Debate is growing in Italy about the suggestion that a new domestic currency could be introduced by the government to pay its debts — and the possibility that Rome's Eurosceptic coalition might use it to facilitate the nation's departure from the euro.
Prominent members of deputy prime minister Matteo Salvini's ruling League party have floated the proposal — which was endorsed by a vote in the Italian parliament last week.
But how would it work, and how likely is it to happen?
What is this parallel currency idea?
The Italian government should issue debt in small denominations which can change hands as a medium of exchange — that, at least, is the view of key advisers to Salvini.
Claudio Borghi, one of the League's most influential economic advisers, has championed the idea, as has Alberto Bagnai, president of the finance committee in Rome's Senate.
Borghi, who has been strongly critical of Italy's membership of the single currency, is president of the budget committee in the lower house of Italy's parliament.
The proposal involves creating a new type of Treasury bill — dubbed mini-bills of Treasury (mini-BOTs) — which could be used by the government to pay the arrears it owes to commercial businesses, and by citizens to pay their taxes, Borghi has suggested.
Thus it would have the scope to grow into what would in effect be a parallel domestic currency, separate from Italy's official currency, the euro.
Although there are no detailed proposals, Tommaso Monacelli, professor of economics at Bocconi University, said that mini-BOTs could range from €1 to €50 in face value, and have no interest rate or maturity date.
Salvini did not tap Borghi and Bagnai for ministerial positions that would give them any power to implement their radical ideas, but their rise to legislative posts has given them a platform to set out their policy proposals.
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The League, which governs in coalition with the leftwing Five Star Movement, included mini-BOTs in its election manifesto last year, and the coalition agreement also mentions them.
The idea received wider attention last week when markets took fright after the Italian parliament passed a vote calling on the government to consider using mini-BOTs as a way of paying its debts to suppliers.
Why would this be controversial?
The introduction of what could in effect constitute a parallel domestic currency would undermine Italy's membership of the euro, Marcello Messori, director of the school of European political economy at Luiss University, said: "The issue of mini-BOTs is a way to facilitate the creation of a double monetary circulation."
Riccardo Puglisi, an economist at the University of Pavia, said the proposal was "a way to facilitate the exit of Italy from the eurozone".
That would leave Italy in breach of European treaties, some argue.
"A legal tender can only be made by law, but this would contravene the treaty on the euro," according to Lorenzo Codogno, a former chief economist at the Italian Treasury.
The Bank of Italy has rejected that suggestion on the grounds that "since it would not be legal tender, it would not violate the provisions of the European treaties regarding money issuance".
"No one wants it to be made legal tender now. There is no uncertainty about that," said Codogno. "Still, once in circulation it could become legal tender in the future."
How likely is this to happen?
Although last week's parliament vote ramped up investors' concerns, it had little meaning in legislative terms, analysts say. The motion was not binding and it was only an indicative vote — a fairly common event in Italy's parliament.
"[These] motions have no practical implications," said Monacelli. "They are suggestions to the government, nothing more."
Some MPs reportedly admitted voting for the motion without being aware of its contents; analysts have warned against interpreting the vote as an expression of the parliament's intent.
Messori said: "I think this parliamentary motion was just an accident."
Even if small-denomination Treasury bills were introduced, they could only become legal tender if Rome legislated to make it compulsory for them to be accepted as a means of payment.
As a result, the "practical implications [of the vote are] substantially zero," said Nicola Nobile, an economist at Oxford Economics.
The Italian Treasury has already rebuffed the parliament's motion, saying: "There is no need, and no measures of any type are being considered — certainly not the issue of small-denomination state bonds — to tackle any supposed delays in payments by the public administration."
Mauro Pisu, head of the OECD's Italy desk, called mini-BOTs "a solution in search of a problem" — there are alternative ways of dealing with the Italian government's debts to its suppliers, he said.
"If it wanted, the state could already offset the tax debt of taxpayers with the commercial credits they have towards the [government]," Pisu said.
"Such a clearing system is already used to offset taxes due with tax refunds. It could simply be extended to cover the arrears of the state."
So last week's vote may have been merely symbolic — but for Italy's emboldened Eurosceptics, however, it was a morale boost.
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Written by: Davide Ghiglione and Valentina Romei
© Financial Times