Last month I had the pleasure of attending the IV Complementary Currency Conference in Barcelona, Spain. The Complementary Currency group have been meeting on a biannual basis for the last 8 years, supporting the idea of complementary or social currencies. These are where local geographical areas issue their own currency, the most famous examples are that of Bristol Pound in the UK and WIR in Switzerland. This year’s conference was interesting at there were a significant number of presenters, groups and advocates for the use of blockchains and cryptocurrencies. A key theme that kept arising was; how do we value such currencies? I thought I would outline some of the key concepts.
The first thing to consider is that there is not actually any agreement on how we value currency. Really, this question has never been solved, like ever, even with traditional and fiat currencies stretching back over thousands of years. This is a main area of discussion in David Grabers book; Debt: The First Five Thousand Years, which I would suggest reading or listening to free. The concepts for what a currency is helps to shape this discussion; “a store of value, a unit of measurement and indicator of a strength of an economy.” This is important, as it affects how currencies are designed and used. The emphasis on each of these aspects affects how the currency is perceived. Modern fiat currencies have a focus on a store of value, so individuals and businesses pursue currency as an end in itself. Which is why we see such gross equality, with individuals and corporations hoarding large piles of currency in offshore havens. A focus on a unit of measurement puts the emphasis on trade, where the point of the currency is to just facilitate transactions. The indicator of a strength of an economy is reflected in how currencies are traded on international markets and perceived to investors. It was most dramatically seen with the UK confirming Brexit, with investors seeing a lower value for the UK economy and thus a lower value for the UK economy was considered. These perceptions have implications for the design and use of alternative currencies.
Complimentary currencies have different approaches to giving their currencies perceived value. One approach is to “back” their currency systems using traditional fiat money. So, one Bristol Pound is worth £1 sterling, it is directly exchangeable. This has the benefit of users knowing that when they buy into the system, their Bristol Pounds are still worth something outside of the network using Bristol Pounds. However, this isn’t really a radical approach to addressing inequalities within the money system. The Bristol Pound is technically just an extension of the monetary system that is responsible for financial crisis, austerity and neoliberalism. They also completely rely on a social or altruistic dimension, where users just use it to “feel good” or “support local business.” The jury is out on how effective this is, as people who spend in this type of complementary currency may have made that transaction regardless. They would also be more likely to be used by the middle classes who have a wider social concern, which may be reflected in the types of shops accepting these currencies. However, the emphasis on local trade and the use of the currency to raise awareness of these issues can be a positive dimension.
The next model is to peg the alternative currency to a fiat currency, but at a different level. So an example of this would be it would cost £0.95 to by £1 of a local currency. There are no examples of this in the UK, it is used in the US and in Europe. The advantage of this is that there is an instant “uplift” to the value of the local currency, which may encourage participants to use it and in theory purchases get a 5% discount. As shops accepting these currencies are locally owned, they may consider the 5% is discount offered acceptable in return for local customers. Financial mechanisms or loans are used in this way, where £1000 of an alternative currency is borrowed for the equivalent of £950. The local currencies are then used to buy in local services to grow the business, for instance. There is also less of incentive to withdrawal money out of the alternative currency, as the user perceives that they are losing value through only receiving 95% of their original amount. Some local authorities in Europe support this local currency approach through accepting taxes in these currencies.
The final way used by currencies is to not have any fixed value. Cryptocurrencies fall into this category, with the exception of USDT, but that’s another blog. To me, this is the most radical approach to developing a complementary currency. There are examples of this approach being used and applied around the world. With the currency crisis of Argentina over the previous two decades, notes were printed and circulated to facilitate trade when the national currency had valued. These notes had no fixed value, and merely relied on the users knowing they could be exchanged for goods and services later. This approach has also been applied within the Kenya Peso scheme, where notes are printed and individuals exchanged them for goods and services locally. These approaches rely on the fact that value is socially constructed and therefore these notes are merely reflect the perception of the strength of the local economy. So for instance, if you were selling tomatoes and someone offered you just random pieces of paper, you would be unlikely to exchange. However, if you were selling tomatoes and you knew those random pieces of paper were accepted by someone else selling apples or shoes, you are more likely to accept them. The problem with this scheme is currency debasing through extensive printing or fraud. However, I think a lesson for any future alternative currency attempting this approach would be good governance. If users were happy with the amount of currency in circulation and knew it wasn’t open to fraud, they may take them. I believe this is where blockchain technology and cryptocurrency may help, as users would be able to interrogate the blockchain to ensure they are happy with the quality of the currency tokens.
I am taking the lessons back and will be discussing with colleagues about the implications on a local currency I have been involved in; The Birmingham Pound. Thanks for reading.
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