#4 in our series “On the money”
The learning-journey of our mini-series “On the money” can thus far be summarised like this:
In Post #1 — What we talk about when we talk about money we learned, that…
Money as a concept goes far beyond gold, dollars and bitcoin.
And this concepts gets implemented, practically, in what we call currencies. They come in myriads of different forms and show their creative power when we consider — and design — them as social technologies that facilitate collaboration.
In Post #2 — Currency Design — the what, the how and the why we learned that…
There is a vast diversity of needs and solutions on the basis of which new kinds of currencies are conceived. Their design elements need to be carefully discerned when analysing existing currencies, or when planning new ones.
In Post #3 — New money!? Why bother, brother? we learned that…
What’s central to consider for the issuer of a new currency is the USP they want to provide with it. We use “unique selling point” (USP) here, because what all complementary currencies have in common is their voluntary use. Independent of the motivation of the issuer the question always is: how will they get their intended users on board?
This question is what led us to quote Hyman Minsky at the end of the last article, reminding us that “everyone can create money; the problem is to get it accepted”. We will now have another look at this before turning to more practical considerations of currency implementation next time.
This time we start from the user perspective and scrutinise their assumptions and needs, and how those are targeted by issuers who want to get their new currencies adopted. We will highlight a number of iconic and illustrative narratives for this purpose. Some of those, along with their explicit or implicit institutional or social arrangements, might sound and feel very familiar. Revisiting them as deliberate design elements, instead of taking them as something “natural given”, will be the merit and benefit of this post.
Common narratives about the currencies people prefer
When talking about conventional money, the linked narratives about adoption are often wrapped into descriptions of so-called “sound money”, “good money” or “solid money”. The unquestioned notion here comes down to there being one central criterion worth considering: the ability of a given currency to act as a long-lasting store of value in large and impersonal economies. We call this set of assumptions about the currencies users would prefer by its most popular appearance: the “gold story”.
It is based upon the view that people will “naturally” adopt a currency if — and only if — it is backed by precious metal (or something that is ascribed with “intrinsic value” — a term even Investopedia calls “mystical” rather than factual). Because only then will they trust that the currency will retain its value over time. Of course, even in this story money is as some other functions too. But none is seen to be as central a criterion on which to judge “soundness” and likelihood of adoption as “store of value”.
Evidently, even the term “fiat money” is strongly associated with such narratives, because in its common usage it denotes — and demotes! — forms of money without physical backing. With this goes the second most prominent adoption story: the narrative commonly called “chartalism”. The basic idea of this second monetary “grand narrative” is, that a political sovereign can make its subjects accept any form of money by law, or failing that, by force. The classic images that come to mind here are kings requiring tax payments from “their people” in a currency of their choosing. This could be existing precious coins, maybe ones with the king’s own head embossed on them. But if all gold in the realm was already used for decorative purposes or international trade, the king might as well issue their own “worthless” fiat currency, and point a gun at anybody who refuses to accept it.
The mixed messaging of chartalism
This story rings true even today, if the gold story is mixed into it. To proponents of the gold story our current monetary regime without physical backing makes the responsible government look like the self-centered kings of old. Hence mention of fiat money often carries negative connotations or lament. It is deemed and described as worthless.
This evokes the above mentioned “at gunpoint” scenario: would we not only accept a government issued currency because we are forced to!? However, the basis of chartalism could also be expressed more as carrot than as stick: we accept a government issued form of money because they have created the right incentives. In the case of national currencies today, it is the necessity of paying tax that gives a national currency its convincing appeal. If nothing else, tax obligations give fiat money a residual utility — so why not conveniently accept it!?
Of course, there is more to the governmental story of money issuance. And by now we might get a feel for the power of stories and the particular weight of “his-stories”. The term “legal tender” that often crops up in such narratives with presumed or ordained authority, is another case in point. Ask most anybody on the streets about it and they will regurgitate a popular myth — that states what the label “obviously” seems to say: it is the only legal money in a given country, and it can’t be refused. If you bother to read the laws or even ask the central bank about it, it will look very different. Something being “legal tender” only makes it explicitly legal to offer (literally: to tender) it in payment. But neither does it make the payment with other currencies illegal, nor does it mean it can’t be refused.
Pay me, sway me, buy me? No, convince me!
Coming back from this little excursion into discourse and terminology, this second, tax-related version of the chartalist story will here be marked as the next adoption strategy (third after the “gold” and “chartalism — at gunpoint” stories): the story of setting right incentives. In the issuance of a complementary currency, such incentives can take many different forms. It could be mere convenience of payment (one of the first mobile payment systems in the UK was offered by the hyperlocal Brixton Pound), or the use of an exclusive or valuable good or service (think airline tickets in bonus program, or the garden plots of the city of Ghent, Belgium, that can only be rented with their social currency “Torekes”), or help in marketing and sales of spare capacity as is the case with many B2B currencies (see blog post #2).
As positive as the pull of a desired or convenient incentive might sound, the mention of “exclusivity” in the above description again points to a less constructive flipside. This “other side of the incentive coin” is what we will here list as the fourth adoption-narrative called: FOMO!
Ever heard people wax about bitcoin as a great currency because it is scarce? “Hey, buy into it now, because there is only so much in existence, so more people will want it and then there seems to be even less available, and so more people will want it….” Psychologically, the notion that “scarce is better” was inherited from the gold story (see above) and fostered by negative comparison during times of runaway inflation. We are not (yet) trying to advise on more or less appropriate strategies for adoption here. But note for yourself, how many “pump-and-dump” initiatives build on this kind of story.
As much as “making the issuer and his buddies rich” could theoretically be seen as a legitimate objective for the issuance of a currency, it should now be obvious that this won’t create a better understanding of — and more enlightened engagement with — the topic of money. In this sense even Bitcoin might fail the hopes described in “Nakamoto’s paper”. Because enough people being burned by crypto might leave monetary matters in the hands of the bankers again. Not because they trust them, but because they cannot conceive of a better alternative.
Monetary literacy — monetary enlightenment
This series of articles is meant to heighten the “monetary literacy” of our readers. So, test your own progress: what other adoption story could be derived from our definition of money (see blog post #1) as a “unit system that facilitates collaboration”? Our suggestion would be: put the horse before the carriage and start with collaborating on issuance, instead of hoaxing people into adoption later! Because the simplest answer to why anybody would use a currency is: they were involved in its conception and have agreed to it. Let’s call this the “cooperation story”.
This again can take many forms. It might be local residents coming together to form a LETS group or timebank, businessmen founding a cooperative to issue a currency for their members. In general: imagine any community — geographic or online, bound by common interests — deliberating on their common goals, realising a new currency might serve these, and collectively deciding to design and issue it according to their needs — et voilà (excuse my French): its adoption is not the issue any more.
With this ideal scenario in mind, a very different criterion for evaluating the “soundness” of a currency can be imagined: the level of participation of its users in questions of issuance and governance. In this sense, it is sad to look at our national currencies today and realise how far from democratic involvement they are. Some initiatives are trying to change that, e.g. www.internationalmoneyreform.org or www.finance-watch.org. We wish them swift success, so that future readers of this blog can reassign the national currencies they use to the “cooperation story” instead of one of the chartalist narratives.
But in the meantime, it seems to be down to us (and you) to imagine, design and implement new, cooperative currencies from the bottom up. Tagion, our decentralised financial infrastructure strives to be a turnkey enabler for that. And our next blog post will lay out the practicals of currency implementation.
Are you ready?
