Rethinking Money

by Bernard Lietaer

  • According to Stephanie Rearick of the Dane Country (Madison), Wisconsin, TimeBanking program: “In exchange for one TimeBank hour, Madison Gas and Electric Company (MGE) shows TimeBank members simple ways to save energy in their homes or apartments. These tips have resulted in significant savings in members’ utility bills. To participate in this project, each TimeBank member who’s interested completes an MGE-instructed energy-saving workshop, and the local utility oversees their work to ensure the information being provided is accurate and achievable.”13

  • Mayor Bloomberg has launched TimeBanking for seniors in all five boroughs of New York, as baby boomers turn 65 at the rate of 10,000 per day for the next two decades. Seniors can live longer in their homes independently because they can avail themselves of services offered by people within their TimeBank community, such as rides to a doctor’s appointment, help with writing letters to their insurance company, or making sure that the handrail in the bathtub hasn’t become dangerously loose.

  • Bike repair in the San Francisco Bay area is an interesting and very successful application of TimeBanking. “Bike maintenance and repair tend to be expensive. We now have two locations where people can take their bicycles and do the repairs themselves under supervision by experienced repair people,” says Mira Luna, one of the principal organizers. “We started the Bay Area Community Exchange network about two and a half years ago, and it is already the third largest TimeBank in the country.” Currently, they offer some 20 different categories of services, from health and healing to urban home-steading.14

  • In Montpelier, Vermont, the Administration on Aging has invested in a form of TimeBank called Carebanks. Seniors can get an assurance that informal care and support will be available if they or their families pay regular premiums in time dollars earned helping build community or helping other seniors. In effect, the program uses TimeBanking to create a new form of extended family. It is too early to project cost savings. But a recent study reveals that, as home-based care gets cut by state governments, hospital costs are likely to rise as people put off preventive care or end up rehospitalized due to the lack of transitional care.

  Sharon Lee Schwartz is regional director of Legal Aid services of Oregon. “Well, first of all, we’re not allowed to charge for our services, so we’re not looking at it as payment for legal aid, in Time Dollars, but what we are doing is acknowledging that we can’t create social justice without our clients’ help. We are asking clients to sign a pay-it-forward agreement, in which they agree to match our time, hour for hour, by earning time dollars within their community. For example, if somebody takes our custody class, and then we meet with them individually to follow up, it might take three hours. We in turn ask the client to volunteer through the time bank to help somebody else for three hours. They then get to keep the time dollars to spend for something that they need. It’s a pay-it-forward system, but they still keep the benefit.”15

  According to Cahn, there are now over 286 TimeBanks in the United States and approximately 300 in the United Kingdom, and TimeBanking has now spread to an additional 34 countries internationally. In recognition of the social contributions offered by time dollars, three separate IRS rulings make this cooperative currency the only officially tax-exempt currency in the United States.16

  REGIO

  In the early 1980s, Margrit Kennedy, then professor of architecture at the University of Hannover, Germany, was in charge of the design of ecological buildings for Berlin’s International Architectural Exhibition. The response to her designs was mixed. “People would say, ‘This is great, but it doesn’t make economic sense,’” recalls Kennedy.17

  After some research, she realized that the current monetary system deeply shapes what “makes economic sense,” and as long as a monopoly of this system is in place, sustainable architecture and building, and consequently sustainable communities, will never become widespread enough to make a real difference. Short-term planning and destructive business practices are simply more profitable when interest-bearing money is the only option available. In 1987, she outlined the problems with interest-bearing money in her book, Interest and Inflation-Free Money: Creating an Exchange Medium That Works for Everybody and Protects the Earth. Soon, however, she recognized that she had to find a way to create sustainable money: “I knew if I didn’t find another monetary way, our societies would never become truly viable.”18

  Regions, according to Kennedy’s definition, are geographical areas to which people “feel connected.” That is, they are not artificial political units but, rather, based on people’s own perceived identity. A region may have several thousand or several million people and be centered around a town, a watershed, or a river basin. In many parts of the world, regions have strong specific identities and a deep connection to the ecosystem in which they are located.

  Many observers have pointed to such bioregions as potentially sustainable alternatives to the globalization currently homogenizing our world. While nation-states are better suited to handle large-scale policy issues, regions may be better at dealing with their own specific social and ecological needs—that is, if they are given the right tools. Regional currencies are one tool necessary for such a strategy. In fact, Kennedy shows that sustainable regional development is impossible without such a monetary reform.19

  Germany and Austria are now spearheading regional currency projects, generically called regios, which complement the euro. Regio currencies give regions the autonomy necessary to deal directly with their particular social, ecological, and financial problems. Moreover, they are designed to benefit the region’s businesses and services. As we know all too well, the net cash flow spent in big businesses usually flows in the direction of corporate headquarters outside the region, perhaps thousands of miles away.

  A case in point: A study designed to evaluate the economic role played by independent businesses in the busy Chicago North Side found that every $100 spent with a local firm leaves $68 in the Chicago economy, while $100 spent at a chain store leaves only $43 in Chicago. And for every square foot occupied by a local firm, the local economic impact is $179, versus $105 for a chain store.20

  Regios, by contrast, support regionally based commerce, adding to the uniqueness and strength of each area.

  Particular types of regios—each with a different name, structure, and purpose—are being designed to meet the specific needs of a given region. Within the network, 34 systems are now established and operational. There are another 30 projects still in development by the regio network in German-speaking Europe (Germany, Austria, and Switzerland). These projects are typically not initiated through an infusion of start-up capital but rather through the hard work of groups of volunteers who want to see their region flourish.

  Kennedy remarks on the volunteers’ dedication: “The time outlay is considerable: It takes three to five years until you get into the zone where the whole operation can be self-financing, so it’s not a trivial task. Those who run these groups do it because they love it. They really feel they are doing something useful; for some, it actually gives purpose to their lives.”21

  CHIEMGAUER—DEMURRAGE-BEARING CURRENCY

  The Chiemgauer system is based in Bavaria, southern Germany, and is part of the regio network. It encourages locals to shop at their neighborhood businesses rather than at the larger chain stores, thereby supporting local production and enterprise. It was designed by six teenagers at the local Rudolph Steiner School and has caught the attention of dozens of other communities around Europe and beyond.

  Inspired by their economics teacher, Christian Gelleri, these six young women created a money system that increases local employment, thanks to the higher demand for local goods and services. It has a built-in mechanism that makes it possible to financially support charities and good causes chosen by the users themselves.

  Regional nonprofit organizations that wish to participate purchase 100 Chiemgauers for their members for 97 euros. This currency is then used at par (one Chi
emgauer for one euro) to purchase goods and services in participating stores. It can be cashed back into euros for a penalty of 5 percent, providing an incentive to keep it circulating rather than converted back into conventional money. The tally at the end of the process is that 95 percent remains with businesses, 3 percent goes to the nonprofit chosen by the buyer, and 2 percent goes to the Chiemgauer currency administration to cover overhead.

  There is an additional feature to this currency that differentiates it from conventional money: The Chiemgauer is a demurrage currency, meaning that it is time-stamped with a quarterly “parking fee.” This creates an incentive to circulate the local currency rather than hoard it. The customers can buy nearly everything with the Chiemgauer: food, clothes, medicine, furniture, and a wide variety of local services.

  Today, there are 600 participating businesses with 555,000 Chiemgauers in circulation and a turnover equivalent of over 6 million euros in 2011. It is the largest and most successful scheme within the regio network. The Sternthaler currency, which operates in the adjacent area of Upper Bavaria, and partnering with the Chiemgauer, provides access to an additional 500 businesses to the system. Seventy-five percent of the cooperative money is now in electronic form. Now every business participating in the program has received readers since the electronic Chiemgauer was launched. Ten local branches of cooperative banks provide banking services in Chiemgauer.

  The Chiemgauer inspired by Christian Gelleri.

  The government has also introduced a distance tax to encourage support of local business. Gelleri explains, “The distance fee depends on proximity and is only charged to those using Chiemgauer in cash. If you buy from your own region or an adjacent one, such as around Munich, you pay nothing. If a business in Munich wants to spend Chiemgauer in Frankfurt, it pays, for example, 1 percent. If it imports something from Spain, it pays 4 percent.”22

  All participating members report that, by using their Chiemgauers, they have a stronger feeling of belonging to the local community and of contributing to its socioeconomic well-being.

  BERKSHARES—BACKED BY US$

  BerkShares are a local currency for the Berkshire region of Massachusetts, heralded as a “great economic experiment” by the New York Times. Launched in the fall of 2006, BerkShares are backed by national currency. The 13 branches of five local banks operate as exchange bureaus and have issued 3.3 million BerkShares to date. Currently, more than 400 businesses have signed up to accept the currency.

  At a local participating bank, U.S. dollars can be exchanged for BerkShares, and users can then shop or dine out with the local cooperative currency. The exchange rate is $95 for 100 BerkShares. At a local shop or restaurant, 95 BerkShares has the purchasing power of $100 worth of goods and services. Thus, users of the local currency receive a 5 percent discount to encourage support for local businesses. The merchants can use these BerkShares to purchase local products themselves, give change to customers, or partially pay employee wages. They can also deposit this local trading currency at participating banks.

  “We estimate that each BerkShare circulates four times before returning to the banks—but that is anecdotal. Some stay out without returning, facilitating multiple local exchanges. Some go directly back to the banks at the end of each day. So, on estimate, of 12 to 15 million in trade in BerkShares in a region of 19,000 year-round residents, about 135,000 stay out in circulation at any one time,” remarked Susan Witt, educational officer of the New Economics Institute, which launched the program.23

  In addition to keeping money circulating locally and encouraging merchants to buy and sell local products, this local currency also stimulates more home-based industries, possibly inspiring the unemployed to use their uncompensated skills in new business ventures.

  According to Witt, once the community has had sufficient experience in using and trading BerkShares, there are plans to provide zero-interest loans for the start-up of new businesses. As trust and transparency are essential for community currencies, members will be kept fully informed about what their money is doing. Future plans may involve BerkShares checking accounts, electronic transfer of funds, ATM machines, and even a loan program to facilitate the creation of new, local businesses manufacturing more of the goods that are used locally. Participating banks are also trying to figure out how to start making loans in the local currency, not tied to federal dollars, which would mean backing the BerkShares with something real: not gold, but a basket of commodities—firewood, apples, wind power—the kinds of things you can produce in western Massachusetts.

  Susan Witt showing new BerkShares to Professor Philip Beard. Photo credit: Sergio Lub.

  The currency is now spreading out of the southern half of the county, the Tanglewood Berkshires, into the Pittsfield area and even to a few towns just over the New York and Connecticut state lines.

  COOPERATIVE CURRENCIES AND INFLATION CONTROL

  One of the strongest objections to issuing currency is that it could create uncontrollable inflation. Inflation is commonly defined by its outcome—higher prices—rather than its cause, which is simply too much money in circulation chasing too few goods and services.

  Consequently, the introduction of a local cooperative currency could lead some economists and monetary theorists to conclude that a parallel money system would automatically add to inflationary pressures on the economy as a whole.

  The objection would be valid if, and only if, this second currency were a fiat currency, as is the case for the dollar, the euro, the yen, or any other national money. Local currencies, however, are intrinsically different from fiat money and can be designed specifically to avoid contributing to inflation. The most generally accepted economic insight is that inflation results whenever there are not enough goods and services produced for the quantity of money in circulation: too much money pursuing too few commodities. Rather than argue from theory, let’s look at three practical examples of increasing complexity.

  In the case of simple barter exchanges, where no currency is involved at all, the only effect of such an exchange is who owns what. No inflationary pressures arise from barter exchanges, given that the overall quantity of both goods and currency in circulation remains unchanged.

  In terms of mutual credit systems (such as LETS and many other local exchange systems), the supply of the product or service is simultaneous with the creation of the currency. In this regard, such exchanges are similar to barter: For every credit generated, there is a simultaneous creation of a debit within the same community. For example, if Jane drives Fred to a doctor’s appointment, Fred is debited while Jane gets the corresponding credit. Jane spends her credit at the farmers’ market by purchasing some locally grown apples, while Fred addresses his negative balance by teaching a Spanish class or fly fishing to neighborhood children. The net amount of currency in circulation therefore remains unchanged, exactly as with straightforward barter. In fact, from a monetary perspective, mutual credit systems simply facilitate multilateral barter.

  Does issuing airline frequent flyer miles increase the number of times a passenger will fly? The answer is, of course, yes. Does it, however, create inflationary pressure on the airline airfares? The surprising answer is no, because any airline manager worth his or her salt will ensure that anybody using the free frequent flyer ticket is sitting in a seat that would otherwise be empty. That is why there are restrictions such as blackout dates or quotas limiting the number of frequent flyer passengers on a given route.

  The ability of businesses themselves to better manage their excess capacity—from a theoretical inflation-control viewpoint—is one of the intriguing aspects of using a cooperative currency approach. Within a fiat currency environment, there is no easy way for businesses to differentiate among customers to improve the use of their spare capacity and thus increase productivity.

  But cooperative currencies behave differently than conventional money.

  Local currencies can be designed specifically to not create inflation. In contrast,
the history of conventional national money over the past century has been one where inflation almost seems to be built in. Today, one would need approximately $405 to purchase the same goods that cost $100 back in 1975.24 Even the world’s least inflationary national money, the deutsche mark when it existed, lost 57 percent of its value between 1971 and 1996.25

  As Edgar Kampers, Director of Qoin—Money That Matters, a Dutch not-for-profit organization that designs, implements, and supports community cooperative currencies, cogently remarks, “It’s critical to understand the definition of the word currency. So for me currency is information between a buyer and a seller. Two people are involved in a transaction where the money symbolizes the exchange of value. So, I buy a sweater. We agree that it’s worth 20 units of whatever. The sweater is the thing with the value; the money is not, of course. Money is not valuable at all, but money allows you to buy things, which are valuable. This distinction should be understood. And it’s not generally known or appreciated by most people.”26

  With this general understanding of the various distinctions at work in the domain of money, let’s explore applying cooperative monetary solutions in the sectors of banking, business, government, and finally, last but not least, nonprofits or nongovernmental agencies (NGOs).

  Chapter Six

  STRATEGIES FOR BANKING

  Of all the many ways of organizing banking,

  the worst is the one we have today. Change is,