#3 in our series “On the money”
I n the previous instalment of “On the Money”, we introduced the idea and practice of complementary currencies and distilled some of their central design elements. You might have heard about some of those in other contexts, and on some we have given a new slant which we deem helpful in getting a deeper understanding of money and currency design.
In the end of that post, looking at appropriate issuer and governance structures for a given currency project, we landed upon a more fundamental question to answer first: Why bother?
Of course, it is taken for granted that a modern economy can hardly function without some form of money, so the question is not on that level. But then, when we call for an ecosystem of currencies, replacing current notions of hierarchies or soundness of money, and stop fishing for “the one money to rule them all”, we need to be very specific about what the point of every single additional currency will be.
So why do people create new currencies,
and why would anybody bother using them?
We dedicate this post to that question because it is the most important one to ask in currency design. If one wants to rid oneself of preconceived notions of what money is or what a “good” currency should be like, the old statement of design follows function will bear fresh fruit — for the planning of new currencies, and our understanding of existing ones. And everything else will follow from there 😊
I n the second post of this series, we had already touched upon some of the reasons why different complementary currencies have been deployed in the past. We said that Renaissance merchants created their own settlement systems because the currencies of the different monarchies across Europe were too scarce. Another reason would have been the transferability of those “coins of the realms” from one region to another, both in terms of physically carrying them around (dangerous!) and in terms of convertibility (difficult!).
Even before the ingenious Renaissance, parallel currencies had been an everyday phenomenon in many regions of Europe. The so-called bracteates of the Middle Ages had been locally minted means of exchange, issued by whatever institution could steward significant economic activity — local nobility, monasteries, trade-associations, city authorities — for a limited period of circulation only. This rendered them a bad store of value, yet again, their point was the facilitation of trade. But not of the high-value international kind: For everyday transactions and the simple goods of the local market a currency of limited value and in small and tiny denominations was much better suited than what the kings or silk-clad merchants used. These were special purpose currencies because they would not be useful in far-off places and were no good as long-term stores of value. But they allowed for specific monetary policies that favoured local needs over royal interest, for example: more local turnover, more direct and place-based investment, differential local taxation, etc…
Of course, we are on shifty terrain if we call these bracteates a complementary currencies. Because for that we would first have to test them against the one defining element we introduced last time: was their use and acceptance really voluntary? Back then, it might have seemed mockery to remind peasants, early town-folks and local craftspeople of the take-it-or-leave-it nature of such currencies. Without a welfare-state and liberties of trade and movement to call upon, accepting any business offered in whatever currency would to them probably have been a matter of survival, not choice.
Is there need for more currencies today?
So, let’s jump ahead to a situation much closer to current contexts: In 1934, when 16 visionary businessmen started issuing the WIR Franc in Switzerland (yes, at 90 years now one of the oldest complementary currencies in circulation) it was an interest-free offer to their fellow entrepreneurs. And still: just after the great depression, participation in the WIR might have felt vital instead of optional. Additional turnover and the selling of spare capacity sounds great at any time, but more so in times of general economic slumps. Nearly 60.000 businesses across Switzerland agreed to accept the currency by 2014. Its turnover and membership naturally fluctuating with the general economy and general interest-rates, but anti-cyclically!
Plenty of post-modern examples of B2B currencies exist today. Again, some thrive because of the dire economic situation that spawned them, like the high rates of unemployment on the island of Sardinia after the double whammy of the global financial and ensuing Euro-Crisis (the B2B currency there is called Sardex). But others thrive — think: currency as a service — even in generally prosperous conditions (look at the registry of their global association IRTA to find one close to you). The underlying business models are often overlooked in monetary theory because legally, they are simply called closed-loop-payment systems and, in their own marketing material they often call themselves “barter” (and apparently fail to see the irony in that :).
We admit: “voluntary use” might be a bit of a sliding scale criterion after all. But seen against the backdrop of conventional money, we recognize all the above examples as complementary currencies anyway. We presented them all because even where choice is limited, the takeaway message for currency design still stands: a currency needs to be designed and evaluated against its expressed purpose.
What (conventional) money can’t buy
With this in mind, let’s get back to the intricacies of possible answers to “why bother”? — beyond the logic of trade and commerce. We mentioned timebanking as a widespread example in the last blog because of their unusual choice of a unit of account: hours. Stubbornly asking why anybody would give up their time for such currency helps to home in on the understanding we here seek to foster.
The typical user groups of these systems are two-fold; on the one side are those, who are so marginalized by the conventional market economy, be it for their age, their background, their abilities, that they cannot find a way into activities and social settings that most find normal. On the other side we have those — businesses and individuals — who want to contribute to their local communities without without going down the conventional charity-route. Through timebanking both sides find ways of interacting with each other that transfers of conventional money would not allow. Here, at least for the second user group, it is obvious how their participation is completely voluntary. So what is “in it for them” needs to come from outside the mainstream economic logic and can’t be accounted for in mainstream currency. It might sound strange and abstract at first, that their impact in terms of engagement, solidarity and reciprocity is tangibly valuable for people beyond market rates. But then again it might be illustrative to notice that even the City of London Corporation hosts a time banking system — for the charitable impact “that money can’t buy” (see here).
And if we check in again on the other time-currency system from the last blog, the time-saving schemes of Swiss cities (and soon elsewhere as the model is now franchised), the answers to the question “why?” diversify again: the strict adherence to the hour as a unit of account naturally prohibits inflation! As long as the rules of the currency specify that nobody can claim their time ticking faster than anybody else’s, an hour earned (and saved) for an hour of service today will buy an hour of service tomorrow, or in 10 years or in 50.
Objectives are subjective, or: horses for courses
Creative currency design thus offers many more possibilities for fostering certain changes in various economies than what central banks fiddling with their interest rates can ever hope for. With the bracteates of the Middle Ages we have met a currency with a deliberately meagre store of value function. Juxtapose that with deflationary bitcoins, on the extreme other end of the spectrum, where “hodlers” would bring any economy to a grinding halt if it was not for other currencies that can still be used for everyday transactions in the real economy. And in the middle, there are time-saving currencies with their objective being bang in the middle of inflation and deflation: stability. Which currency design makes sense entirely depends on the target sector and use case!
This colourful palette of possibilities forms part of the reason for making our basic definition of “money” in the first blog post sound so academic and annoyingly general. We hope it now makes sense to not be more specific than saying “unit-systems that facilitate collaboration” as only this seems to incorporate all the many bespoke designs that have been tested, and the many more yet to come. Remember, the series “On the money” is all about blasting any assumptions about a one-size-fit-all economy and the monolithic ideas about money that goes with that.
Ecological economics instead of economy vs ecology
All these examples from the multiverse of currencies require and induce two things: a change in behaviour and a change in perception. And those two are the explicit points made by yet another large class of currency designs: the so-called energy currencies. Along with many individual prototypes of all sizes, the conceptual idea behind them can be mapped on the premises of the discipline of ecological economics: No economic system can outgrow its physical limitations. So, to be sustainable we need to account for externalities, value environmental services, and align consumer preferences with ecological boundaries. Market-based approaches might be a first step in that direction, but why fight all the conflicts between the economic logic and environmental requirements, instead of aiming at the heart of the matter: money. So energy currencies try to imprint the units that are central in physics and biology into the units used in economics. Sounds obvious. And probably inevitable unless we really want to subsidize the super-rich on their way to Mars from where they look down in pity and disgust at the poor idiots back on earth who didn’t join the rat race in time. [rant over 😊]
Now, why has this not happened yet? No, it’s not because of the bankers (at least not only), but simply because introducing such a new currency, and at scale, is a rather intricate endeavour. In future posts, we will get to the role of stakeholders, technology and compliance in all of that. But for now, we just want to show get an idea of the shear vastness of possible configurations to be considered when aiming at a new currency. For that, here is a graphic mapping out the possible energy-features against the possible monetary features which could be combined for a “energy currency”.
W e won’t trace each possible combination of features now (but have a look at the source of the image for a deep dive). The takeaway here simply is this: only asking why, again and again, in all “earnesty” [pun intended] and openness can serve as a guide for successful currency design. Preconceived notions of what money is, and what it is meant to be, won’t help in practice — at least not in the long run.
Because “the point”, as seen from the interest of the issuer, can be relatively easy to define:
e.g. make money — and fast (as in many pump-n-dump cryptos)
or capture more user data (as with many loyalty and reward systems)
or reap in transfer fees (this is where monetary design and FinTech meet)
or earn membership fees and commission (yes, that is how most B2B currencies are run)…
But what we will focus on in the next post of this series is the user perspective, because, together with a wider range of stakeholders they will ultimately be the measure of currencies in service of people and the planet, instead of the other way around. In the end, in voluntary currencies the users wield the power. Or as heterodox economist Hyman Minsky iconically put it:
“everyone can create money; the problem is to get it accepted”
(p. 228 in Stabilizing an Unstable Economy, Yale University Press, 1986)
We will pick up that cue in the next post.
Postscript:
For the MBA graduates and system-thinker apprentices amongst you:
Yes, it could be argued, that a multi-currencies economy must be less efficient than the one money we currently have. Who would want to deal with so many wallets anyway?
But there are good reasons to value diversity over efficiency in systems that are meant to last. We will get to these high-level reasons for “why we should bother” in another post — for now, here is some research hints to quench or tickle your curiosity.
