And they say the forint is a dodgy currency!

If there are two main themes to opinion pieces on this website, they are a) counterproductive attempts at economic development by government or quasi-government entities in Hungary, and b) signs that the whole world, or at least Hungary, is going to hell in a handbasket. Today’s has both. According to various sources we learn that a group of businesspeople and citizens in the Western Hungarian city of Sopron is poised to being circulating their own currency. Called the kékfrank (“blue franc”), the new notes come in a variety of denominations mirroring those of the Hungarian forint – to which it is linked – and feature the likenesses of composer Ferenc Liszt, Joseph Haydn and other historical figures with ties to the area. It is also a multilingual currency, featuring Croatian in addition to Hungarian and German. (Apparently there must be a lot of ethnic Croats out near the border.) While it isn’t yet in circulation, the new currency can already be “pre-ordered” from the initiative’s website (www.kekfrank.hu). Again, this isn’t a joke – at least not one the people behind it seem to be in on.

While details on the kékfrank program are still a little sketchy – aren’t they always with things like this? – the basic idea is that companies that join the initiative commit themselves to accepting the notes as if they are real money before at some point converting them back to forints. The kékfrank notes would be issued in the same denominations as forints – ranging from 500 to 20,000 units – and would be offered “at par,” meaning that a 5,000 kékfrank note like the one pictured above featuring 17th-century Sopron mayor (and “humanist”) Kristóf Lackner would have the same value as the more familiar Ft 5,000 note featuring 19th-century Hungarian statesman István Széchenyi.

Tamás Perkovicz, chairman of the HA-MI Összefogunk Európai Szövetkezet (“When We Unite European Association”), the organization that initiated the program, predicts that the kékfrank could replace as much as 20% of the traditional currency transactions in and around Sopron, meaning billions and billions of forints.

Movements to create parallel forms of currency – or “script,” as it is known in the United States – are nothing new. According to this article, the fathers of the kékfrank seem to have gotten the idea from a similar initiative in Switzerland called WIR, which apparently has been used there during recessions.

But unlike some more limited schemes aimed at encouraging consumers to shop locally – such as the “Pécs Card” we wrote about back in 2008 – the kékfrank seems to be built on rather larger ambitions. Chief among these is the apparent belief by its backers that it can provide an alternative to high-interest loans. Its backers also say that the notes will cut down on the administrative costs of companies that do a lot of business together.

Indeed, the kékfrank in some ways seems to run counter to the traditional “buy local” thrust of most do-it-yourself local currencies. Such schemes usually revolve around the retail offering of notes at a discount, meaning that consumers get, say, a 100 note for 90, but have to spend it at participating businesses, which in the end finance the 10% gap. By comparison, the kékfrank actually costs more than the forint, as it is issued in decorative boxes costing Ft 1,200.

As for what’s wrong with the kékfrank initiative, it’s hard to know where to start. For one thing, the idea that somehow this might offer savings on administrative costs is just loopy; if the kékfrank really has value, it will have to be treated just like any other currency. And no one could possibly claim that encouraging businesses in Sopron to also accept Estonian kroons or Eritrean nakfas would cut down on paperwork. As for whether it would help businesses dodge taxes by booking revenues as kékfranks rather than forints or euros, that’s just too silly to even contemplate.

But these are just minor details compared to the question of whether these people really think the kékfrank could somehow provide local businesses with an infusion of liquidity, or new business. In short, it can’t. If the notes really are going to maintain a one-to-one value with the forint, every kékfrank put into circulation must essentially be “backed” by a forint removed from circulation. Absent such a “currency board” setup, a group of companies all hard up for cash or credit might as well just issue invoices without due dates to each other, which essentially seems to be one of the main problems the kékfrank is meant to solve. Either that, or the kékfrank starts life with the same value as the forint, but then ends up as just a pretty piece of paper, like the old forints and pengős I have framed on my wall.

On the bright side, even though a scheme like this could easily turn out to be an out-and-out scam, it doesn’t appear the kékfrank is. Unfortunately, the notion that people really think it could work isn’t that much less scary.