THE COMMUNITY CURRENCY MOVEMENT

From: Web of Debt - The Shocking Truth about our Money System - by Ellen Hodgson Brown, 2008

THE COMMUNITY CURRENCY MOVEMENT:
SIDESTEPPING THE DEBT WEB WITH “PARALLEL” CURRENCIES

It is as ridiculous for a nation to say to its citizens, “You must
consume less because we are short of money,” as it would be for an
airline to say, “Our planes are flying, but we cannot take you because
we are short of tickets.”
-- Sheldon Emry, Billions for the Bankers, Debts for the People

"Money" is a token representing value. A monetary system is a contractual agreement among a group of people to accept those tokens at an agreed-upon value in trade. The ideal group for this contractual agreement is the larger community called a nation, but if that larger group can’t be brought to the task, any smaller group can enter into an agreement, get together and trade. Historically, community currencies have arisen spontaneously when national currencies were scarce or unobtainable. When the German mark became worthless during the Weimar hyperinflation of the 1920s, many German cities began issuing their own currencies. Hundreds of communities in the United States, Canada and Europe did the same thing during the Great Depression, when unemployment was so high that people had trouble acquiring dollars. People lacked money but had skills, and there was plenty of work to be done. Complementary local currencies quietly co-existed along with official government money, increasing liquidity and facilitating trade. Like the medieval tally, these currencies were simply credits attesting that goods or services had been received, entitling the bearer to trade the credit for an equivalent value in goods or services in the local market.

Community currencies now operate legally in more than 35 countries, and there are over 4,000 local exchange programs worldwide. Local or private exchange systems come in a variety of forms. Besides private gold and silver exchanges, they include local paper money, computerized systems of credits and debits, systems for bartering labor, and systems for trading local agricultural products. What distinguishes them from most national currencies is that they are not created as a debt to private banks, and they don’t get siphoned off from the community to distant banks in the form of interest. They stay in town, stimulating local productivity. Local currencies can “prime the pump” with new money, funding local projects without adding to the community debt. Many governments actively support them, and others give unofficial support. Experience shows that these additions to the money supply strengthen rather than threaten national financial stability. Besides their monetary functions, local exchange systems have served to bring communities together, funding cooperative businesses where members can sell goods, new skills can be learned, and public markets can be held.

Creative Responses to Disaster: The Example of Argentina

In 1995, Argentina went bankrupt. The government had adopted all the policies mandated by the International Monetary Fund, including “privatization” (the sale of public assets to private corporations) and pegging the Argentine peso to the U.S. dollar. The result was an overvalued peso, massive economic contraction, and collapse of the financial system. People rushed to their banks to withdraw their life savings, only to be told that their banks had permanently closed. Lawns soon turned into vegetable gardens, and local systems sprang up for bartering goods. One environmental group held a massive yard sale, where people brought what they had to sell and received tickets representing money in exchange. The tickets were then used to barter the purchase of other goods. This system of paper receipts for goods and services developed into the Global Exchange Network (Red Global de Trueque or RGT), which went on to become the largest national community currency network in the world. The model spread throughout Central and South America, growing to 7 million members and a circulation valued at millions of U.S. dollars per year.

Other financial innovations were devised in Argentina at the local provincial government level. Provinces short of the national currency resorted to issuing their own. They paid their employees with paper receipts called “Debt-Cancelling Bonds” that were in currency units equivalent to the Argentine Peso. These could be called “negotiable bonds” (bonds that are legally transferable and negotiable as currency), except that they did not pay interest. They were closer to the “non-interest-bearing bonds” proposed by Jacob Coxey in the 1890s for funding state and local projects. The bonds canceled the provinces’ debts to their employees and could be spent in the community. The Argentine provinces had actually “monetized” their debts, turning their bonds or I.O.U.s into legal tender. [1]

Studies showed that in provinces in which the national money supply was supplemented with local currencies, prices not only did not rise but actually declined compared to other Argentine provinces. Local exchange systems allowed goods and services to be traded that would not otherwise have been on the market, causing supply and demand to increase together. The system had some flaws, including the lack of adequate controls against counterfeiting, which allowed large amounts of inventory to be stolen with counterfeit scrip. By the summer of 2002, the RGT had shrunk to 70,000 members; but it still remains a remarkable testament to what can be done at a grassroots level, when neighbors get together to trade with their own locally-grown currency.

Alternative Paper Currencies in the United States

More than 30 local paper currencies are now available in North America. One that has been particularly successful is the Ithaca HOUR, originated by Paul Glover in Ithaca, New York. The HOUR is paper scrip that reads on the back:

This is money. This note entitles the bearer to receive one hour
of labor or its negotiated value in goods and services. Please
accept it, then spend it. Ithaca HOURS stimulate local business
by recycling our wealth locally, and they help fund new job
creation. Ithaca HOURS are backed by real capital: our skills,
our muscles, our tools, forests, fields and rivers.

One Ithaca HOUR is considered to be the equivalent of ten dollars, the average hourly wage in the area. More highly skilled services are negotiated in multiples of HOURS. A directory is published every couple of months that lists the goods and services people in the community are willing to trade for HOURS, and there is an HOUR bank. People can use HOURS to pay rent, shop at the farmers’ market, or buy furniture. The local hospital accepts them for medical care. Several million Ithaca HOURS’ worth of transactions have occurred since 1991. A Home Town Money Starter Kit is available for $25 or 2-1/2 HOURS from Ithaca MONEY, Box 6578, Ithaca, New York 14851.

Another successful credit program was originated by Edgar Cahn, a professor of law at the University of the District of Columbia, to help deal with inadequate government social programs. Like Glover, Cahn set out to create a new kind of money that was independent of both government and banks, one that could be created by people themselves. The unit of exchange in his system, called a “Time Dollar,” parallels the Ithaca HOUR in being valued in man/hours. In a landmark ruling, the Internal Revenue Service held that Cahn’s service plan was not “barter” in the commercial sense and was therefore tax-exempt. The ruling helped the program to spread quickly around the country. Cahn notes that social as well as economic benefits have resulted from this sort of program:

[T]he very process of earning credits knits groups together . . . .
They begin having pot-luck lunches; and they begin forming
neighborhood crime watch things, and they begin looking after
each other and checking in; and they begin to set up food bank
coops. [The process] seems to act as a catalyst for the creation of
group cohesion in a society where that kind of catalyst is difficult
to find. [2]

Local scrip has also been used to tide farmers over until harvest. “Berkshire Farm Preserve Notes” were printed by a farmer when a bank in rural Massachusetts refused to lend him the money he needed to make it through the winter. Customers would buy the Notes for $9 in the winter and could redeem them for $10 worth of vegetables in the summer. With small family farms rapidly disappearing, local currencies of this type are a way for the community to help farm families that have been abandoned by the centralized monetary system. Private currencies provide the tools to bind communities together, support local food growers and maintain food supplies. [3]

Bernard Lietaer, author of The Future of Money, describes other private currency innovations, including a system devised in Japan for providing for elderly care that isn’t covered by national health insurance. People help out the elderly in return for “caring relationship tickets” that are put into a savings account. They can then be used when the account holder becomes disabled, or can be sent electronically to elderly relatives living far away, where someone else will administer care in return for credits. Another interesting model is found in Bali, where communities have a dual money system. Besides the national currency, the Balinese use a local currency in which the unit of account is a block of time of about three hours. The local currency is used when the community launches a local project, such as putting on a festival or building a school. The villagers don’t have to compete with the outside world to generate this currency, which can be used to accomplish things for which they would not otherwise have had the funds. [4]

The Frequent Flyer Model: Supplemental Credit Systems

Another innovation that has served to expand the medium of exchange is the development of corporate credits such as airline frequent flyer miles, which can now be “earned” and “spent” in a variety of ways besides simply flying on the issuing airline. In some places, frequent flyer miles can be spent for groceries, telephone calls, taxis, restaurants and hotels. Lietaer proposes extending this model to local governments, to achieve community ends without the need to tax or vote special appropriations. For example, a system of “carbon credits” could reward consumers for taking measures that reduce carbon emissions. The credits would be accepted as partial payment for other purchases that serve to reduce carbon emissions, producing a snowball effect; and businesses accepting the credits could use them to pay local taxes. [5]

Alternative currency systems got a major boost with the advent of computers. No longer must private coins be minted or private bills be printed. Trades can now be done electronically. The first electronic currency system was devised after IBM released its XT computer to the public in 1981. Canadian computer expert Michael Linton built an accounting database, and in 1982 he introduced the Local Exchange Trading System (LETS), a computerized system for recording transactions and keeping accounts.

Like Cotton Mather more than two centuries earlier, Linton had redefined money. In his scheme, it was merely “an information system for recording human effort.” A LETS credit comes into existence when a member borrows the community’s credit to purchase goods or services. The credit is extinguished when the member gives goods or services back to the community in satisfaction of his obligation to repay the credits. The exchange operates without any form of “backing” or “reserves.” Like the tally system of medieval England, it is just an accounting scheme tallying credits in and debits out. LETS credits cannot become scarce any more than inches can become scarce. They are tax-free and interest-free. They can be stored on a computer without even printing a paper copy. They are simply information. There are now at least 800 Local Exchange Trading Systems (LETS) in Europe, New Zealand, and Australia. They are less popular in the United States, but community currency advocate Tom Greco feels they will become more popular as conventional economies continue to decline and more people become “marginalized.”

In a website called “Travelling the World Without Money,” Australian enthusiast James Taris tells of his personal experiences with the LETS system. At a time when he had quit his job and was watching his money carefully, he attended a LETS group meeting in his local community, where he learned that he could obtain a variety of services just for contributing an equivalent amount of his time. The result was the first and best professional massage he had ever had, a luxury for which he could not justify paying $60 cash when he was gainfully employed. He “paid” for this and other services by learning various Internet and desktop publishing skills and contributing those skills to the group, something he quite enjoyed. He has been demonstrating the potential of the system by traveling around the world with very little conventional money. [6]

“Friendly Favors” is a LETS-type computerized exchange system that has grown beyond the local community into a worldwide database of over 12,000 members. The system tracks the exchange of “Thankyou’s,” a unit of measure considered to be the equivalent of one dollar saved due to a friendly discount or favor received. The database also stores the photos, resumes, talents, interests and community-building skills of participants. Developed by Sergio Lub and Victor Grey of Walnut Creek, California, www.favors.org is a non-commercial service “to interconnect those envisioning a world that works for all.” Unlike most LETS systems, which have evolved among people short of money looking for alternative ways to trade, the Friendly Favors membership includes people who are financially well off and highly credentialed, who are particularly interested in the human resources potential of the system. As of May 2004, the Friendly Favors membership was spread over more than 100 countries and its database was shared by over 200 groups with a collective membership of over 42,000, making it potentially the largest source of human resources available on the Internet.

A number of good Internet sites are devoted to the community currency concept, including ithacahours.com; madisonhours.org; Carol Brouillet’s site at communitycurrency.org; and The International Journal of Community Currency Research at uea.ac.uk/env/ijccr. For a good general discussion of alternative money proposals, see Tom Greco’s Monetary Education Project at reinventingmoney.com. The definitive source for LETS information is Landsman Community Services, Ltd., 1600 Embleton Crescent, Courtenay, British Columbia V9n 6N8, Canada; telephone (604) 338-0213.

Limitations of Local Currency Systems

Local exchange systems demonstrate that “money” need not be something that is scarce, or for which people have to compete. Money is simply credit. As Benjamin Franklin observed, credit turns prosperity tomorrow into ready money today. Credit can be had without gold, banks, governments or even printing presses. It can all be done on a computer.

The concept is good, but there are some practical limitations to the LETS model and other community currency systems as currently practiced. One is that the usual incentives for repayment are lacking. Interest is not charged, and there may be no time limit for repayment. If you have ever lent money to a relative, you know the problem. Debts can go unpaid indefinitely. You can lean on your relatives because you know where to find them; but in the anonymity of a city or a nation, borrowers on the honor system can just disappear into the night. Some alternatives for keeping community members honest have been suggested by Tom Greco, who writes:

[T]here is always the possibility that a participant may choose
to not honor his/her commitment, opting out of the system and
refusing to deliver value equivalent to that received. There are
three possible ways, which occur to me, of handling that risk.
The first possibility is to use a “funded” exchange in which each
participant surrenders or pledges particular assets as security
against his/her commitment. . . . A second possibility, is to
maintain an “insurance” pool, funded by fees levied on all
transactions, to cover any possible losses. A third possibility . . .
is reliance upon group co-responsibility, i.e. having each
participant within an affinity group bear responsibility for the
debits of the others. [7]

Those are possibilities, but they are not so practical or efficient as the contractual agreements used today, with interest charges and late penalties enforceable in court. Contracts to repay can be legally enforced by foreclosing on collateral, garnishing wages, and other remedies for breach of contract, with or without interest provisions. But interest penalties make borrowers more inclined to be prudent in their borrowing and to pay their debts promptly. Eliminating interest from the money system would eliminate the incentive for private lenders to lend and would encourage speculation. If credit were made available without time limits or interest charges, people might simply borrow all the free money they could get, then compete to purchase bonds, stocks, and other income-producing assets with it, generating speculative asset bubbles. Imposing a significant cost on borrowing deters this sort of rampant speculation.

In Moslem communities, interest is avoided because usury is forbidden in the Koran. To avoid infringing religious law, Islamic lawyers have gone to great lengths to design contracts that avoid interest charges. The most common alternative is a contract in which the banker buys the property and sells it to the client at a higher price, to be paid in installments over time. The effect, however, is the same as charging interest: more money is owed back if the sum is paid over time than if it had been paid immediately.

In large Western metropolises, where mobility is high and religion is not a pervasive factor, interest is considered a reasonable charge acknowledging the time value of money. The objection of Greco and others to charging interest turns on the “impossible contract” problem -- the problem of finding principal and interest to pay back loans in a monetary scheme in which only the principal is put into the money supply -- but that problem can be resolved in other ways. A proposal for retaining the benefits of the interest system while avoiding the “impossible contract” problem is explored in Chapter 42. A proposal for interest-free lending that might work is also described in that chapter.

A more serious limitation of private “supplemental” currencies is that they fail to deal with the mammoth debt spider that is sucking the lifeblood from the national economy. “Supplemental” currencies all assume a national currency that is being supplemented. Taxes must still be paid in the national currency, and so must bills for telephone service, energy, gasoline, and anything else that isn’t made by someone in the local currency group. That means community members must still belong to the national money system. As Stephen Zarlenga observes in The Lost Science of Money:

[S]uch local currencies do not stop the continued mismanagement
of the money system at the national level – they can’t stop the
continued dispensation of monetary injustice from above through
the privately owned and controlled Federal Reserve money
system. Ending that injustice should be our monetary priority. [8]

The national money problem can be solved only by reforming the national currency.


Notes:

1. Stephen DeMeulenaere, “A Pictorial History of Community Currency Systems,” appropriate-economics.org (2000).

2. Thomas Greco Jr., New Money for Healthy Communities (Tucson, Arizona, 1994), pages 17-21, quoting “A Public Service Economy: An Interview with Edgar S. Cahn,” Multinational Monitor (April 1989).

3. T. Greco, op. cit.

4. Ravi Dykema, “An Interview with Bernard Lietaer,” Nexus (July/ August 2003).

5. David Johnston, Bernard Lietaer, “ECO2 Carbon Credit Card Project” (Draft Proposal, January 31, 2007).

6. James Taris, “Travelling the World Without Money,” lets-linkup.com.

7. Thomas Greco Jr., Money and Debt: A Solution to the Global Debt Crisis (Tucson, Arizona, 1990), page 42.

8. Stephen Zarlenga, The Lost Science of Money (Valatie, New York: American Monetary Institute, 2002), page 660.