlike traditional BOT, would pay no interest and would have no maturity.

The government would guarantee accepting mini-BOT for future tax payments, thereby implicitly safeguarding, according to its proponents, its value. Proponents also hope that mini-BOT would be used for payments between private agents. That being said, parties other than the government would not be obliged to accept mini-BOT. It is planned, however, to accept mini-BOT as legitimate mode of payment to settle energy bills or buy train tickets or other goods and services supplied by publicly owned companies.

The crucial idea of the mini-BOT is that it would be used as means of payment. Due to their character (paper form, small denominations) it is hoped that they will be spent locally, thereby stimulate growth in the Italian economy. Thus, Borghi sees mini-BOT as a tool of fiscal expansion without relying on the euro.

However, there is also another side to the mini-BOT which is important to highlight. Borghi explicitly points out that mini-BOT are seen as a necessary step to the abandonment of the euro by Italy: “It’s true that mini-BOTs are in euro but once they will be widespread they will form a sort of ‘spare wheel’ that will make the transition to our currency much easier. [ …] the day of the passage [to the new currency] it will suffice to declare the mini-BOT the new money.”
Literature and Precedents

Economic commentary on parallel currencies is mixed

Bossone and Cattaneo (in a paper (n.d.) as well as in a 2016 VoxEU article) in addition to Amato et al. (2016) already presented concepts similar to Borghi’s mini-BOT. Specifically, Bossone and Cattaneo (n.d.) have introduced “Tax Rebate Certificate” (TRC) while Amato et al. (2016) have proposed introducing the “geuro”[6]. These constructs share many, but not all, of the characteristics of mini-BOT.

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