#2 in our series “On the money”
Having widened the concept of money beyond conventional ideas of national and so-called crypto currencies in the first post of this series, we will now explore the diverse landscape of what exists already and what is coming.
First, we will browse through examples of currencies that seem to defy all assumptions. Then we will look at their institutional and monetary features, to discover the design elements through which existing currencies can be better understood — and with which new ones can be tailored.
Long before Bitcoin, there had already been forms of money that were completely different from the Dollar, Euro or Yen. No, we are not (only) talking about shells, Yap stones, and gold coins here, even though they fit the description. Rather, we will here look at formally constituted, mostly virtual currencies (plus a few paper notes), that the media and economists have mostly overlooked. Not because their issuers and users tried to hide from the law or because they only existed in far-away place, but because their objectives were so different from national currencies and targeted to such specific use-cases, that they remained in a blind spot for most outside observers. Arguably, nobody would have heard about blockchains either, had some fellas not become crazy rich with no perceivable effort, touted about it, and hooked the crowds on FOMO.
The vibrant jungle of monetary diversity
Networked businesses, for example, have had their own ways of settling trade without using the “coin of the realm” probably from time immemorial. They had to, because official money was often too scarce or badly distributed. The international trade arrangements of merchants across renaissance Europe are well documented by historians (if curious, see here). Their modern versions, business-to-business trade credits, remain mostly unseen, even though they are estimated to turn over up to 15 billion USD/year (see IRTA estimates here). One of them, the WIR Bank, founded in 1934, even achieved an international IBAN code for its currency, the WIR Franc: CHW — making Switzerland the only country with more than one domestic means of exchange (see here).
It is not always about trading more
Other initiatives, so-called “local currencies” are deliberately hyper-local, focusing on quality of trade, rather than quantity. But even at a minuscule scale, they have prompted the Bank of England to put into writing, what some crude critics doubted: not only “legal tender” is in fact legal to use in trade (see here).
Another widespread set called “timebanks” operates with hours as the unit of account, in effect eliminating price mechanisms from areas of social interactions where incentives with conventional money have adverse effects (e.g. with volunteers). Again, its about quality — and fostering community. As “uneconomic” as that might seem, even public care services in Switzerland (yes, that place again, yodel!) are now “banking on time” for the provision of services to the elderly that they fear can’t be bought for conventional money in sufficient amounts much longer (see here).
Of course, the diversity we here try to survey, goes the other way, too. Some “complementary currencies” aim at much larger, even global scales. The special drawing rights by the International Monetary Fund (IMF) are an example of a global incumbent variety seldom discussed in this context. And initiatives by media giants, like Facebook’s Libra/Diem, make the news everywhere, even if they only pay lip service to decentralization and have not left the sandbox in years.
Units of account and the assumption of value
Without intending to promote one example over the other, what we find interesting to glean from this diversity are the elements in which every such complementary currency is different from the other — and from conventional forms of money — apart from their names, of course.
The chosen units of account are one such factor, but they do not always reveal themselves as plainly as in the timebank example. Since some of the currencies mentioned above continue to use the respective national currencies as the unit by which they express their value (e.g. the Bristol and Brixton Pounds), the next question naturally is: how do they back up such value claims?
Of course, an obvious — but far from all-encompassing answer - would be: “the issuer will redeem the currency, 1:1 and on-demand, for national currency”. This full reserve model is what most local currencies are based on, in the UK and elsewhere.
But the above mentioned b2b currencies demonstrate how “backing” can be achieved very differently. Those currencies typically function without collateral or reserve accounts and the units cannot be redeemed, traded or sold for conventional money. So why do businesses accept them? Simple: Because they trust that they can spend earned units on something valuable within the currency network at a future point in time.
In a b2b network this is achieved by concise contractual arrangements between the operator of the currency and all participating members. It is such “ensuring of future usefulness” that all forms of “backing” are meant to deliver. And the kind of backing accepted by any user-group directly relates back to their shared values — or lack thereof. Seen in this way, the often-assumed superiority of backing something with gold simply indicates, that there are no real ties to — and shared values with — a given community. Or, paraphrasing historical anthropologist David Graeber’s classic treatise on money: gold is what you pay mercenary armies with, and bribe your enemy or tax your colonies.
The issues of issuance
Closely related with any assumptions about the term “backing” are the ideas commonly associated with the term “issuer”. Because any value-assumptions will be proposed first by some institution, personal or organisational. To state the obvious first: yes, some modern coins still bear the king’s head and imply that somebody powerful licensed their minting - and reaped the benefit of spending them into circulation (hence the name “seniorage”), or benevolently “airdropping” them onto the market square.
But with modern forms of money, conventional and complementary, “issuance” is not such a simple archaic affair, with a powerful man or institution at the top. Looking at all the different examples above, the function of an “issuer” seems to differentiate into the following questions:
How much of a given currency shall be in circulation?
To whom will it come first, and how?
And who can change the rules around these two first questions — and how?
The answer to those three questions might point to something like a king, but only if and where kings still enjoy popular affection. Most modern scenarios result in “issuers” of a more complex nature. The intricate arrangements for the issuance of conventional money — between nation states, central banks, commercial banks and the shadow-banking sector — are just one case in point. With complementary currencies that all have one thing in common — their voluntarily use — the question of the most appropriate kind of issuer becomes a central question of currency design. And with this, sentences like “bitcoins have no issuer” or “it’s in the protocol” become mere and mute marketing claims when considered outside the echo-chamber.
So, what is the first rule of currency design?
Let’s spell out the word that most readers might already have on the tips of their tongues or fingers (and please use the comment box below, to tell us differently): it is, of course, governance that all questions of currency design come back down to. When we see money as something that “reflects and facilitates the social relations an economy is made up of” (see first post in this series), designing and managing a currency cannot simply be delegated to algorithms, or be pointed back to the crudest positions about shared values.
Later in the series, we will come back to the myriad currency configurations that the design features introduced above allow for — unit of account, “backing”, “issuer”, transaction media, incentives, convertibility, … — and we will explore what governance means in the context of our emerging currency ecosystem at Tagion. But for next time, we will take a step back, and ask the ultimate question: Why bother?
Or to say it less flippantly:
If complementary currencies are all used voluntarily, how then can currency-design lead to an individual currency’s adoption and its intended impact?
