Rethinking Money

by Bernard Lietaer

  URUGUAY

  Maria, like most women in the Casavalle neighborhood, the poorest area of Montevideo, receives subsidized food for herself and her children on a daily basis, directly from a bakery that is located a minute’s walk from her house. Thanks to the C3 system, Maria no longer has to pay for bus fares and leave her children alone at home for several hours to obtain subsidized food.

  On the business level, small neighborhood shops that are part of the C3 network can employ this system of paying their suppliers even if they do not have cash on hand. These small businesses have access to short-term affordable credit and also can purchase their supplies online or via a mobile phone SMS. This results in significant time savings compared to using the services of the traditional banking system.

  Luis is the human resource manager of one of the largest municipalities in the country. It employs several hundred staff members who get reimbursed for taxi fares and fuel for their own cars. Luis and his accounting administration faced two issues that made this procedure cumbersome: A huge volume of papers, mostly vouchers, were submitted by the employees to justify their travel expenses, and the use of these benefits was not transparent.

  Guadalupe de Artiga. Through the Puntotransacciones network and currency, she has maintained her standard of living for her family and herself. Photo credit: Koen de Beer.

  The STRO arranged a C3 system with taxi companies, suppliers of fuel stations, and the administrators to facilitate payments and avoid the bureaucracy required to administer the previous arrangement. The C3 network allows the secure and safe handling of transactions.

  “This system has great potential to be replicated by other municipalities and eventually spread to a large segment of end consumers, who, in this way, via prepayments will have credit on their phones to pay for taxis or to pay for the fuel for their cars,” says Luis.

  C3 Circuit of Consumer Cooperatives

  Patricia is a schoolteacher who lives in a rural area of Salto, some 500 kilometers from the capital of Montevideo. Patricia pays a monthly fee for her membership in the Cooperative of Teachers. This allows her to make purchases by having her shopping guaranteed by her monthly salary, which is the manner in which she has been able to buy all her household electronic appliances. Since the cooperative is located far from her house, the transportation costs of the appliances have been expensive.

  Then the Teachers’ Cooperative Patricia was part of joined the C3 Program. Like all members of this and other cooperatives (civil servants, professionals, police officers, the retired), Patricia now can view, choose, change, pay, and receive the purchased items from the store closest to her residence. A significant number of consumer cooperatives are keen to be a part of this program, which is only viable when they, together with the chain of suppliers, are all part of the C3 network. The decentralization of services and the social inclusion are part of state policy, and obviously this scheme supports these objectives.

  Eduardo Tarragó, the C3 project manager for Uruguay, says, “Currently it isn’t possible to convert the C3s into national currency. However, this issue is supposed to get resolved by the Ministry of Economy. The idea is that one will be able to pay taxes and electricity, water, communication services, and fuel expenses via this system, as all these are state-owned monopolies in Uruguay.”

  FINANCING FOR LOCAL BUSINESSES

  The Local Capital Project of the Mile High Business Alliance (MHBA) in Denver, Colorado, is a two-tiered strategy designed to address the most pressing needs of small local enterprises, namely, access to affordable financing and building a sustainable revenue stream. Typically, small businesses operate within very narrow margins, making them vulnerable. The MHBA has rolled out a plan for an 18-month pilot program that will engage small business members within a core business district of Denver in two cooperative initiatives: the Revolving Loan Fund and the Local Flavors Re-Circulating Gift Certificate Program. The plan is to enable participating businesses to build and sustain healthy revenue streams and, in turn, play a critical role in strengthening the local economy.

  Since 2007, MHBA has produced Local Flavor Guides for 15 neighborhoods in Denver and published and distributed over 150,000 copies. Working in conjunction with the guides, the business alliance will issue the local currency in the form of gift certificates. This ensures that the money stays within the community because they can only be spent at the participating businesses. Furthermore, the Revolving Loan Fund will provide anywhere from $1,000 to $10,000 in loans to eligible member businesses, with a payback period of 3 to 12 months. There is no interest on these loans.

  Arthur Brock, cofounder and director of the MHBA and a consultant and technology designer for several global currency projects comments, “A critical element that distinguishes Local Flavors from other local currencies is that it is designed to emphasize recirculation of the gift certificates, rather than redemption by a business for U.S. dollars. A business will be able to redeem Local Flavors for cash only after they have repaid their original loan of Local Flavors certificates to MHBA. Any redemption above the original loan amount will be redeemed at 90 percent of face value for the amount of Local Flavors to be redeemed [i.e., 90 cents in cash for every “dollar” in Local Flavors]. Loans may be repaid to MHBA either in Local Flavors certificates (at 100 percent value) or in cash.” 9

  However, a business that continues to recirculate Local Flavors never has to repay the loan. “This will serve as an incentive to keep Local Flavors in circulation among local businesses, multiplying their value and further encouraging local business patronage. In either scenario (recirculation or redemption), the Local Flavors and/or cash will then be available for MHBA to recirculate in the form of another Local Flavors loan,” adds Brock.

  THE HUB NETWORK

  The Hub Network is a social enterprise operating in more than 26 countries globally. Their mission is to “inspire and support imaginative and enterprising initiatives for a better world.” They provide a space, along with guidance to take an idea from the drawing board to commercial reality. There are Hub offices from Amsterdam to Zurich, from Atlanta to Melbourne, and from Dubai to Berkeley, with an estimated 1,400 offices in United States alone.10

  The Hub is a place for purpose-driven people to connect and build solutions for a better world. “Members work at the Hub, attend and produce events, run their own boot camps, access funding and mentorship, source clients and coconspirators, find social networks, build campaigns, launch companies, prototype and test products. The members can create what they want, as it is their space and their community to build upon,” says Jean Luc Roux, a member of the board of the Brussels chapter.

  The Brussels chapter is planning on creating a pilot cooperative currency with a view to helping entrepreneurs create a more cooperative environment.

  Roux describes the situation: “We have two cooperative currencies. One is the hubbee—it’s like TimeBanking—and the other one is the honey, which is a reputation system. And both are combined. This means that when I’m giving services to my friend William, William will receive hubbees, measured in time, and I will qualify the relation I had with him in the process with honey. For instance, I will give him one or two pots of honey because we see the Hub metaphorically as a hive. That is why we decided to represent the qualitative evaluation with honey pots. And what happened since we established the system? We see increasing relationships between social entrepreneurs, because our challenge as a hub is to create a collaborative spirit around an entrepreneur instead of a competitive spirit. And, it seems that there is a key difference before and after we’ve established the Hub money.

  “Before, people were working more alone, looking at the other not necessarily as a friend, not necessarily as a collaborator, but more as a potential competitor. And now, because they can offer services among themselves, they see that they have more to win by working together.

  “So we have one entrepreneur, he’s a web designer but he’s not allowed to sell web design to anoth
er member because that will go against the guidelines, but what he can do is show a member how to make and design his own Web site. And this kind of service really changes the lives and the relationships of the entrepreneurs. So since we’ve had the currency in place, many people have learned how to do things they weren’t able to do before then. And perhaps more important, the collaborative energy at the Hub has improved greatly,” Roux added.

  Given the early success of this cooperative money experiment the management team is now considering how best to handle the anticipated taxation issues with the Belgian authorities. In the meantime, John David Boswell, a member of the San Francisco Hub in an unofficial capacity, has launched a Hub TimeBank with an initial commitment of some 120 people in various Hubs around the world.

  Boswell says: “I’m working toward launching the Happy Futures Global Challenge. This is in collaboration with the United Nations’ civil working group and the UN Happiness Resolution, which I hope will become a stellar international project. It would illustrate how TimeBanking can be used in many ways, including social projects with many others throughout the world and including Hub members. The goal is to be “an exploration of the heart of happiness,” which is compassion, community, and deep connections between each other, envisioning ways to move beyond GDP to Gross National Happiness based on other metrics.”

  FRIENDLY FAVORS

  One of the most consistent outcomes reported by participants involved in cooperative currency initiatives is the development of a renewed sense of community and support from that community. Perhaps surprisingly, as a result of using a currency to acknowledge caring, assistance, or even random acts of kindness, the need to use the very currency that cultivated those behaviors and in a way kept score dissipates over time. This is because the awareness of good cooperative activities and deeds within a given circle or kinship has become explicit and flows naturally, and the use of the currency has become secondary or even no longer necessary.

  Friendly Favors is a case in point.

  An online networking program, Friendly Favors was started in 1999 by entrepreneur and social networker Sergio Lub and Webmaster Victor Grey, author of Web without a Weaver. It is a trust-based networking community that rewards users for generosity and goodwill. Members maintain their own pages, including photos and descriptions of services and products offered. They offer discounts to Friendly Favors users, engendering loyalty and gratefulness. Joining is free but requires an invitation from an existing member. This approach ensures that connections are based on trust and relationships. Currently, the Friendly Favors network has over 62,000 participants living in 196 countries.

  Use of its own cooperative currency is perhaps the most innovative feature of the Friendly Favors network. The currency is called thank-yous or Ts. These Ts are created through transactions and resulting recommendations and are given by members to each other, recognizing the buyer’s savings on a service or product received. One T is equivalent to one U.S. dollar saved by a discount or friendly favor: it is not redeemable in national currency. In fact, Ts cannot do anything except allow participants to acknowledge the generosity of others. They do not measure income, but rather goodwill, and operate as a reputation rating system. As a result, participants feel inclined to use the services of, for example, an accountant or computer technician with the most Ts in their FF account. To aid this process, all participants’ balances in Ts are openly displayed in their online profiles, along with all the referrals they have accumulated from fellow participants.

  Inherent in the program is the idea of reciprocity. “As members receive discounts and favors from others, they will be more likely to offer the same in return. Tangible measurements honor generosity in the past and encourage it in the future. Friendly Favors itself has benefited from this goodwill: Office and server space, technical skill, and supplies have been donated to the organization, with thank-yous given in recognition. The network has no bank account and uses no legal tender, yet Wired magazine estimated that the development alone of an interactive application like Friendly Favors’ would have cost over $3 million if undertaken by a corporation,” enthuses Sergio Lub.11

  Lub’s inspiration comes from the desire to increase the number of people who are willing to help on a regular basis beyond their small social circles: “What we are trying to do is see how we can do more favors for people who are not in our immediate community. You can meet someone who is normally very generous with family and friends but is callous when someone on the street needs a place to stay. If we are all a little more caring, then we will have enough room for everyone to be taken care of.”

  Lub, originally from Argentina, knows the importance of such expanded circles of generosity. In fleeing his country after a military coup, he learned that relationships and the kindness of others were much more important than money. As Lub said, “I’m here [in the United States] because many people risked their lives to save mine.” Using the currency of thank-yous, Friendly Favors supports the development of relationships and goodwill, creating a more balanced economy that acknowledges the diversity of our human needs.

  “What we found after using thank-yous, especially among a close-knit group, was that issuing the currency wasn’t necessary as an acknowledgment. It became second nature to be generous with one another,” adds Lub.

  As we see from these real-life examples, cooperative currencies have a powerful benevolent impact not only on the economic health of users but also on their social functioning as well. Now let’s look at how this could be applied on a global scale.

  A PROPOSAL FOR A GLOBAL TRADE REFERENCE CURRENCY

  A new nonnational currency has been designed both to provide a safety net to support the conventional monetary system and to mobilize global corporations toward a sustainable future. Such goals are most effectively accomplished not by regulation and legislative imperatives or moral prodding, but rather by providing a strong financial incentive in the right direction. A supranational cooperative currency would provide such an incentive.

  Many precedents demonstrate that whenever attempts at regulation or moral persuasion run up against financial interests, the latter tends to win. The war against drugs is but one example. The Terra provides a solution that doesn’t pit financial interests against human concerns—in other words, it is a real-world solution.

  The Terra Trade Reference Currency (TRC) as it is known, is a cooperative currency proposal specifically designed to address three systemic economic issues: alleviating the critical problem of monetary instability, curtailing the booms and busts of the business cycle, and making long-term sustainability possible.

  Given the financial upheaval we currently face and what all is at stake, this is a timely and exciting proposal.

  The Current Context of the Global Monetary System

  The Terra Trade Reference Currency initiative is designed to address several key issues that are global in nature and beyond the scope of a single nation’s ability to remedy or repair. Although such concerns may seem like boring economic problems of little interest to the average person, they are, in fact, key issues that are impacting all of us daily, such as massive job losses and the disastrous suffering generated by financial and currency crises. Yet, there continues to be a lack of initiatives from key financial institutions, aggravated by a geopolitical stalemate of the past several decades and exacerbated by the present-day economic downturn in the United States.

  If these key global issues are to be redressed in an effective, timely, and feasible manner, we need a response that reaches beyond local and national monetary strategies. Such a response must address the requirements and concerns of the most powerful decision makers of our world today—the multinational corporations—and take into consideration the realities of our present-day geopolitical climate and monetary system.

  The TRC, with a unit of account called the Terra, is a supranational cooperative currency initiative intended to work in parallel with the current international monetary system
to effectively address global issues. It is designed to create more stability and predictability in the financial and business sectors by providing a mechanism for contractual, payment, and planning purposes worldwide. This would be the first time since the gold standard days that a robust international standard of value, which is also inflation-resistant, would become available.

  The TRC is specifically designed to counteract the booms and busts of the business cycle and to resolve the conflict between short-term financial interests and long-term sustainability. It would also act as a lifeboat for international trade if and when an international monetary crisis breaks out. The Terra would provide a safety net in support of the conventional money system. Note that the Terra does not require any new legislation or international agreements to become operational.

  Practical Operations of the TRC

  The following scenario and Figure 7.1 outline the key elements of the Terra mechanism, from the creation of Terras to their final cash-in. The numbers listed in parentheses in the following description correspond to the steps illustrated in the diagram in Figure 7.1.

  Figure 7.1 Terra Diagram.

  1. The Terra Creation Process

  1a. Excess Inventory Sale. The process whereby the Terra is created begins with the sale of some excess commodity inventory to the Terra Alliance by one of its backer-members (e.g., 1 million barrels of crude oil by an oil producer).

  1b. Commodity Valuation in Terras. The value of this sale of oil to the TRC Alliance (i.e., how many Terras the 1 million barrels of oil will be worth) is calculated at market prices. This is accomplished by determining the commodity prices at the time of the sale for both the inventory in question (in this case, oil) and the sum of each of the commodities in the Terra basket.