How collaborative credit can heal – rather than just disrupt – capitalism
Collaborative credit systems such as time banks can help bring about positive transformation within the economy
http://www.theguardian.com/media-network/media-network-blog/2014/jul/03/collaborative-credit-heal-capitalism
Collaborative credit isn’t scarce like conventional currencies, and doesn’t come with interest demands. Photograph: Simon Cooper/PA
The payments industry is awash with talk of disruption. Paypal may soon seem just a minor splash compared with the tidal wave of mobile payment apps and cryptographic currencies. Already more money is being transacted around the world each day by bitcoin than by Western Union. Cryptocurrencies, and specifically the distributed ledgers that maintain them, are a disruptive technology, in the classic sense of disruptive technologies that begin by appealing to niche markets but have the capacity to scale rapidly and make some of the products and services of incumbents less attractive. The current talk is about disruption, and as such, it's fundamentally misguided. We must focus on positive transformation of the relationship between banking and the economy. About 97% of money is created by private bank lending, which comes with interest. The amount owed to banks (the amount borrowed plus the interest) is always more than the amount borrowed, and an increase in velocity of the flow of money can't address this fundamental contradiction.
The world is facing an environmental crisis and a gross inequality crisis, driven in part by this monetary system, which demands expanding consumption of the environment and a transfer of wealth from poor to rich, to serve interest payments. These twin crises present an existential threat to the current capitalist system. The answer must include different forms of currency and credit that nourish life and community, not exploit them.
More innovators now realise that the current generation of cryptocurrencies are flawed not only in their code, but in the way they are designed to act like assets. History shows frequently that when the supply of money is tied to a commodity, or the supply can be restricted like a commodity, as is the case with asset-like cryptos, then by buying up or limiting the supply, the rich will manipulate the supply of money to the economy in their own interests. But there is a form of money that's not a commodity and not a tool for the rich. These are forms of non-interest bearing collaborative credit. Instead of a central authority issuing units of "money" into circulation according to a policy or algorithm, with collaborative credit, peers extend credit to each other. This includes systems such as time banks, where members of a system lend support among themselves, using a ledger to balance the units of credit, measured in hours. There are many other collaborative credit projects worldwide, which we study in our course on sustainable exchange, like Banco Palmas in Brazil, Zumbara in Turkey, or BanglaPesa in Kenya, or the Cooperativa Integral Catalana in Spain. Online business barter (B2B) exchanges such as Recipco help companies trade their spare capacity without money changing hands.
These initiatives are collaborative, as both issuance and redemption of the currency relies on freely collaborating citizens or firms, and enable economic collaboration when there isn't sufficient national money in circulation to complete a transaction or reward an activity. Outside agencies cannot limit the amount of credit available, as collaborative credit simply requires members of a network to trust each other rather than a bank. Collaborative credit isn't scarce like conventional currencies, and doesn't come with interest demands. The credit is as abundant as the pervasiveness of trust in a community or business network, as it is created in the very act of sharing, caring or trading. Two of the most interesting collaborative credit systems are Ripple and Community Exchange Systems. The former is known to the payment innovation field, as it has attracted private investment. The latter is an entirely non-profit community affair. Their software developer, Matthew Slater, reports they have 50,000 (more or less active) users, in 600 LETS and time bank projects worldwide. Each group has its own currency and manages its own credit limits – which means local sovereignty, yet the shared infrastructure means transactions are possible between the communities. These initiatives shows how collaborative credit systems will increasingly use innovations made famous by cryptocurrencies, such as distributed ledgers. It is time to support and scale innovations in payments, currencies and credit systems that are compatible with, and support, a restored environment, thriving real economy and social cohesion. We need positive transformation not disruption.
Professor Jem Bendell is the author of Healing Capitalism and director of the Institute for Leadership and Sustainability. He is speaking at this year's Guardian Activate London Summit on 17 July, 2014
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