Community Currencies Tutorial

[Editor's Note: This article was originally published at Responding Together in April of 2013.  It has received minor editing for clarity.  The original version of the article can be found here.]

This article addresses the challenges that people encounter when deciding to adopt a complementary currency without fully articulating the problem or the context, an oversight which causes many projects to fail. It also describes the work of Community Forge, a non-profit association that designs, develops and provides complementary currency systems and tools.

If a community currency was simply a printed note or an accounting system, then you could make a 1-2-3 recipe for starting one in your community, like boiling an egg. However, this approach is unlikely to succeed, because a currency is more than just tokens and symbols. Currency is a social construct made from trust relationships; creating a currency involves deep work in your community. Because the Necessary Transition cuts across all areas of life, and because money is a symbol of value and not value in itself, a currency project should be an integral part of a wider progressive agenda in your community. So you should be partnering with initiatives like:

1. Local food production and control of seeds
2. Modernising our community governance structures and our expectations for the networked age.
3. Nurturing and apprenticing our young people in skills, starting with repair and manufacturing
4. Caring for the sick and valuing the elderly
5. Stopping powerful institutions from constantly taking locally created value away, either without proper consent (EU, government, banks) or in a way that crushes more appropriate local solutions (chain stores, insurance companies, energy).

Community Forge is a handful of volunteers determined to do, and to support each other in doing, what they perceive to be the most important, most strategic work. By not accepting the agendas of institutional funders we retain our integrity, albeit with very few resources, to actually practice what is preached herein. However, we have supported hundreds of communities with free, open source accounting software, training, customisation and advice. We at least encourage communities to govern themselves, to own their own money systems, and to participate at the global level.

Prerequisites
The first piece of advice is to start a currency only if:

1. You are not the only person prepared to work on it. One of the most successful local currencies, Ithaca Hours, was envisioned and driven by one man, but conditions made it possible - he was a marketing expert in a freethinking town - and for every such success, there are a hundred 'learning' experiences and burnt out volunteers littering the roadside. A currency project needs to be a concerted effort of a collective, ideally with a range of skills.
2. Local value is being created. If everyone in your neighbourhood works far off in the city, and holidays abroad, and shops in supermarkets or malls, then there is nothing for your currency to do. Money systems are very helpful for motivating behaviour and multiplying the local economy, but zero multiplied by even your most optimistic projections is still zero. Local currencies can work where there is a feeling of community and neighbours supporting each other, local food production, locally owned businesses, and self employed people.
3. No other local currency exists. In a more robust complementary currency ecosystem, competition would be a fine thing. Currencies get their power from their size, so while the commercial debt-backed Euro is used for more than 99% of transactions, if at all possible you should work within an existing one, rather than creating new fragments.

If any of these conditions are not met, your time would be better spent in some more direct form of activism, because your chances of success will be negligible. Don't forget that money is not reality, and in our efforts to change money, we may forget the real world which is crying out for change.

Design
In Community Forge we are interested in three monetary models:

• Acknowledgement symbols & reputation metrics, which include time banking currencies
• Exchange currencies which include business to business barter systems; sometimes this is called 'mutual credit'
• Commodity currencies which represent stored value, in a warehouse or, less ideally, in a bank account.

We do not advocate fiat currencies for local communities because they usually rely on legal tender laws and force (or the threat of force, which is the same) to persuade people to use them, and because it is very difficult to judge and to ensure an appropriate quantity of currency is in circulation.

These models, pure or combined, can be deployed with different intentions in different contexts to create a tapestry of possibility. We are increasingly realising the importance of participatory governance, and recognising the problems many communities have with their governing structures. Each type has its own ways of governance, encouraging participation & covering costs

• There are numerous business to business barter systems, supporting a small software industry.
• Loyalty schemes like air miles or local reward points are currencies because they are transferable tokens of value.
• By acknowledging the contributions of individuals to other individuals and the community, Time banks encourage the poor to support one another, but usually depend on outside funding.
• By trapping legal tender in the local economy, popular designs like the Brixton Pound aim to prompt consumers to buy local, and are funded by unredeemed notes.
• Community currency banks, like Banco Palmas in Brazil

Don't forget that a complementary currency may be more than just a payment system. Most of these systems include some kind of directory of goods and services to help members spend, and sometimes a directory of needs to help members earn it.

Many newcomers don't realise that the monetary model, the project design and the payment systems are independent design components. Many payment systems are possible, though some are costly to implement:

• Paper notes
• Online accounting, perhaps within a social network
• Plastic ID cards with Point-of-sale card readers in every participating shop
• Smart phones, with QR codes
• Cheques or account books maintained by the traders themselves
• SMS can be used to instruct payments and interact with your account

Strategies
Once you have designed and setup your currency, and identified the users and enrolled them, the real work begins. How can your currency make things happen that would not happen in Euros? Why would someone invest their sweat to obtain your currency when Euros are so much easier to spend? Experience shows that mere idealism is not enough to change people's monetary habits! So here are some approaches to making the currency more attractive / useful.

• Commodity currencies can be obtained at a discount to face value and redeemed with a penalty. That encourages people to buy in, and discourages them to cash out. However beware penalising the very people you are trying to support. If local vendors can't spend the currency, the net effect is that they are subsidising their own customers.
• Brokering is time-consuming and requires the right kind of person, but many business systems are driven by brokers who are paid on commission.
• Game mechanics can drive particiaption, though they are currently expensive to design and integrate.
• Many people are now advocating negative interest systems (sometimes called demurrage, or decaying money, or hoarding tax) as a way to stimulate circulation, and while there is a strong macro-economic case for negative interest, ordinary modern users are easily disconcerted when their 'money' does not hold its value (inflation notwithstanding)
• Grant a free line of credit to new users so they can start spending. However you must be clear where this credit is coming from, or users will get the message that credit created from nothing is unredeemable and worthless. You should distinguish between a genuine gift, a credit facility which enables users to spend first, inflationary credit creation, and fiat money issuance (from nothing).
• Creating market events for the community to come together, build relationships, and share.
• Analyse the trading patterns and people's balances to see where the flow is blocked, and then offer support/incentives to those users or target new members to bridge the gaps.

The time is at hand!
Few local currency projects are thriving not only because of poor planning, expectation managament, design, etc., but because of some very widespread cultural factors.

• We live in a global economy, and are accustomed to the benefits of slave labour and very mobile capital
• Our communities and neighbourhoods provide less and less of the goods and services we consume, so we rely heavily on external producers and hence external money
• The legal tender commercial debt-currencies are supremely efficient, and enable mass production and low prices while the fragility of the economy they create, and the multiplier effect of buying local is not at all understood.
• The skills and the culture of production of necessary things is all but lost

As the 2008 financial crisis grinds on and on, and the gap between rich and poor in Europe and the world widens, more people are realising that they must work together as communities to overcome the Euro-poverty. That is when the above cultural factors will lose their weight and community currencies will have an opportunity to thrive. Until then we need not lie about our successes or be discouraged when currencies don't catch fire! The important thing is to practise, learn, and build the tools and infrastructure for economic justice.

This has been the briefest of practical introductions. For more depth we recommend the following books:

The End of Money and the Future of Civilization, Thomas Greco
People Money Margrit Kennedy, Bernard Lietaer and John Rogers
Hometown Money, Paul Glover
 

Go to the Intentional Communities and Solidarity Economics theme page