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Snick English

  1. 1. Anne Snick* Is a different kind of currency possible? In medieval times guilds used their own currencies for local transactions. Monarchs eager to control the emerging middle class replaced these moneys with their own “royal” currency. By requir- ing taxes to be paid in their money, they forced local systems out of existence. Now the opposite is happening. Officially only banks have government “fiat” to create money recognized as legal ten- der and required for paying taxes. Yet local moneys are emerging worldwide. An important driver behind this is that citizens and social-profit organisations have access to information and com- munication technology (ICT) allowing them to create exchange platforms. Complementary currencies: great range and variety Today there is no standardized definition of complementary currencies. At one end of the spectrum are retailers’ fidelity sys- tems. A customer is “paid” a point when she or he buys things, and is incited with these points to buy again; consumer loyalty increases profits. Other systems want to bypass bank power. With Bitcoin’s block-chain technology transactions can be verified without a central authority. Moneys at this end of the spectrum increase the control of economic actors over (part of) the financial system and strengthen their competitiveness, but don’t radically question the assumption that “making money” is the aim. At the other extreme are currencies with social or ecological aims, valor- ising people’s contribution to them. In Local Exchange and Trade *Anne Snick holds a PhD in Philosophy of Education (KU Leuven, Belgium). For the last 30 years she has done research in the fields of social innovation and sustainable eco- nomic models, using systemic analysis and transdisciplinary methodologies. With Bernard Lietaer she co-authored a handbook for local authorities on community currencies. She has been a Board Member of the Club of Rome-EU Chapter since 2012.
  2. 2. 56 POLITIQUE INTERNATIONALE Systems (LETS) people mutually exchange services and share tools, skills or other resources. Systems like Time Banks or those initiated by social-profit organisations or public services valorise volunteer work that fulfils local needs which the market does not meet. Value is created each time people collaborate on this. The points allow them to buy a service from each other or from local providers. On this “competitive-collaborative” continuum all varia- tions are possible. Business-to-business currencies (e.g. WIR in ­Switzerland, RES in Belgium and Sardex in Sardinia) are created to facilitate exchanges among SMEs and to offer them cheap credit. They can be combined with a customer loyalty scheme. By invig- orating the local economic fabric and shortening the supply chain, B2Bs have a positive effect on social and ecological wellbeing. Often citizens can use “collaborative” money for buying at local SMEs. Loyalty schemes of retailers may credit points not just to personal accounts but also to a community project. The design of local moneys varies with context, needs, available resources and vision. A phenomenon on the rise Since most local currencies are grassroots initiatives, official records are unavailable. But all statistics show that their number has risen quickly over the last decade; already in 2004  some 4.000 existed worldwide. In academia local money is now a spe- cific field of study with its own journals and conferences. All this indicates that, although under the radar of mainstream economics and politics, decentralised money is taking root in the landscape. Local moneys are valid only within a defined community (of clients, citizens, businesses or social-profit organisations). Can they change the dynamics of the current system and lead to a new balance? Currently governments give banks the exclusive fiat to cre- ate money, and require taxes to be paid in this national currency. These currencies (including the euro) are interchangeable world- wide, and bankfiat money has become the main means of exchange for the global economy. This causes extreme interdependency and vulnerability, so the toppling of a US bank may cause damage worldwide. As shown and developed in Bernard Lietaer’s article in this review (1), fiat monopoly is to the financial system what
  3. 3. Anne Snick 57 monoculture is to an ecosystem: it seems efficient in the short term, but is not resilient and makes the system vulnerable. Banks are private companies selling financial services and products with a view to making a profit. They’re not neutral agents facilitating financial transactions of economic actors, but are them- selves actors who treat other companies as competitors. They may invent complex financial constructions to increase their profit at the risk of others (think of collateralized debt obligations or credit default swaps); they may speculate with their clients’ investment money. Banks are competitors just like other companies but at the same time have exclusive (fiat) power over the medium of exchange in the competition. There is no “level playing field”. Banks can afford to take huge risks and let governments pay the damage, for they are “too protected to fail”. Money is created when a bank writes out a loan only a frac- tion of which is covered by its assets (Fractional Reserve Banking or FRB). Adding numbers (digits) to clients’ accounts is in theory unlimited, so financial growth is the rule. Debtors however have to pay back the loan by participating in the real economy on a planet with limited capacities. This creates an imbalance since outflows are larger than inflows. This fuels fierce competition among eco- nomic actors to get hold of economic resources at the lowest cost. The imbalanced flows reveal this “growth” is a fiction, yet (by bank fiat) it rules all human dealings. Actors have to pay their debt back with interest (the bank’s profit). Given “fiat monopoly”, debtors cannot create the interest by adding digits to the bank’s account. Their only option is to “extract” it from other actors, e.g. by lending their savings, via profitable dealings with customers, workers or suppliers, by mini- mizing taxes etc. This feature makes money structurally scarce and fuels a worldwide rat race. Even people or companies with ethical concerns will be tempted to buy cheap goods or resources which may be produced under unethical conditions. National economies must extract money from other countries to keep a positive trade balance. Yet on a global scale it is impossible for all countries to export more than they import; so the defence of national interests will (have to) prevail on concerns for balanced global economics. As a result, the current monetary system (here called F-money, short for Fiat and Fictional growth) steers socioeconomic proc- esses along “biased” paths, resulting in (predictable) escalating loops that lead to tipping points.
  4. 4. 58 POLITIQUE INTERNATIONALE Local currencies: a cure? The features of F-money determine the capacity of the econ- omy to be successful. The function of economics can be described as the sustainable allocation of scarce resources to the needs of all. This includes people in the global South as well as future generations (so humankind can survive). It also includes other species’ populations kept above critical levels, for the collapse of one species may create a domino effect ending in mass extinction including humans. This function refers to the real economy inso- far as it concerns real (human or material) resources for fulfilling the needs of real beings. Economic growth in any real sense can only refer to increasing prosperity for all life on the planet. The pursuit of (fictional) “growth” today turns into loss of prosper- ity for life on the planet. Many decentralised moneys (here called “collaborative and community moneys” or CCs) make common wellbeing their aim. Growth vs. prosperity Since scarce money forces all actors to “earn interest” via extraction and competition, “making money” has become the aim of economics. Most indicators of growth are in financial terms, not in terms of increasing prosperity. This effect is also felt at micro level. F-money encourages speculation, e.g. by keeping houses off the market to push prices up. Houses thus no longer meet a real economic need (housing people), but become leverage for finan- cial gains. It also harms the economic health of entire regions. Big companies have more power to extract profits than SMEs. Large food retailers for instance can force farmers to sell products at prices that do not cover their production cost. This incites banks to give only big actors access to credit and refuse it to SMEs. In many sectors economic power gets concentrated in the hands of a few corporations, creating “monocultures”: if a huge company moves towards a low wage country, a lot of families in a region lose their income. CCs counteract this reversal in various ways. B2B money may give credit to SMEs at no interest. SMEs accepting local money attract extra buyers. CC’s can be earned by persons whom companies deem “uncompetitive” but who are able and eager to work for community goals. The points they earn may allow them to buy things they could not otherwise afford. Systems such as
  5. 5. Anne Snick 59 LETS connect local talents to local needs without exclusion and let all citizens contribute to local wellbeing. Social insecurity vs. community goals Given its scarcity F-money creates competition. Competi- tiveness, individualism and private ownership have become “val- ues” that drive behaviour. People with money can earn more, for example by speculating on houses, thus forcing poorer families to take higher mortgage loans, raising chances these families will indeed default. Moreover, the profit-drive encourages companies to move to low-wage countries or replace workers by robots, so F-money causes unemployment. Governments cope with this by redistributing money, which leads them to raise taxes. Taxes in turn spur firms to move to countries with less social protection, etc. So social “security” in fact indirectly increases structural insecurity. Because money is created each time a person contributes to the chosen goal (e.g. becoming a caring, learning, healthy or “greener” community), CCs increase social wellbeing. Even age- ing, lowly educated or migrant people can help seniors, teach ref- ugees, support the young or contribute to a clean street. CCs are as abundant as there are people with talents and time. They may be designed with negative interest (demurrage) or a time limit so they circulate faster and discourage accumulation. Some have inbuilt redistributive mechanisms, by donating a percentage of all par- ticipants’ credits to people (e.g., with poor health) unable to earn points. CCs mobilize local resources in an inclusive way, nurture cooperative values and connect people. Extracting vs. sharing Creating F-money demands competing in the real economy. Its “growth” demands raising productivity and speeds up entropy (diminishing the energy available for work). As natural resources become less accessible, profits will be increasingly hard to make. So F-money creates a drive for actors to treat social and ecological damage as externalities (kept outside the company books). Firms will prefer working in countries where they can produce at the lowest cost. As long as fossil fuels are cheap (disregarding ecolog- ical and social damage) it may seem rational to let a pot of yoghurt go through production steps in six different countries. Even for the
  6. 6. 60 POLITIQUE INTERNATIONALE consumer it may be smarter to buy this yoghurt rather than the one from the local bio-farm. Yet, depletion and pollution reach a point at which the costs of neglecting them annihilate the profits. CCs promote economic transactions in short supply chains and diminish ecological footprints. Citizens may be rewarded for reducing or recycling waste, and allowed to buy (only) ecological products with CCs. If people share tools and skills, this reduces the need for new appliances, slowing down the entropy process. A person who wants to put up a frame needs “a hole in the wall”, not a drill. A LETS-member may come in and drill the hole in return for other help. This “sharing economy” (a social innova- tion) is very efficient in fulfilling needs while using few material resources. But it will also make the sales of tools (such as drills) and the profits of their producers plunge. Yet, to have your hole in the wall, you still want those tools to be made. So this very “func- tional” economic model cannot scale up unless other moneys and business models are introduced. Leverages and blockages What is required for CCs to fully play their role in balanc- ing the money system? What blockages need to be removed? Firstly, it is unlikely traditional banks will let go of their power and make room for niches. As companies that make money by making money, this would mean cutting off the branch they’re sitting on. Given their (fiat) monopoly they are more likely to pri- vatise local moneys hoping to increase their profits. They may sell their services to groups wanting to set up exchange systems, or buy the ICT behind local moneys so as to patent it. Only ethi- cal banks may have a drive to support money decentralisation, but that will require them to change their business model (no longer extracting profits but sharing resources) and champion a decentralised monetary system rather than bank monopoly. Bank monopoly keeps CCs from scaling up and increasing their ascend- ency. Lack of means and relatively high transaction costs (due to small scale) can exhaust them. As only F-money has government fiat, CCs depend on voluntary work, gifts or subsidies and cannot fully develop the potential of their model. So the key to unlocking the potential of local money is gov- ernance (or politics). Just as companies invest both in streamlined (ascendant) production and in R&D (resilience) to anticipate mar- ket changes, so political institutions could foster CCs as living
  7. 7. Anne Snick 61 labs for financial resilience and paths to “real” economic growth. To achieve that, the strong institutionalisation of the F-model has to be overcome. Most economists and politicians treat money as a “given” rather than as a historical choice, and focus on the ques- tion “how to be competitive given (extractive) money” rather than “what kind of money is needed for the economic function”. A crucial leverage would be to create new (transdisciplinary) institu- tions where alternative models are tested, insights exchanged and changes in legislation explored. A second blockage is that taxes are made payable only in F-money. This creates the misconception that CCs evade taxes and undermine social services. In fact CCs are a different way to secure social wellbeing. Welfare is needed to cure ills caused by F-money; CCs can be used to prevent them. Preventive policies are cheaper than curative ones. If healthy behaviour (e.g. travel by bike) is valued with CCs that can be used to buy “healthy” goods and services (e.g. sports club fees or discount on bikes), public costs will drop and the health of public finances improve. The smartest thing to do is to have taxes paid (partially) in CCs, oblig- ing all citizens and companies to work towards the common goal. This is not a total utopia: in the UK, Brixton and Bristol already accept taxes in CCs. A third factor is legislation. Often the F-regime fails to grasp that CCs aren’t about making profits by eschewing laws. CCs may be seen as forgery, black economy or illegal schemes rather than as ways to prosperity. This forces CCs to work within narrow margins. Legislators need to recognise the collaborative premises of CCs. They should create appropriate conditions and legisla- tion based on sensible “caveats”. In 2014 France and California adopted legislation enabling the creation of local currencies. So, is a different money system possible? Is there enough political will and wisdom to avoid further social, ecological and economic collapse, to increase resilience and change the monetary system? Two current evolutions are likely to push political decision-making in that direction. Companies active in the “real” economy feel the damage (entropy) caused by a growth-addicted extractive model and in response develop the circular economy (CE) using green tech- nology and renewable resources. Their aim shifts from “making money” to “sustainable use of resources”, so the monetary system
  8. 8. 62 POLITIQUE INTERNATIONALE will have to follow. If a CE-factory uses waste as a raw material for production, the growth imperative of F-money requires an ever increasing influx of waste, so the overall impact remains “extrac- tive”. CE actors know that for the real economic aim, deliver- ing a function (e.g. light) is more effective than selling products (lamps). They recognise that the sharing economy is even better at doing this, since it encourages citizens to share tools and offer services with CCs as “abundant” means of trade. Interestingly, the CE sector is asking politicians to create a level playing field for them to be able to survive in a global market. We can expect CE companies who understand this to build alliances (with citi- zens, social-profit organisations, public services, researchers and maybe ethical banks), demanding political decision-makers to diversify the monetary system and make room for CCs. If the CE is allowed (or required by taxation) to do business using CCs with environmental (and social) aims, its objective would come closer with a giant leap. Another strong signal is that cities are taking the lead in creat- ing vibrant and green environments; governance at the urban level appears more resilient, because walls between policy departments are less rigid (or ascendent), and services concerned with adjacent domains (e.g. mobility, social inclusion, health and finance) can more easily cooperate. Cities also have a more direct feeling for the real prosperity of their inhabitants. Local politicians can more easily sit around the table with citizens, social-profit organisations and local businesses. The will and wisdom of cities to create local exchange systems is growing fast. Since close to seventy percent of the world population will soon be living in cities, this decen- tralisation of political power seems impossible to turn back. No doubt this will also affect the financial system. In 2014 the mayors of Calgary and Ghent were ranked first and second in the “Top 10  Mayors of the World”; tellingly both cities have their local money. (1) See pp. 45-54.