I am currently in the final stages of a research project that has considered the use of Complementary Local Currencies (CLCs) in the UK. The focus of the research was to understand how they have developed over the last five years, what lessons could be learnt for emerging currency projects and what new technological and operational innovations are now available. Although CLCs are sometimes associated with alternative communities, actually Friedrich Hayek one of the architects of the modern monetary system, called for the issuance and use of different currencies within a market.
The most well known in the UK are the Bristol, Brixton and Totnes Pounds. These schemes are sometimes known as one-for-one voucher schemes that are backed by fiat money. They aren’t radical departure from the current monetary system, more like an extension of it within a limited geographical area. They offer by paper and digital payment systems, and in fact were considered quite innovative for doing so when they were first established. The schemes are designed to only be available to local independent businesses, on the basis of intending to support the local economy. They have received a huge amount of positive national and international media coverage and there are plans to consider CLCs in cities around the UK.
My research is a little bit of an anticlimax if I am honest. Although I set out on this research journey with quite a positive perspective on CLCs, I am starting to think that the current design of them is a limiting factor within their use. None of the schemes that I contacted had any impact analysis and when I conducted my own primary data collection with businesses and individuals in Bristol, there was little evidence of widespread usage. I believe the issues associated with current structures is incentive. Economically there is little reason to convert your current £5 into a local £5 that will only be accepted by limited vendors. The vendors are cautious of accepting too many units of a local currency incase they find themselves unable to spend them. I am starting to believe that maybe this is due to the project design; where a currency was created and it was expected that individuals shared similar values to the scheme and therefore would use it for trade. It is starting to become clear that this is not the case.
My research has considered operational and technological improvements that may encourage the wider uptake of CLCs. A key operational innovation is associated with a scheme called Sardex in Sardinia, Italy. Sardex focused on developed a business network and then offered an alternative currency (SDX) as a zero interest credit facility and zero cost payment system. There’s an English article in the Financial Times here (follow Google search to avoid paywall). Sardex played a very active role using information about supply and demand to recruit new participants and construct a market. The network is now transacting nearly €100 million of SDX each year and significantly supporting the local economy, far beyond the ability of the traditional UK local currencies. Another interesting innovation within CLCs is the Liverpool Pound. Transactions are maintained using a blockchain (which we love), but also goods and services priced within Liverpool Pounds come with a relative 5-10% discount. Market participants have an incentive to use the scheme, as they are rewarded with their loyalty.
Although the focus was not on wider cryptocurrencies, it has made me consider the implications of the research. Firstly, Bitcoin and cryptocurrencies thrive when contained within specifically constructed spaces; think the darknet markets. Although there are costs to get your cryptocurrencies into these spaces (exchange, mining fees, etc), once in there they work quite effectively. Vendors would benefit from vertically integrating their supply chain within that space; buying their supplies with the cryptocurrency received. An interesting test of this could be offering of legal services within those markets, as there is already an active “business” network (like Sardex) transacting in cryptocurrencies. To those “businesses” it would be cheaper to just buy your legal products within that market – think anything sold on the website Fiverr.com for ideas. Secondary, I have been using Bitcoin and cryptocurrencies for the last few years and I have mixed experiences of their use outside of darknet markets. I have only ever used Bitcoin or cryptocurrencies for purchases for either novelty purposes (“oh wow, my first Bitcoin transaction”) and when privacy was important to me (purchase of a VPN). It doesn’t really make economic sense to buy anything with Bitcoin and cryptocurrency at the moment, especially when starting in fiat. It’s the same experience as the UK CLCs, where another currency is available, but you might as well just use fiat. In fact, it’s probably worse, as there’s extra transaction costs and time required to purchase with cryptocurrency. Obviously as the technology improves, it will be become much cheaper to make transactions; see Litecoin or Ripple for example. But it does make me question the perspective that is often heard; “Bitcoin is the future of money.” Finally, if vendors outside of specifically constructed markets want to receive Bitcoin or cryptocurrencies for their goods and services, I would suggest offering a discount for that transaction. Ultimately it must be at least parity, if not cheaper to use Bitcoin and cryptocurrencies. I did notice this recently on a website selling the productivity enhancing drug; Modafinil, who offer a 20% for the use of Bitcoin. However, how operationally sustainable this is would be questionable, as the vendor would be receiving less value for their products and it would cost them to convert back to fiat. Although this could be a lower cost way of amassing cryptocurrencies for long term store of value.
Thanks for reading.
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