#3 in our series “On the money”
I n the previous installment 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 others we have given a new slant which we deem helpful in getting to 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 here taken for granted that a modern economy can hardly function without some form of money. But when we call for an ecosystem of currencies, replacing common notions of hierarchies or soundness of money, and not fishing for “the one money to rule them all”, we need to be very specific about what the point is of introducing any one additional currency.
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. Their “expiration date” rendered them a bad store of value. But that was a problem, because their point was the immediate facilitation of trade. Not trade of the high-value international kind, but they were issued for everyday transactions and the simple goods of the local market. Therefore, a currency of limited value and in small and tiny denominations was much better suited than what the kings or silk-clad merchants used. This made them special purpose currencies because they would not be useful in far-off places and far-off times in the future. 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 (instead of hoarding), differential local taxation, etc…
Of course, we are on shifty terrain if we call these bracteates a complementary currencies. Because to be that, they would first have to test positive 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 or liberties of trade and movement to call upon, accepting business in any currency offered would probably have been a matter of survival, not choice.
Is there need for more currencies today?
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. Just after the great depression, participation in the WIR might still have felt vital instead of optional, but no business could be forced to participate. What swayed them, the chance of additional turnover and the selling of spare capacity, sounds great - not only in times of general economic slumps. Nearly 60.000 businesses across Switzerland agreed to accept the currency by 2014. Then and now, its turnover and membership fluctuates 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 operating there is called Sardex. And others thrive even in generally prosperous conditions and regions ( — think “currency as a service” and 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 :).
All that said, “voluntary use” becomes a bit of a sliding scale criterion. But still, seen against the backdrop of conventional money, we recognize all the above examples as complementary currencies and here presented even those with limited choice because they all support our takeaway message: 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 or 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 going down the conventional charity-route. Through timebanking both sides find ways of interacting with each other. beyond what transfers of conventional money would allow. And here, at least in regards to the second user group, it is obvious how their participation is completely voluntary. What is “in it for them” comes from outside the mainstream economic logic and can’t be accounted for in mainstream currency. It might sound strange and abstract at first, but the impact of timebanking in terms of engagement, solidarity and reciprocity is tangibly valuable for people, even if (or because?) there is no market rate for it. It is at least illustrative to notice that even the powerful and loaded City of London Corporation hosts a time banking system — for its charitable impact “that money can’t buy” (find it here).
And when we take another look at the second time-currency system we introduced last time, the time-saving schemes of Swiss cities (and soon elsewhere, because its model is now franchised), we find yet another answer to the question “why?”: their strict adherence to the hour as a unit of account naturally prohibits inflation! As long as the rules of the currency specify that nobody’s times is 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 a given economy than what central banks fiddling with their interest rates can ever hope for. But the spectrum of intents and purposes is jarring: just juxtapose the bracteates of the Middle Ages with their deliberately meagre store of value function on the one end, with deflationary bitcoins as the other extreme where “hodlers” would bring any economy to a grinding halt (if it was not for other less appreciating currencies being used for everyday transactions)!
And right in the middle between inflation- and deflation-targets is the objective of time(saving)currencies : stability.
If nothing else, we here learn: Which currency design is deemed most sensible will depend entirely on the targeted sector and their use cases!
This colourful palette of possibilities forms part of the reason why our basic definition of “money” in the first blog post sounded so academic and annoyingly general. By now, we hope it makes sense that defining it as a “unit-systems that facilitate collaboration” is the only way to incorporate all the many bespoke currency designs that exist(ed), and the many more yet to come. Remember, this series “On the money” is all about blasting assumptions about an 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 simultaneously require and induce two things: a change in behaviour and a change in perception. Those two are more or less explicitly the points made by yet another large class of currency designs: the so-called energy currencies. With a plethora of prototypes of all sizes, the conceptual idea uniting them comes from 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 resulting conflicts between economic logic and environmental requirements, if one could aim for the heart of the matter: money. That is why energy currencies try to use the units that are central in physics and biology as the units used in economics. Energy should not be bought with money, but it should be the currency.
Might sounds obvious and inevitable unless we really want to keep subsidizing 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 😊]
But wait, why has this apparently great idea not been implemented?
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 you to get an idea of the shear vastness of possible configurations that can determine a new currency. So here is a graphic mapping of “energy-features” and how the can relate to “monetary features” when combined into an “energy currency”.
W e won’t trace and discuss 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: the only route to succesful currency design is asking why? — again and again, in all openness and “earnesty” [pun intended]. Preconceived notions of what money is, or what it is meant to be, won’t help in practice — at least not in the long run.
Of course, the point of issuing a currency, can be relatively simple, when seen from the perspective of the issuer,:
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 not the issuer’s point of view, but the other side of the coin: the user perspective. Because together with a wider range of stakeholders they will ultimately be the instance deciding the success of any currency that is meant to be in service of people and the planet (not the other way around). Our definition of complementary currencies as voluntarily used forms of money translates to this: in the end, 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 post #4 of this series: On the Money.
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 as in ecology and other complex systems, there are good reasons to value diversity over efficiency in systems that are meant to last. Here is the research evidence for this high-level reasoning for “why we should bother” with complementary currencies systemically.