7. local money for ukraine
TRANSCRIPT
Local money as a tool for fostering economic
revitalisation and social cohesion in Ukraine
Anna Kolesnichenko
KSE/EERC Alumni Congress, Kyiv, 24 April 2015
Money in crisisMoney in its current form fails to accomplish a range of important functions:- It fails to serve as an efficient medium of exchange*. In the aftermath of the financial crisis of
2008 the world economy struggles to recover, as money does not flow to the places where it is needed. Example - Greece: huge unemployment, despite many productive opportunities left unexploited. At the same time, tons of liquidity poured by the ECB into the banking sector end up on ECB accounts and in low (or negative) yielding government bonds and do not go into the economy.
- The failure of modern money to serve as a medium of exchange was apparent much before the crisis. A lot of important services have been underprovided: elderly and child care, protection of environment etc. There are millions of people who can potentially do it, but remain unemployed.
- Current money design leads to ever rising inequality. The 2008 crisis has exacerbated this. If the trend continues, we will see stronger polarisation of politics, rising extremism and violence worldwide.
- Current money design leads to overproduction and waste, which brings us increasingly faster to environmental catastrophe
* 3 main functions of money: standard of value, medium of exchange and store of value
Money at the core of the problem
Scarcity Interest
The major reason why money fails to serve as a medium of exchange is the feature of scarcity that is built into it. In order to retain its value, money needs to remain scarce. Accomplishing the function of the store of value inhibits money’s ability to serve as a medium of exchange.
The interest built in the money • is the cause of wealth redistribution
from the poor to the rich.• leads to short-terminism of
investment decisions (through discounting)
• pushes an ever increasing production (producers need to repay more than they borrowed) -> producers induce consumers to buy more -> insane consumerism of the modern society. At the same time, overproduction depletes environment.
A way out – complementary currencies (CC)To separate functions of money: one type of money for savings, another for exchange. Main features of complementary currencies:
non-bank created local zero or negative interest
Global CC is possible (Ex: Bitcoin), but local has many socially desirable features.
Fee for money holding (demurrage)Similar to a fee for stocking commodities.Changes incentives for savings and investments.Stimulates economic growth through increase in velocity of money circulation.
Mutual credit between persons and enterprises
Money issued by enterprises (ex: frequent flyer miles)
Fiat money issued by local authorities
Benefits of a local complementary currency 1. Boost to economy Additional money when national currency is in shortage. Complementary local currencies were used very successfully by many municipalities in Europe and USA during 1930s Depression. In our days, they are used by many countries for a recovery of depressed regions. The economic boost is stronger if money has negative interest rate. 2. Saving of budget fundsIf money is issued by local authorities, they are normally used to pay for public works and services helping to save scarce budget financing. But even in case of mutual credit, a range of social services gets provided, reducing the need for budget money spending. 3. Reduction in inflation in national currencyAs the needs of depressed areas are addressed through CC, there is less pressure for the monetary authorities to support growth in the economy -> inflationary pressure reduced 4. Elimination of poverty, improvement of wellbeing of marginalised peopleMutual credit systems help unemployed, elderly and other people with limited capacity for a formal employment to improve their wellbeing. They can provide simple services for other people in their community and get paid in CC
Benefits (cont)5. Strengthening of local communityLocal CCs are often used to pay for people-to-people services: helping with elderly or child care, and other activities that normally fall within volunteer activities. This intensifies contact between people, and joint activities strengthen the sense of community. If community is not nourished by regular reciprocal exchanges, it will tend to decay or die. 6. Improved wellbeing and feeling goodReports on CC projects show that people who engage in provision of services under CC feel better and become healthier. They feel empowered to take charge of their life, they engage in activities that they like but never done before, they meet many more people and feel more secure in the community.7. Environment gets better careSustainable projects that would never be funded by conventional investment get implemented through CC. The environmental benefit is especially strong in case of negative interest rates.
Features of a complementary currency
Design of a CC depends on the effects that are targeted and on the specificity of local situation1) Issuance by local authorities vs mutual credit
2) Negative interest or not
3) Convertible into main currency or not
4) Unit of account (hour, equal to main currency, other)
5) Size of area covered (not too big, personal contact)
6) Whether it can be used for paying taxes (big boost)
7) Form – electronic or paper
Use of complementary currencies
• In Ancient Egypt and in Europe in Middle Ages (X-XII cent). Different currencies for local and global trade. Local currencies with negative interest rate.
• In modern times – boom of local currencies during Great Depression in 1930s. Based on idea of Silvio Gessel (1862 – 1930): negative interest on money. In the aftermath of the German hyperinflation in 1920s and the Crash in US in 1929 thousands of communities in Europe, US, Mexico and other countries started their own currency systems. Many of them were subsequently prohibited by the central government. Some survived till today – WIR in Switzerland.
• Rise of CC in the 1990s and especially in the wake of 2008 financial crisis. Hundreds around the globe. Database of 289 CCs: http://www.complementarycurrency.org/ccDatabase/
Examples: Wörgl (Austria 1933)Fiat money, issued by local government, backed by main currency, demurrage• In 1933 Wörgl mayor used the 40,000 Austrian schillings of budget money he had to
create 40,000 of Wörgl schillings (he put Austrian schillings into a bank as a collateral). • Demurrage feature: each month one Wörgl schilling lost 1% of its face value, and in order
to be able to use it at face value the holder of cash needed to pay for a stamp on the back of the banknote that would bring its value to face value. This discourages savings and encourages spending - consumption and investment. In Wörgl this translated into a huge infrastructure investment boom – investment in productive assets jumped by 219% year-on-year. People started to pay taxes in advance .
• Wörgl turned in one year from a depressed area with massive unemployment into a thriving community.
• The main effect of negative interest is to increase the velocity of money circulation: each new schilling circulated 416 times over the 13.5 months that the experiment lasted. As a result, every Wörgl schilling created between 12 and 14 times more employment than the normal schillings circulating in parallel.
Examples: Wara (Germany 1930)
Fiat money, corporate-issued, backed by commodities, demurrage• Implemtnted in 1930 by Dr Hebecker, the owner of a coal mine in the small town
of Schwanenkirchen, Bavaria. He started to pay his workers in Wara. Workers could buy local services and food with it. • Wara was a piece of paper fully backed by the coal inventory. To cover the
“storage costs” it also had a small monthly stamp fee.• Very successful in saving the economy of the whole town of Schwanenkirchen
from depression. Became very popular across wider area - centrepiece of the ‘Freiwirtschaft’ (‘ Free Economy’) movement. Over 2,000 corporations throughout Germany started to use it.• In November 1931 the German Central bank prohibited the use of the Wara.
Depression returned. Historians link the rise of fascism to depression and unemployment.
Examples: WIR (Switzerland 1930 - present)Hybrid system: mutual credit and fiat, corporate-issued and bank-issued- Founded in 1934 in Switzerland by two businessmen as means to cope with
currency shortages and global financial instability. Started with 16 members, 50000 in 2014.- Run as a cooperative and has its own bank. - Hybrid currency – mutual credit and fiat money. Two ways by which a member
can obtain WIR: by selling goods or services to someone else in the circle (zero interest credit collateralised by assets), or by obtaining a WIR credit from the WIR Bank (at positive but low interest). - 1 WIR = 1 CHF, but not convertible. Each transaction can be paid partially in WIR
and partially in CHF (WIR 25-50%). - Limitations: private persons do not participate
Example: Time Banking (1980s – present)• Time, typically hours, is used as unit of account.
• A Time Bank is typically a community-run organization that turns unpaid time into a valuable commodity, and aims to build social capital and promote community self-help through mutual volunteering (both giving and receiving help in exchange for time credits).
• Time Banking was proposed and started by Edgar S. Cahn in 1986 in Washington DC, and spread ever since to hundreds of other communities in US and across the globe.
• Normally used for provision of social services: education, babysitting, healthcare, computer tuition, gardening etc.
• Positive effects: it attracts socially excluded groups of people (e.g. unemployed, poor, retired, elderly and disabled), volunteers, and those dependent upon receiving services (e.g. elderly and disabled) into paid productive and socially useful activities.
• Time Banking fills the gaps in social services and strengthens social cohesion by encouraging a more human approach to interactions and exchange.
• Examples: Time Banks (US), Ithaca hours (USA), Japanese healthcare hours
•
Example: Community Currency In Action (CCIA)6 pilot projects in Nantes (France), Amsterdam, South Wales (UK), Limburg (Belgium) and London. Implemented over 2011-15. Project budget: EUR 6.3 mn. 50% funded by EU (ERDF). Location Money Type Form Purpose
Nantes, FR SoNantes Mutual credit electronic (card)
economic development of local businesses
South Wales, UK Spice credit Time banking 1 hour community building, stakeholder engagement and poverty reduction
The Netherlands TradeQoin Mutual credit electronic a trading network for SME entrepreneurs to do business with each other; offers SMEs fast and cheap working capital
London, UK Brixton Pound (B£)
Fiat money, backed one to one with GBP
paper and electronic
to support local businesses and encourage local trade and production
Source: http://communitycurrenciesinaction.eu/
How to achieve local policy objectives with help of CC
Policy objective Example
Support local economy through innovative methods of trade i.e. mutual credit
Sardex, SoNantes, Bangla Pesa
Support local economy and revitalise the high street through consumer transactions
Bristol Pound, Chiemgauer, SOL Violette
Promote good environmental behaviour E-Portmonee, Eco-Iris
Promote improved social cohesion
CES, Dane County Time Bank
Involve excluded members of the community in the local economy
Timebanks, LETS
Caring for the elderly
Fureai Kippu, Talente Tauschkreis Vorarlberg
Source: http://community-currency.info/en/quick-guides/policy-makers/#achieving-policy-objectives-with-ccs
Why CC is a good solution for Ukraine
Unstable hryvnia – CC can be detached from hryvnia, providing stability locally
Strained public finances – CC stimulates provision of social
services by citizens themselves that otherwise would have to be
paid from budget
Unemployment – people who otherwise would be unemployed engage in productive activities
Destruction of infrastructure and local economies by military conflict – CC creates additional economic activity. If negative
interest rate is applied, it boosts investment (by discouraging
saving) Feeling of despair and helplessness of people - CC helps to engage people in productive activities,
instilling a sense of ability to influence their environment. CC
normally stimulate “feel good” work (one that person likes doing and that
is socially meaningful).
Weak local communities, with no one “in charge” – CC stimulates people-to- people contacts and help
to others (it becomes paid), which improves the
feeling of community
EuroMaidan showed there is readiness and strong demand in Ukrainian society for self-initiative and self-governance. CC creates a tool for materialising this demand
How to start a CC 1) Trust is the key (for any money)Who issues the currency reflects whom we trust. How to make community currencies trustable:• If issued by local authorities, those should be trusted by people • Collateral/backing for fiat money (commodities, main currency)• If done as mutual credit, reliable electronic system and clearing mechanism• The local character of money makes it easier to generate trust, as people know
each other or belong to the same social circles2) Evaluation of community needs. This will determine currency design3) Expert advice - available from many current projects and consultancies that specialise on CC design and implementation.
The Brixton Pound (B£), UK
David Bowie, who lived in Brixton from 1947 to 1953, is featured on the 2001 issue of Brixton Pounds.
Source: http://brixtonpound.org/
More examples at http://community-currency.info/en/find/images/specimen/
Links• Quick Guide on community currencies:http://community-currency.info/en/quick-guides/• Database of complementary currencies:http://complementarycurrency.org/• INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCHЖhttp://ijccr.net/• Online forum for researchers working in the field of complementary currencies:http://communitycurrenciesinaction.eu/forum-for-cc-researchers/• Methodological and practical guide - Community Currency Implementation
Framework: http://communitycurrenciesinaction.eu/community-currency-design-framework/
You never create change by fighting the existing order. To change something, you should build new models that make the old obsolete
“Money matters. The way money is created and administered in a given society makes a deep impression on values and relationships within that society. More specifically, the type of currency used in a society encourages – or discourages – specific emotions and behaviour patterns.” (Bernard Lietaer, 2002, The Future of Money: Creating New Wealth, Work and a Wiser World).
“The real price we pay for money is the hold that money has on our sense of what is possible – the prison it builds for our imagination.” “The fact is that there is enough work to be done for everyone in your community to keep busy for the rest of his or her life. Work that expresses our specific creativity. Have we become so hypnotized by our fear of the scarcity of money that we are also fearing lack of work?”(Edgar Cahn, the creator of Time Dollars, 1997)
Money is not a given. Although we are often not aware of this, the money we use is basically a choice. In essence, money is an agreement (a consensus) to accept something for payment that we are assured can be exchanged in the market for something we need. That means that money is a social construct, a human invention. (CCIA website)
