Next, choose options to generate income for each type of currency involved. These options are limited; what follows is an exhaustive list.
No Recovery
The first option is not to recover any of the costs. For the complementary currency component of the costs, most mutual credit systems simply open an account for “general overhead,” people doing work for the system are credited and this overhead account is debited.
For other systems, or for the conventional currency component, not recovering any costs is sustainable only if the system is designed so that no such costs are incurred in the first place — or if there is a sugar-daddy organization that is willing to either provide or raise funds to make the system operational and keep it going. Some peer-to-peer systems are actually designed to incur no costs, and therefore do not need membership or recovery mechanism either. That is the case, for instance, with the WAT system in Japan, based on bills of trade issued by businesses among each other.
Flat Fee
The second classical option is to have a flat fee. That can be a periodical membership fee (typically yearly or quarterly) or an entry fee that participants pay to the central operation to be able to participate. In some cases, there are higher membership fees for businesses than for individuals. This is usually done to cover the conventional money component of costs.
Transaction Fee
Transaction fees fall in two categories: those that are based on a small percentage of the amount involved, and those that are a flat amount for each transaction. They are typically levied at the moment of the transaction, although some systems compile a monthly total instead. Transaction fees are normally levied in the same currency as the transaction itself.
Interest, Demurrage and Other Time-related Charges
In the section on store of value we discussed the issues around interest, demurrage, step functions or expiration deadline currencies. Of course, such time-related charges produce an income — although only in the type of currency involved in the transaction — and that income is a perfect candidate to cover the running expenses.
Combination
Many complementary currency systems use a combination of the above ways to cover costs. Typical examples of such combinations include:
• Charges on both positive and negative balances beyond a certain level (i.e., demurrage and interest).
• Membership fees used to cover conventional money expenses, while other mechanisms dealing with the complementary currency costs.
Advantages and Disadvantages of Cost Recovery Mechanisms
Of course, keeping costs as low as possible is the best approach of all. Particularly if costs in conventional currency are high, a complementary currency system is predictably going to have difficulties over time. Costs in complementary currencies are easier to deal with because, particularly with mutual credit systems, the recovery problem can be dealt with easily within the system itself.
Whenever cost recovery mechanisms are needed, there are some advantages and disadvantages in the different solutions listed above. Try to use cost recovery as an incentive that is lined up with the objectives of the system. In this sense, the worst recovery mechanism is a transaction fee, as it provides an incentive not to trade with the currency. In contrast, membership fees and demurrage fees both give incentive to trade and are therefore preferable.
FIGURE A.1. Cycles of Economic Activity
Establishing a System for Circulation
At this point, you have chosen an objective, recruited a Community Currency Team and selected the various mechanisms that the currency will need. The last step in designing a community currency is to make sure that you have a complete system in place for circulation.
Circulation — the word itself implies a key consideration for this phase. To be successful as a medium of exchange, currency needs to travel through the community in circles — closed loops, complete cycles. If you were an electrical engineer, you’d be looking for a “complete circuit.” A simple concept, but yet this is where a lot of community currencies have failed in the past. They have neglected to establish complete circulation patterns, and as a result, there are some people who start using it, a few businesses perhaps, but the currency tends to pool in different parts of town, people who are using it get frustrated and it tends to deteriorate.
Our money systems functions in cycles, and these cycles are partly responsible for the multiplier effect that is so well known in economics. When money circulates through a community, is stored in banks for future use and the banks lend the money out to homeowners and businesses, then the total value that is in use in the community is greater than the absolute value that people feel they have — and the economy expands. Within these cycles, there are several important points which involve different people and organizations:
Households: Consumers, Employees, Savers, Investors
Firms: Businesses, Organizations, Producers, Service Providers, Employers, Investors
Government: Taxes and Fees, Service Delivery, Employment Support
Banks and Financial Institutions: Savings, Investment, Loans
Factor Markets: Labor Rates — Wages and Salary Levels
Product Markets: Raw Materials and Finished Products
If you show all the circulation of currency that occurs between these different points, it might look like Figure 1.
When you are designing the system for circulation of a community currency, you want to make sure that all of the points in this figure are involved in some way, so that the currency can circulate successfully.
Currency Design Questions
1. What are the unmet needs you would like to address?
2. Are there underutilized resources that offer themselves as a possible resource?
3. What is the objective of the currency you would like to design?
4. What support medium will you use to circulate the currency?
5. What function(s) will the currency serve?
6. What issuing procedures will you use?
7. What will your cost recovery mechanisms be?
8. Draw a circulation diagram for the currency you propose.
Case Histories
Katadhin Time Dollar Exchange
Ken Anderson grew up in a rural community in Michigan during the 1950s and 1960s. Ken grew up watching his father, a full-time farmer, barter skills to accomplish daily activities, leaving the flow of cash in the community to be maintained by those who wouldn’t participate in the system of exchange. For example, instead of paying the butcher to cut up his venison after hunting season, Ken’s father might shoe the butcher’s horses. No money was exchanged.
While the example above was not very formalized or part of any community-wide program, Ken now participates in the Katahdin Time Dollar Exchange. In this more formal bartering system, one time dollar is credited for each hour of service performed. Whether the service is a professional service, mowing a lawn, helping to clean a stream or playing cards with seniors at a local nursing home, for every hour you give, you get an hour back. These time dollars can be redeemed later in the form of services that you may need from someone else.
In the spirit of helping a neighbor in need, the KTDE brings people together for mutual benefit. In addition, its members perform community services for the greater benefit of the Katahdin, Maine region.13
Barter Systems Inc.
Barter Systems, Inc. is a commercial barter organization which aims to offers business owners and professionals other means of meeting many of their ongoing business and personal needs without using cash. BSI clients have the ability to exchange trade dollars earned by selling their products or services to other BSI client companies or to member companies belonging to other barter exchanges located throughout North America, the Caribbean, Europe, Australia and South America.
Satisfied members report that they have gained new customers and new income, but also used trade dollars to host company parties, purchase medical services and reward em
ployees.14
Local Exchange Trading System (LETS)
Prior to the early 1980s, the small town of Courtenay, British Columbia was heavily dependent on a local air force base and a timber mill. Unfortunately for local residents, when some staff at the base relocated and the mill closed, the local economy plummeted. As a result, unemployment was high and people were experiencing significant financial hardship.
The LETS program was established around 1983, introducing the green dollar (the LETS currency). This system allowed people to exchange goods and services with one another even when they didn’t have access a lot of official Canadian dollars. The LETS network allowed members to participate in the economy without needing an employer or having money to spend. An additional positive aspect of LETS in Courtenay was that the use of green dollars freed up more Canadian dollars for other uses. It was also an efficient and inexpensive way for local businesses to advertise, since participating businesses were listed in a local directory.
Resources
General Framework
Global Community Initiatives. global-community.org.
Currency Solutions for a Wiser World. lietaer.com.
Commercial Barter Systems
Barter Systems, Inc website. [online]. [cited December 28, 2010]. bartersys.com/index.asp. A leader in the commercial barter industry which offers exchange by way of goods and services and no cash.
Colin Harrison. Project Proposal: CyberTroc — A Barter System for the Information Society. [online]. [cited December 28, 2010]. ict-21.ch/ICT.SATW.CH/IMG/doc/ProjectProposalCyberTroc_c.doc. An article about CyberTroc, a type of internet-based barter system.
Hazel, Henderson. Paradigms in Progress: Life Beyond Economics (Indianapolis: Knowledge Systems Inc. 1991)
Hazel, Henderson. Ethical Markets: Growing the Green Economy (Vermont: Chelsea Green Publishing. 2006)
Mutual Credit Systems
Thomas H. Greco, Jr. “Chapter 12: Community Empowerment through Mutual Credit Systems.” New Money for Healthy Communities. [online]. [cited December 28, 2010]. ratical.org/many_worlds/cc/NMfHC/chp12.html.
Complementary Currency Resource Center website. [online]. [cited December 28, 2010]. complementarycurrency.org.
LETS Systems
LETSystems — The Home Page. [online]. [cited December 28, 2010]. www.gmlets.u-net.com. An excellent source, providing several links to sites with information about issues, administration software, organization and user materials.
LETS-Linkup International LETS Directory. [online]. [cited December 28, 2010]. lets-linkup.com. An international LETS groups directory with a guide to over 1,500 LETS groups from 39 countries.
Transaction Net: Local Exchange Trading Systems — LETS. [online]. [cited December 28, 2010]. transaction.net/money/lets. A complete description and glossary of terms related to LETS and other currency systems.
John “The Anti-Poverty Engineer” Turmel website. [online]. [cited December 28, 2010]. cyberclass.net/turmel. Links to many LETS currency press reports and articles.
Time Banks
The TimeKeeper Organization. What is the Time Dollar Network? [online]. [cited December 28, 2010]. www.timekeeper.org/whatis.html. Information about what drives the Time Dollar and how it can benefit the economy.
Time Banks USA website. [online]. [cited December 28, 2010]. timebanks.org/. An organization which works towards building local economies and communities that reward decency, caring and a passion for justice through its Time Banks system.
Time Dollar Tutoring. [online]. [cited December 28, 2010]. timedollartutoring.blogspot.com. An organization which works with students using a Time Banking system to track the time they give as tutors.
San Antonio Time Dollar Community Connections website. [online]. [cited December 28, 2010]. mc-sa.org/partners/neighborhood/timedollar.asp.
Local Currencies
E. F. Schumacher Society. Local Currencies. [online]. [cited December 28, 2010]. smallisbeautiful.org/local_currencies.html.
Transaction Net. Complementary Community Currency Systems and Local Exchange Networks. [online]. [cited December 28, 2010]. transaction.net/money/community/index.html.
Roy Davies. “Alternative Currency Systems: Local and Interest-Free Currencies, Social Credit, Social Lending and Microcredit etc.” Money — Past, Present & Future. [online]. [cited December 28, 2010]. projects.exeter.ac.uk/RDavies/arian/local.html.
Ithaca Hours — Local Currency — Ithaca, New York. [online]. [cited December 28, 2010]. ithacahours.com/.
Economic Development and Community Currency
Creating a community currency is not the only way to strengthen your local economy and build real wealth. There are many other aspects of community life that need to be addressed as well.
Global Community Initiatives has worked in partnership with Natural Capitalism Solutions and the America’s Development Foundation to create a new workbook for local communities to revitalize and develop their local economies in ways that build real wealth, enhance the quality of life and protect and restore the natural environment. The workbook is called LASER — Local Action for Sustainable Economic Renewal.
LASER is designed to help you initiate economic renewal activities in your local community. Each idea in the workbook is accompanied by a step-by-step tool that helps you put the ideas into practice. The Guide is based on the idea that we can satisfy our common human needs by building on our strengths, intervening at the system level and integrating all the different parts of community life into a whole package, rather than trying to tinker with different problems in isolation.
The principles and activities outlined in LASER are relevant whether you live in a rural village in Afghanistan or a neighborhood in a modern western city. The details will obviously differ, but the broad opportunities exist everywhere. All it takes is you. LASER describes how you can take control of your own future and begin to create the sort of economy that will bring real jobs, real prosperity and a high quality of life to you and your family.
Please visit our website at global-community.org or the LASER website at global-laser.org for more information.
Notes
Chapter 1
1. Collins English Dictionary, Complete and Unabridged. HarperCollins, 2003, s.v. “wealth.”
2. United Nations General Assembly. Report of the World Commission on Environment and Development. A/RES/42/187, 11 December, 1987. [online]. [cited October 15, 2010]. un.org/documents/ga/res/42/ares42-187.htm.
3. Jane Jacobs. Cities and the Wealth of Nations: Principles of Economic Life. Random House, 1984.
4. ICLEI: Local Governments for Sustainability. [online]. [cited October 19, 2010]. iclei.org/.
5. United Cities and Local Governments official website. [online]. [cited October 19, 2010]. cities-localgovernments.org/.
Chapter 2
1. G. Caprio and D. Klingelbiel. “Bank Insolvencies: Cross Country Experience.” Policy Research Working Papers #1620. World Bank, Policy and Research Department, 1996; J. Frankel and A. Rose. “Currency Crashes in Emerging Markets: an Empirical Treatment.” Journal of International Economics (1996), Vol. 4, pp. 351–366; G. Kaminsky and C. Reinhart. “The Twin Crisis: the Causes of Banking and Balance of Payment Problems.” American Economic Review, Vol. 89 #3 (1999), pp. 473–500.
2. Henry Ford. My Life and Work. Doubleday, Page & Company, 1922, p. 179.
3. Bernard Lietaer. The Future of Money: Creating New Wealth, Work and a Wiser World. Century, 2002, pp. 50–51.
4. Herman E. Daly and John B. Cobb. For the Common Good: Revitalizing the Economy Toward Community, the Environment, and a Sustainable Future, 2nd ed. Beacon Press, 1994.
5. Marjorie Deane and Robert Pringle. The Central Banks. Viking, 1995.
6. Quoting a speech made by Michael Schuman in Vermont in the winter of 2007.
7. Amory Lovins. “Natural Capitalism.” Resurgence #198 ( January/February 2000). [online]. [cited October 23, 2010]. resurgence.org/magazine/article1806-natural-capitali
sm.html.
8. The environmental crises in the region prompted Eastern European governments to request assistance from the US EPA. The Institute for Sustainable Communities (ISC) worked with the EPA to establish Environmental Management Training Centers in several countries — Poland, Bulgaria, Hungary, Ukraine and Russia — so that the regulators in these countries could learn from their western counterparts. One of us worked for ISC at the time.
9. US Bureau of Labor Statistics website: bls.gov.
10. Merriam-Webster Dictionary. [online]. [cited January 17, 2011]. merriam-webster.com/dictionary/system.
11. For more information about all the system archetypes, there are many good resources. One helpful source is: Mental Model Musings. [online]. [cited October 24, 2010]. systems-thinking.org. To see how the archetypes apply to community development: “Conducting and Understanding a Trend Analysis.” Local Action for Sustainable Economic Renewal (LASER). [online]. [cited October 24, 2010]. global-laser.org/resources/trend_analysis.pdf.
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