Money Makes the World go Around

Table of Content
1 Introduction 2
2 What is money and where does it come from? 2
2.1 Barter or gift exchange? 3
2.2 Government credit: fines, levies and taxes 4
2.3 How does it work? 4
2.3.1 Impact of currency design 5
2.3.2 Banks create debt 6
2.3.3 Debts bear interest… 6
2.3.4 Interest creates scarcity 7
2.3.5 All backed by Legal Tender 8
2.3.6 E-money for the Information Age 8
2.4 Whose is it anyway? 9
2.4.1 States, Markets and Central Banking 9
2.4.2 The people…? 10
2.4.3 Impact of ICTs 11
3 Alternative Complementary and Community Currencies 12
3.1 Complementary currencies 14
3.2 Community Currency 15
3.2.1 Types of Community Currencies 15
3.2.2 Mutual Credit & Credit Clearing 16
3.3 Conscious currency 16
3.3.1 Interest free abundance 17
3.3.2 Keep the benefits local 18
3.3.3 Create employment 19
3.3.4 Enhance social capital 20
3.3.5 Valuing ‘non-monetary’ services 20
3.4 Potential obstacles 21
3.4.1 External: Powerful interest groups and Legalities 21
3.4.2 Internal: Maintaining momentum and motivation 24
4 Conclusion 26
5 References 27

1 Introduction

“The word money comes from Juno Moneta, whose temple in Rome was where coins were minted, and most European languages retain money for coinage. Moneta was the goddess of memory and mother of the Muses. Her name was derived from the Latin verb moneo, whose first meaning is to remind, bring to ones recollection. For the Romans, money, like the arts, was an instrument of collective memory that needed divine protection. As such, it was both a memento of the past and a sign of the future.” (Hart, 2005: 8)
The previous chapter looked at the economic evolution over the past two centuries, focusing on the work of Karl Polanyi, in particular his concept of The Great Transformation (1944) in which the modern market is thought to have been disembedded from social relationships. In this chapter the focus moves to the issue of money, the ‘stuff’ that facilitates trading and exchange. Within anthropological circles, Maurer (2006) feels that, though useful within its time and context, the continued (almost exclusive) emphasis on the “great transformation” and the formalist-substantivist debate initiated by Polanyi does not do justice to the dynamic evolution of economic, and particularly monetary, processes and their relationship to society. This he does however also believe to be in the process of changing, noting that “[r]ecent years have seen new attention to money […] even more than in the heyday of the debate in economic anthropology between the formalists and substantivists.” (2006: 18) A possible explanation for this revived interest cited by Maurer is the advent of what Gregory (1997) calls “savage money” – increasingly detached from both political control as well as from material goods and labour that formerly provided its backing – over the past three decades. Maurer questions the traditional anthropological perspective of money being abstracted and ‘disembedded’ from social relations, emphasizing the social roles and meanings of modern money as much as more traditional forms of exchange studied by anthropologists.
This chapter provides an in-depth look into the origins and meanings of money, continuously emphasizing its essentially social functions transcending the official purpose with which it is endowed. The chapter begins with an overview of the origins of money – where it comes from, how it works, and who controls it. This is followed by a look at the alternative and complementary currency movement, particularly looking at the (re-) emergence of community currencies, described as ‘conscious currencies’ as they are specifically designed to promote human well-being. Potential obstacles to the proliferation of such ‘conscious’ alternate currencies are also noted.
While this chapter provides a contextual overview of the evolution of money as we know it, as well as alternate currency systems, the next chapter will look specifically at the potential impact of the Internet on community currencies.

2 What is money and where does it come from?

Greco, (2001: 28) distinguishes between what he calls practical, functional and essential definitions of money. The practical definition of money is that: “Money is anything that is generally accepted as a means of payment. According to this definition, money is whatever people collectively say it is.”

2.1 What does it do?

The functional definition of money focuses on ‘what money does’, citing it to be: 1. a medium of exchange; 2. a standard of value; 3. a unit of account; 4. a store of value; and 5. a standard of deferred payment. Polanyi (1957) distinguished between ‘general purpose’ money as money that serves three (or four, or five) of these functions, and ‘special purpose’ money, serving only one or two.
Greco, (2001: 28) believes that the ideal money should be purely a medium of exchange, noting that storage of value can best be accomplished in other ways , while use of money (in its modern form) as a standard of value invites confusion and mismanagement. While former money either consisting of or backed by gold or silver could effectively serve as a standard of value, the value of current money is determined more by monetary management policies than by market forces. (Greco, 2001: 28)
The key function that transforms a chosen object into a currency is its role as a medium of exchange. While modern money tends to perform numerous other functions (such as store of value, unit of account, tool for speculation), Kinney regards these other functions as secondary, noting that “there have been perfectly effective currencies that did not perform some or all of these other roles.” (Kinney, 2004, 3)
According to Kinney “[t]he magic of money is bestowed on something as soon as a community can agree on using it as a medium of exchange. Our money and monetary systems are therefore not de facto realities, like air or water, but rather are choices, like social contracts or business arrangements, and, as such, are agreed to, and are subject to, review and amendment.” (Kinney, 2004, 3)

2.2 Money as memory

While the definitions above explain what money does, they do not describe what it is. For this reason Greco draws attention to what he calls the essential definition of money, adopted from Michael Linton, originator the “LETS” (Local Employment/ Exchange Trading System), whereby money is defined as “an information system we use to deploy human effort.” (quoted in Greco, 2001: 28) Seen in this light it becomes apparent that our acceptance of money is based on its informational content, and that money can essentially be seen as an accounting system.
Hart (2005: 8) emphasises the informational essence of money, noting that even what might be described as “money proper” continues to evolve “towards ever more insubstantial versions, from precious metals to paper notes to ledger entries to electronic digits. Money is revealed as pure information; and its function as money of account takes precedence over its form as circulating objects or currency.”
Going back to the origin of the word money in ‘moneta’, Hart (2007) argues that one of money’s chief functions is remembering. Memory also featured prominently in John Locke’s philosophy of money (Caffentzis 1989), in which a person made the resources provided by nature his own by performing labour on them. To sustain a claim on his property through time, the person must remain the same, and personal identity depends on consciousness. In order to be property, such property must endure and its endurance depends on memory. “Money thus expands the capacity of individuals to stabilize their own personal identity by holding something durable that embodies the desires and wealth of all the other members of society.” Hart (2007: 15). Hart refers to money is a ‘memory bank’ (2000), which he describes as “a store allowing individuals to keep track of those exchanges they wish to calculate and, beyond that, a source of economic memory for the community.” Hart (2007: 15).

2.3 Where does it come from?

2.3.1 Barter or gift exchange?

The origin of money is traditionally thought to lie in barter networks in which people initially exchanged surpluses of their own produce for that of others. When difficulties arose in finding exact equivalents in desired goods and services between reciprocal partners, certain objects became recognised as tokens that most people would be willing to hold to swap with something else from someone else in future. While various objects could be used in this way, certain metals were most commonly used due to the fact that they were durable, portable, divisible and thus useful, as well as being attractive and scarce, which made them desirable. “The money stuff succeeded because it was the supreme barter item, valued not only as a commodity in itself, but also as a ready means of exchange”. (Hart, 2005: 2).
Hart questions the traditionally accepted origin of money in barter networks, choosing instead to go even further back looking for the actual origins of human exchange. For this he believes it more plausible to locate the origins of exchange (and money) in the gift, as Mauss (1990 [1925]) suggested. This he however notes would lead to a personalised conception of money, whereby markets would be seen as “a form of symbolic human activity rather than as the circulation of dissociated objects between isolated individuals. The general appeal of the barter origin myth is that it leaves the notion of the private property complex undisturbed.” (Hart, 2005: 3).

2.3.2 Government credit: fines, levies and taxes

The myth of money’s origin in barter was questioned by John Maynard Keynes who in 1930 asserted that modern money originated with the rise of cities and states about 5000 years ago, around the start of agrarian civilisation (Hart, 2007). Keyes believed money to always be both an idea and an object, virtual and real. He distinguished between what he called money’s insubstantial form (money of account) and its substantial form (money proper). While Smith and Marx stressed money's substantial form, money proper, Keynes believed this to be less important than the emergence of a formal, state-defined money of account. (Hart, 2005).
“Once this existed, people began to transact business using both money proper, issued by the state, and the obligations of individuals and corporations. Presently, the bulk of these obligations are issued by banks; they far outweigh money proper in circulation, and Keynes calls them 'bank money'.” (Hart, 2005: 7)
While ‘bank money’ is thought to be as ancient as government credit, it gained significance for Western economic history in the Renaissance (de Roover 1999). Modern national currencies can be considered the result of a merger of state and banking systems (Hart, 2007).
Tygmoigne and Wray (2006) note that while ‘money’ viewed primarily for its exchange function can indeed be seen to have originated in markets as alternative to direct barter, when looking at its functions as unit of account or store of value, different origins emerge. In these functions ‘money’ becomes directly related to the concepts of ‘credit’ and ‘debt’, the origins of which Innes (1913, 1914, 1932, cited in Tygmoigne and Wray) suggest to be in the elaborate system of tribal wergild fines to prevent blood feuds. Polanyi (1957: 198) notes the ritual/ ceremonial aspect of debt, indicating that “the debt is incurred not as a result of economic transaction, but of events like marriage, killing, coming of age, being challenged to potlatch, joining a secret society etc.”
While initial wergild fines referred to indebtedness between people, Tygmoigne and Wray argue that these were gradually converted to payments made to an authority. In this manner these fines were replaced by tithes, tributes, and eventually fines for transgressions against ‘society’ could be levied for almost any activity, payable to the rightful ruler. Most fees, fines, and tributes were eventually replaced by taxes in the nineteenth century (Maddox, 1999). In this sense what initially started as a debt to a victim was transformed into “a universal ‘debt’ or tax obligation imposed by and payable to the authority. The next step was the standardisation of the obligations in terms of a unit of account – a money.” (Tygmoigne & Wray, 2006: 2) The argument is thus that the standardisation of money ‘stuff’ as we know it today originated in the central authorities’ need for a common unit of account to simplify the process whereby resources could be extracted from and disseminated to the population. This relates closely to what Polanyi (1957) describes as the redistribution principle of resource exchange, distinguished from reciprocity and market exchange as forms whereby production is integrated in society. Whereas pure application of the redistribution principle could imply equitable sharing of resources through payments for essential services rendered, aspects designed into the money system to artificially enforce its scarcity, while simultaneously rendering it essential as sole legal means to service debts have resulted in less than equitable redistribution of resources`, as will be shown below.


2.3 How does it work?

Trilling illustrates the fact that money is essentially the belief that others will accept a particular denomination of a specified currency as valuable.
“In essence, money is a confidence game. Like the emperor with no clothes (i.e., whenever a “crisis of confidence” looms), everybody just hopes that no untrained kid will make an improper remark. Under such circumstances, it may indeed require a lot of regal confidence, mystery and decorum to ensure that a long and fragile chain of beliefs will hold.” (Trilling, 2004: 8)
Money (especially money that is not backed by real goods or services) is essentially a trust existing only in the hearts and minds of the people that use it. Money systems abound with mechanisms and symbols aimed at keeping that trust alive. Trilling believes this trust to be fundamental to the self-confidence required for a civilization to grow and survive. “Conversely, when a society loses confidence in its money, it loses confidence in itself. Entire civilizations have collapsed with the collapse of their money systems.” (Trilling, 2004: 8)
Writing in 2004 Trilling noted modern civilisation to be a transition period, described as an interval of great risk as well as enormous opportunity. Now, five years later, the risks inherent in the ‘confidence-based’ money system have played out in a global financial meltdown. This section will provide a brief overview of the basic features of our current money system, beginning with a look at how the design of a currency can have far-reaching implications for the very essence of a society.

2.3.1 Impact of currency design

“Money is merely a social agreement, a story that assigns meaning and roles. […] Physically, it is now next to nothing: slips of paper, bits in computers. Socially, it is next to everything: the primary agent for the coordination of human activity and the focusing of collective human intention.” Eisenstein (2009)
Values and relationships within a society are deeply moulded by the type of currency it uses as the design of the currency can serve to encourage or discourage specific emotions and behaviour patterns. All types of money facilitate as means of exchange among people. The remarkable motivating power of money however means that the design of a specific money system is invariably loaded with numerous other objectives as well. These may be conscious, but are often unconscious, and range from prestige of the Gods or a ruler to collective socio-economic motivations. (Kinney, 2004, 1)
According to Bilgram and Levy (1914: 95): “The one quality which is peculiar to money alone is its general acceptability in the market and in the discharge of debts. How does money acquire this specific quality? It is manifestly due solely to a consensus of the members of the community to accept certain valuable things, such as coin and certain forms of credit, as mediums of exchange.” (Quoted in Greco, 2001: 29)
Kinney defines money may as an agreement, within a community, to use something as a medium of exchange. “As an agreement, money lives in the same space as other social contracts, like marriage or lease agreements. These constructs are real, even if they only exist in people’s minds. The money agreement can be attained formally or informally, freely or coerced, consciously or unconsciously” (Kinney, 2004, 2). This agreement is valid only within a given community, which may range from a small group of friends to the entire global community (as the U.S. Dollar as long as it is accepted as reserve currency.)
Hart, (2005: 8) also describes money as a type of ‘agreement’ on a means of exchange, noting that “[c]ommunities exist by virtue of their members’ ability to exchange meanings that are substantially shared between them. People form communities to the extent that they understand each other for practical purposes. And that is why communities operate through culture (meanings held in common). Money is, with language, the most important vehicle for this collective sharing.”
Key characteristics common to all Industrial Age currencies that still persist as unquestioned features of “normal” money systems today, are: 1) geographic attachment to a nation-state; 2) its creation out of nothing (fiat money); 3) by bank-debt; and 4) incurring interest (Kinney, 2004).
According to Robertson (2009) “the way money is created and issued, who creates it and in what form—as debt or debt-free, in one currency or another—largely determines whether a financial system works fairly and efficiently or not.” Money shapes the lives of those in the global village at personal, household, local, national, and international levels. Robertson shows that the current money system encourages or compels people to acquire and spend money “in ways that work against the planet, against other people, and against ourselves.”
The following sections will look at the process whereby money in the current financial system is created through the issuing of interest bearing loans backed by the concept of Legal Tender, followed by a brief look at the implications of electronic transfer on the finance industry.

2.3.2 Banks create debt

“The process by which banks create money is so simple that the mind is repelled.” —John Kenneth Galbraith (in Greco, 2001: 16)
Modern monery is created as bank credit that must be borrowed into circulation. Greco (2001) shows how conventional money exists as bank deposits, reflecting balances in checking or savings accounts, which are secured by interest bearing debt. Money can thus be seen to be the product of a private banking cartel. Greco distinguishes between ‘wealth creation’ (involving the application of human skills to natural resources in ways that produce useful goods and services) and ‘money creation’, described as a human contrivance; “a symbol created by a deliberate process involving entities called banks” (in Greco, 2001: 18). It is thus important to see that debt provides a means of creating entirely new funds. (Greco, 2001: 20)
According to Robertson (2009) the money supply in national economies is created by “profit-making banks writing [the money] into their customers’ accounts out of thin air as bank loans in electronic bank-account money.” The fact that money starts out as (interest bearing) debt, paying the interest in addition to the principal requires more money to be earned than has been created. The supply of money and the accompanying indebtedness in society must thus essentially keep growing, which has damaging systemic effects for both the environment and society. Such growing indebtedness favors those who lend money into existence at the cost of those who borrow and pay interest. Robertson believes that the economy is distorted by granting the privilege of deciding the first use of money when it enters circulation to profit-making banks.
Hock describes the nature of banking as taking low-risk assets (deposits) and investing them in higher-risk assets. “When these risks pay off, the bank owners reap the rewards. When the risk does no pay off, and a bank fails, the losses are spread between the bank owners and the depositors (or the governmental insurance safety net that now protects the depositors).” (Hock, 2004: 6) This results in a built-in temptation for banks to take high-risk/high return gambles, as gains can be significant, while losses are externalised, which in bank jargon is referred to as “moral hazard”.

2.3.3 Debts bear interest…

“Throughout most of history, the circulation of money has been based on the payment of interest. Interest leads to compound interest. Compound interest leads to exponential growth. And exponential growth in turn is unsustainable.” (Kennedy, 2005: 1)
Kinney identifies three side effects of charging interest on money as competition, the need for perpetual growth, and wealth concentration, noting that it was prohibited on both moral and legal grounds for more than 20 centuries. The prohibition of interest (usury) ended during the reign of King Henry VIII who first legalized interest in Britain in 1545, after his break with Rome. “For most of history, all three “religions of the Book” (Judaism, Christianity, and Islam) emphatically outlawed usury, intended here as any interest on money.” (Kinney, 2004: 5)
Greco (2001: 36) distinguishes between charging interest on money that has been earned through labour/ provision of actual goods and services, and the interest charged by banks on newly created money that they authorize based on debt.

2.3.4 Interest creates scarcity

“That is the essence of interest: I will only "share" money with you if I end up with even more of it in return. On the systemic level as well, interest on money creates competition, anxiety, and the polarization of wealth.” (Eisenstein, 2009)
An essential feature of money that is created as interest bearing debt is that it is ‘programmed’ to maintain its value based on scarcity and, by definition, inadequate supply. As banks only create the principal amount to be lent out, and not that required for the interest to be repaid, borrowers are forced to compete with each other for an insufficient amount, and the debts of some can only be repaid based on the ruin of others whose assets are repossessed.
“To put it simply, to pay back interest on a loan, someone else’s principal must be used. In other words, the device used to create the scarcity indispensable for this type of bank-debt money system to function, involves having people compete with each other for the money that was never created—and penalizes them with bankruptcy should they not succeed.” (Kinney, 2004:5)
Thus the system enforces a situation whereby it is mathematically impossible for everyone to ultimately benefit. As Greco (2001: 36) notes: “the prevailing system guarantees that there will be a steady parade of losers. This is the fundamental flaw in the present monetary system.” Economists Jackson and McConnell (1988) summarise this built-in scarcity aspect of bank-debt, fiat money systems, noting that “Debt-money derives its value from its scarcity relative to its usefulness.” (Quoted in Kinney, 2004: 4). Greco, believes that, in contrast to the current system which is based on what he calls the ““myth of scarcity,” the world needs systems and structures that affirm the truth of an abundant universe.” This requires structures that are efficient, self-regulating, democratic, and unbiased, “structures that enhance the prospects that each person will able to satisfy his or her basic, real needs” (2001: 22).
As former Head of the Organization and Electronic Data Processing Department of the Belgian Central Bank, responsible for the design and implementation of the convergence mechanism to the Euro, as well as President of the national Electronic Payment System (rated as the world’s most comprehensive and cost effective of such systems according to the Bank of International Settlements (BIS), Bernard Lietaer can be considered an expert in the field of conventional monetary policy. Lietaer emphasizes the fact that scarcity is artificially introcused by the banking system, noting that:
“I have come to the conclusion that greed and fear of scarcity are in fact being continuously created and amplified as a direct result of the kind of money we are using. For example, we can produce more than enough food to feed everybody, and there is definitely enough work for everybody in the world, but there is clearly not enough money to pay for it all. The scarcity is in our national currencies. In fact, the job of central banks is to create and maintain that currency scarcity. The direct consequence is that we have to fight with each other in order to survive.” (Lietaer, 2004: 1 emphasis original)
The scarcity element required for a bank-debt based currency to function at all must be artificially and systematically introduced and maintained by the banking system. By reinforcing competition rather than cooperation, this induced scarcity has profound effects upon our society and nearly every aspect of our lives according to Kinney (2004). Maintaining the system of artificial scarcity, despite the detrimental impacts that one might expect to lead to more optimal alternatives, has been the function of what is known as ‘Legal Tender’ as described below.

2.3.5 All backed by Legal Tender

All conventional national currencies operating today are fiat-based currencies, meaning that they are created by an authority who declares that something is to be a currency or valid “legal tender” although it may be worthless in substance. These fiat currencies are created under the hierarchical authority of a national Central Bank as bank-debt. (Kinney, 2004: 4)
The concept of ‘Legal Tender’ has come to replace the former commodities (e.g. grains, gold etc.) against which less substantial forms of money (e.g. paper notes) were backed. “Legal Tender” means that such notes must be accepted as payment by anyone to whom money is owed, be it an individual, a corporation, or a government agency. The currencies issued by central banks are in essence backed by government’s promise, which is rendered credible due to government’s power to levy and collect taxes (Greco, 2001: 19)
Zube (1999: 1) describes Legal Tender as “the enforced circulation of an exclusive currency at a forced paper par value, a currency against which competition is outlawed and […] which any creditor may demand.” This leads Zube to identify Legal Tender as “one of the greatest destroyers and wrongs”, showing that it “leads to inflation, unemployment, dictatorships, even wars [...] It is a totalitarian means leading to totalitarianism.”
Some of the ills caused by Legal Tender include, according to Zube, officially forged money, monetary inflation, as well as money shortages, and taxation without consent. It is considered a confiscatory means that leads to over- and under-issues of currency, misdirects the people's opposition against monetary malpractices, and brings about industrial unrest. It also outlaws the price mechanism for currencies, allowing what may be termed as ‘bad money’ to drive out the good. Zube furthermore notes that it allows the financing of unjust wars and despotic regimes, claiming it to be “one of the most anti-social acts any government could commit.” (Zube, 1999: 1).
By contrast, Zube proposes greater liberalization of currency, believing the solution to lie in currencies that are freely issued and allowed to compete against each other, which would require free market rates for all of them. This he believes would preserve the values of such currencies precisely because they could suffer a price fall. In such a situation he suggests that local currencies and private money tokens could be issued by all productive people who want to clear their services or goods freely and easily whenever and wherever needed.

2.3.6 E-money for the Information Age

Trilling (2004) describes a number of fundamental changes that have taken place in the world’s evolving monetary systems in recent decades, noting that there has been: 1) a structural shift as the dollar was disconnected from the gold standard in 1971 to inaugurate an era of currencies determined by market forces alone; 2) financial deregulation that enabled a much larger array of participants to become involved in currency trading than was ever previously possible; as well as 3) technological advancements including the computerization of foreign exchange trading and the creation of the first 24-hour, fully integrated, global market. Occurring in tandem with the structural shift and financial deregulation, the technological shift accelerated the speed and scale with which currencies could be moved around the world to an unprecedented level. According to Glyn Davies (1997) this technological shift can be regarded one of two exceptional innovations in money. While the first shift took place at the end of the Middle Ages when the printing of paper began to supplement the minting of coins, the second involves the invention of electronic money transfer. (Trilling, 2004: 1)
In The Rise of the Network Society Castells (1996) notes that the freedom of electronic transfer resulted in major mergers between financial firms throughout the world, leading to “the consolidation of the industry in a few mega-groups, capable of a global reach, covering a wide range of financial activities, in an increasingly integrated manner.” (Castells 2000 (1996): 154). Information technology also changed the way financial transactions were conducted qualitatively, as powerful computers, and advanced mathematical models allow for sophisticated design, tracking and forecasting of increasingly complex financial products operating in as well as future time. In this manner Castells believes that financial trade (between firms, between investors and firms, between sellers and buyers, and, ultimately, the stock exchange markets) was revolutionised by electronic communication networks and the wide-spread use of the internet.
Some examples of changes in the financial sector noted by Trilling includes the emergence and proliferation of credit markets, both in the issue of credit cards, as well as other financial products, as large corporations have been empowered to issue their own commercial paper, bypassing the commercial banks in the process.
“A titanic struggle has begun in relation to the control of emerging forms of money. Banks are now acting mostly like computerized telecommunications companies, while companies involved in telecommunications, computer hardware and software, credit card processing, Internet shopping, even cable television, have discovered that they can perform many of the services of the banks” (Trilling, 2004: 3).

2.4 Whose is it anyway?

This section looks at what might be thought of as the ultimate ‘ownership of’ or ‘authority over’ the mediums used as currency, looking at the interplay between the state and the market, the banking and emerging financial industry, and, ultimately, the people who use it. This is followed by a look at the potential of information and communication technologies to shift the basis of power in terms of money creation from central authorities to the people and businesses involved in transactions.
2.4.1 States, Markets and Central Banking
“Take a look at any coin. It has two sides. One contains a symbol of political authority, most commonly the head of a ruler, hence heads. The other tells us what it is worth, its quantitative value in exchange for other commodities. Rather less obviously, this is called tails. The two sides are related to each other as top to bottom. One carries the virtual authority of the state; it is a token of society, the money of account. The other says that money proper is itself a commodity, lending precision to trade; it is a real thing” (Hart, 2005: 7)
Hart highlights an obvious tension between the two sides of a coin, illustrating the dynamic interplay between the state and the market as ultimate monetary authority. Following a more market oriented approach in Victorian civilisation when money was backed by gold, political management of money became normal for a while during the twentieth century, particularly with the abandonment of the gold standard and consequent increased emphasis on legal tender. In the early 21st century the process of globalisation has again led to a shift towards the market as states lose control over their national currencies.
State money essentially involves government: a) offering a currency of little or no worth to a people in payment for real goods and services; b) designating this currency as the sole legal means of exchange within the territory; and c) stipulating this currency to be the required medium for payment of taxes (Hart, 2005: 7).
While the creation of money through debt was traditionally a government function, towards the end of the 17th century this process became outsourced to the commercial, privately-held banking system. Agreements were reached whereby private banks were granted the right to create money as “legal tender” in exchange for a commitment to provide whatever funds the national government needed. This gave commercial banks the power to create new money through a process based on issuing loans to their customers. The amount of money that the banking system could loan out, together with the amount of new money that would be created by the banking system, would be determined as a percentage of the bank’s stores of deposit (Hock, 2004).
Borsodi (1977) found the way banking is viewed as a “business” with its implications as an enterprise conducted for profit to be unfortunate, arguing that in essence banking should be seen as a profession, and as such should be conducted with the primary motivation of rendering a service. While the people involved should be compensated for their work, this should be seen as a professional fee, as opposed to a business profit.
Greco notes how the politicization of money, banking, and finance has led to abuses of the human population, as private banking interests and the central government became intertwined and mutually dependent. In return for its privileged position as sole issuer of money, the banking cartel must assure that government can borrow and spend virtually any amount of money it wishes. To do this the banking system will create enough new money to allow the market to absorb new government bonds that must be issued to finance any deficits, thus allowing the government to spend as much as it wishes without directly raising taxes. The destructive power of such almost limitless power to spend is illustrated by Riegel who notes that “it permits ambitious or designing or fanatical men who are in control of government to light the fires of war.” If governments were required to raise money for fighting from the people to obtain the money to fight, it could be argued that there would be few if any wars. A further impact of monetizing government debt is that it causes a general increase in prices known as “inflation” resulting from the lesser worth of a more ample supply of money not linked to any real increase in productivity, goods and services (Greco, 2001: 23).
The association between money and the state, markets, and the banking system has become so all-pervasive in modern society that, until recently it has been almost universally accepted as the natural norm. But what if money came from the people instead? Some have said that it does.

2.4.2 The people…?

In the early 19th century the German romantic, Miller (1931 [1816]), argued that money expressed the accumulated customs of a nation or people (Volk). Others (see Bagehot (1999 [1873]) and Simmel (1978 [1900])), view money as “an expression of trust within civil society, locating value in personal management of credit and debt” (Hart, 2005: 7). Reminding us that money is principally a way of keeping track of what people do with each other, Hart notes that new possibilities present themselves in an age of electronic money, predicting that central powers will in future be devolved to regional or local government bodies as people are more likely to fund public projects nearer to home, and that the territorial dimension of society will thus devolve to more local units. With the erosion of territorial power people will have to turn to their own forms of association and to more informal means of regulation. Hart (2005) believes that this could lead to participation in many forms of money and in the circuits of exchange corresponding to them, as suggested by Greco (2001:7).
In tracing the origins of the modern economy and the money that sustains it back to the gift, rather than barter, Mauss (1990 [1925]) supported the idea of money as personal credit. Seen as such it is linked more with the acknowledgement of private debt (wergild), and less to the history of state coinage that emerged once such ‘debts’ became centralised by central authority. In this sense money may be seen as a means of collective memory mediating the need to keep track of proliferating connections with others (Hart, 2005).
In a world where money resumes its role as collective ‘memory’ of individual debts, Hart believes that people will voluntarily enter into circuits of exchange based on special currencies, on the one hand, while simultaneously participating as individuals in global markets using international moneys such as electronic payment systems or even direct barter via the internet:
“It will be a world whose plurality of association, even fragmentation, will resemble feudalism more than the Roman empire. In such a world, one currency cannot possibly meet all the needs of a diversified region's inhabitants. The changing technical form of money has exposed the limitations of central banks, reduced now to maintaining a national monopoly whose economic inadequacy is exposed on all sides. In response, people have started generating their own money, offering individuals a variety of community currencies linked by increasingly-sophisticated electronic payment systems. (Hart, 2005: 7)
After several thousand years of state money linked to scarce commodities, embracing another form of “people’s money” will take some effort. However, as digitalisation encourages a growing separation between society and landed power, such appropriation of ‘money’ by ‘the people’ becomes a natural step in society’s drive to a more equitable world in which “we can make our own money, rather than pay for the privilege of receiving it from our rulers” (Hart, 2005: 9).

2.4.3 Impact of ICTs

“The development of computerized telecommunications technologies and the Internet have put into the hands of ordinary people an information matrix and ability to communicate that was undreamed of just a few years ago. Among other things, such tools have enabled the organization of grassroots communities of interest that transcend barriers of distance, language, and culture, and, as we shall see, they have also enabled the development of new nonmonetary, nonpolitical ways of exchanging goods and services.” (Greco, 2001: 11)
Speculation on how the Internet will impact on the future of money started in the late 1990s, in both cyber and economic fields. In 1997 avid Internet and Virtual Community enthusiast Howard Rheingold devoted two parts of his Tomorrow column to an article on The Internet and the Future of Money, in which he explores the work of Bernard Lietaer in The Future of Money: Beyond Greed and Scarcity, a book he was working on at the time, and published in 2001. Rheingold (1997, Part II) expects the Internet to lead to “a radical change in the future of money, if [its] technical mechanisms are used to support the creation and maintenance of 'local currencies' – a medium of exchange that many communities around the world are beginning to experiment with.”
Greco (2008a) believes that by making available the necessary tools and infrastructure to easily implement them, new computerized telecommunications technologies provide a means whereby the money monopoly can be transcended, a theme on which he expands in the recently published The End of Money and the Future of Civilization (Greco, 2009).
Rushkoff (2009) emphasizes the fact that “[m]oneys are programmed”, showing that the way these moneys behave and their impact on society is the result of certain biases embedded into the design of the money. In this light the current credit crisis can be considered the result of underlying biases of the centralized, monopoly currencies in use. In response to this realisation a growing population of citizens and businesses are turning to the use of complementary currencies, which Rushkoff (2009: 2) describe as “alternative, net-enabled, bottom-up money systems that let them accomplish what money loaned out by the Fed just isn't letting them do anymore”.
In today’s “networked, hi-tech, and decentralized world” Rushkoff (2009: 2) notes that there has been a move away from central administration in many spheres, including the way transactions and exchanges are processed.
“The laws and regulations requiring us to run our finances and resources through tremendous industrial age corporations are more obsolete than ever. And real people are beginning to catch on to how inefficient and risky it is to conduct their transactions in this way. They are starting to trust the real world around them more than the mythologies created by the public relations departments of distant corporations.” (Rushkoff, 2009: 2)
Companies can now barter directly with each other using more than 250 exchange services available through the Internet, or earn US-dollar-equivalent credits for the merchandise they supply to others. In 2009 such bartering has been estimated to account for 3 billion dollars of exchanges annually in the United States alone (Rushkoff, 2009: 2). At a time when, faced with the global meltdown, larger corporations can no longer acquire the credit they need to do business, Rushkoff argues that Internet-enabled complementary currencies can revive the decentralized marketplace of real businesses. Networks provide a way to verify transactions and develop trust, and also emphasise the fact that many of the tools we use are the result of programs. While it could be argued that printing presses encouraged counterfeiting of official currencies, the availability of computers and networks is encouraging the creation of altogether new forms of money. In this context Rushkoff believes that “[w]e are proving more likely to treat our money as software, and to write our own” (2009: 3).
The next section examines the evolution of currencies that can be considered alternative and complementary to the predominant money system.

3 Alternative Complementary and Community Currencies

“Money can be made to serve rather than to rule, to be used -- rather than profit-oriented -- and to create abundance, stability, and sustainability… [W]hile money is one of the most ingenious inventions of mankind […] it has the potential to be the most destructive or most creative.” (Margrit Kennedy, quoted by Utne, 2004)
Examples of exchange alternatives can be found throughout history. Rushkoff (2009: 2) traces the origin of complementary currencies to local, grain-based currencies used throughout Late Middle Ages Europe before Renaissance corporatism and centralized money schemes were invented by monarchs. Greco (2009a) cites numerous historical precedents for nonbank currencies—such as the 1930s Great Depression–era scrip issues, and the mutual credit clearing system that was organized in Switzerland as the WIR Economic Circle Cooperative (since renamed WIR Bank). According to De Meulenaar (2000) communities have issued their own money as a community-based response after every major monetary crisis since 1820. The fact that the great cathedrals of Europe were built using community currency, not funds from the Vatican as might be expected, is frequently emphasised in the literature on alternate currency (See Lietaer 1997, De Meulenaar 2000, Rushkoff, 2009 et al). The motivation behind spending locally created currencies in this way was to leave something for future generations, which indeed succeeded as these cathedrals continue to draw tourists and thus attract economic benefits to this day. De Meulenaar also cites ancient Athens and the wealthy city-states of Hong Kong and Singapore as examples of economies that were organised at the local level.
Following a decline in alternate money systems as local currencies were outlawed and centralised ‘bank’ currency became enforced as means of exchange, there has been an upsurge in innovation and implementation of exchange alternatives in recent decades. This trend started in the 1970s with the advent of commercial “barter” or “trade” exchanges, followed by the grassroots emergence of mutual credit clearing associations (LETS), Time Dollars, and various local currencies. Greco (2009a).
Amongst the most influential early proponents of alternative money systems in the 1970s was Erich Fritz Schumacher. Schumacher defined appropriate economics as:
“[A] process of applying broad-based community determined values through an ethical system that has an impact on the economic lives of people. Unlike conventional economic thinking which divorces social concerns from economic thinking, appropriate economics sees economic relations fundamentally as social relations. It provides a means for people to relate economically with each other as they would want to relate with each other socially. In this way, money is seen as media, a form of communication between people. One can use money that talks down to people, or one can use money that speaks on even terms with people.” (Schumacher, 1979)
Following the theorizing of Schumacher and others in the 1970s, the new generation of community currencies began in 1982 with the Local Employment and Trading System (LETS) rolled out by Michael Linton across British Columbia in Canada. Although LETS did not gain popularity in the United States, it inspired Paul Glover and his colleagues to develop a time-based paper currency system known as ITHACA HOURS, which is now the most widely replicated model for community currencies in North America. (Cohen-Mitchel, 2000).
While in the past alternative currencies were introduced solely to alleviate monetary crises and the resulting social impact, DeMeulenaere (1998) noted that these were increasingly being consciously introduced with the purpose of simulteneously affecting structural change and bringing stability to the global monetary system. Examples of such currencies consciously striving for structural change and greater stability cited by DeMeulenaere include the Public Transit Currency in Curitiba, Brazil; the ‘Bons de Travail’ Currency in Dakar, Senegal; the ‘Tianguis Tlaloc’ Currency in Mexico City; the “Creditos” Currency in Argentina; and various Local Currency Systems in Thailand.
By the millenium parallel currencies were arising in communities all over the world to fill an increasing need for stability in the face of the destabilisation caused by globalisation. By 2000 Lietaer (2001) noted over 2500 community currencies in operation around the world, while Schraven (2001) referred to over 3000 by the end of 2001, and Kirschner (2006) to over 4000 by 2006.
While initially primarily attracting the interest of alternative communities, Rushkoff (2009) notes that local currencies have now spread far beyond the experimental fringe, citing such systems operating in over 2100 towns in the United States alone. Reasons for this increased interest include the new scarcity of dollars as well as the availability of software and tools. “Beginning a local currency requires no store of capital -- it is as easy as visiting the websites for local economic transfer (LETS) systems or Time Dollars.” (Rushkoff, 2009: 3)
Interest in alternative exchange has escalated exponentially over the past year since the credit crisis paralyzed business lending. Rushkoff (2009) notes a significant increase of companies “signing on to barter networks in droves” since October 2008. Within that month alone one system called ITEX, which allows businesses to trade merchandise directly without ‘money’ mediation, reported a 37% increase in registrations.
Inspired by the work of Schumacher, The E. F. Schumacher Society employs the term “local currencies” to refer to place-based monetary tools for building sustainable local economies. Other terms that have arisen include “complementary currencies,” “community currencies,” and sometimes “alternative currencies.” (Witt & Lindstromm, 2004:2). Since the 1980s local currency proponents have debated the use of the terms “local,” “alternative,” “community,” or “complementary” to describe their moneys. According to Maurer (2005: 25) these adjectives often mark “subtle ideological differences, regional variations, and the political-economic intention of the currency.” The term “alternative,” for example, tends to be used by those who envision the creation of a wholly new “economy”, separate from national economies. “Complementary” is mostly used to suggest the new money as supplementing the use of the national currency, especially for people who rely on activities in an informal economy to meet their needs. The term “local” is used by those who imagine "a world of localities, in each of which wealth is circulating internally, occasionally reaching beyond to form loose, interconnected networks. Despite these subtle differences, Maurer notes that these preferences are not cast in stone, and the same person will often use these terms interchangeably (Maurer, 2005: 25).
Throughout this chapter and thesis these terms will be used interchangeably, but with specific emphasis on what might be called ‘complementary’ and ‘community’ currencies. These terms are discussed below, followed by a look at elements that make such a currency ‘conscious’ of human needs, before concluding with a look at some potential obstacles to the alternate currency movement.

3.1 Complementary currencies

Lietaer (2009: Part 2) believes the systemic solution to the current monetary crisis to be increasing the resilience of the monetary system.
“Conventional economic thinking assumes the de-facto monopolies of national moneys as an unquestionable given. The logical lesson from nature is that systemic monetary sustainability requires a diversity of currency systems, so that multiple and more diverse agents and channels of monetary links and exchanges can emerge. This is the practical lesson from nature: allow several types of currencies to circulate among people and businesses to facilitate their exchanges, through the implementation of complementary currencies. These different types of currencies are called complementary because they are designed to operate in parallel with, as complements to, conventional national moneys. The problem is the monopoly of one type of currency, and replacing one monopoly with another isn't the solution.” (Lietaer, 2009: Part 2),
Throughout the literature on alternative currencies there is consensus that such ‘local’ currencies should operate alongside a national (or global) currency, rather than replacing these standardised currencies. DeMeulenaere (2000) believes that community currencies can fill an important role, by maintaining some stability in the domestic economy while the national currency may be detrimentally affected on international money markets. While it is acknowledged that a ‘standardised’ currency is required for general transactions, the value of community currencies lie specifically in their specific orientation towards such a ‘community’, however it may be defined. Lietaer emphasises the ‘complementary’ nature of sucu currencies, which he believes should exist alongside rather than replacing national currencies:
“I don't claim that these local currencies will or should replace national currencies; that is why I call them "complementary" currencies. The national, competition-generating currencies will still have a role in the competitive global market. I believe, however, that complementary local currencies are a lot better suited to developing cooperative, local economies.” (Lietaer, 1997: 2)
Greco, (2001) also defines community currencies as complementary to, and operating in parallel with, the dominant national money systems. Circulating among a limited group of associated traders – who may be in close geographical proximity, or widely dispersed – they are intended to serve purely as a medium of exchange.

3.2 Community Currency

“The origin of the word "community" comes from the Latin munus, which means the gift, and cum, which means together, among each other. So community literally means to give among each other. Therefore I define my community as a group of people who welcome and honor my gifts, and from whom I can reasonably expect to receive gifts in return.” Lietaer, 2004: 2)
In the context of currencies, the term community can be used to describe any association of individuals, groups, or businesses that enter into an agreement to use an internal payment mechanism. Under this definition a community need not be defined by geographical proximity, as demonstrated by the emergence of Internet - based communities in which transactions take place in cyberspace and participants are scattered all over the world. Greco (2001) refers to experiments with so-called e-cash or cyber cash as examples of the emergence of payment systems that are global in scope and beyond the control of any government or bank.
A community currency does not require physical ‘money’ (e.g. notes and coins), and can be as simple as a set of account pages in a notebook (called a ledger) recording the values of trades. In such a case the currency consists of the numbers comprising members’ account balances. “In essence, then, a community currency means that members of the group empower themselves to create their own “money,” which they agree to use in paying for purchases made among themselves.” (Greco, 2001: 14)

3.2.1 Types of Community Currencies

Schraven, (2001) refers to three archetypes of community currencies, namely the Backed Currency, the Fiat Currency, and the Mutual Credit System Currency:
• Backed Currencies are directly backed by, and can be exchanged at a fixed fee for, either real goods or legal tender. Some of the earlier Backed Community Currencies were based the ideas of economist Silvio Gesell (1862-1930), who argued that money should have a carrying cost (referred to as ‘demurrage charge’), in order to increase the rate of circulation. This would enable more exchanges to be facilitated with the same stock of money, thus alleviating the problem of local money shortage. (Schraven, 2001: 3) An example of a modern-day backed currency are the Liberty Dollar (Lesnick, 2007) and the Phoenix Dollar (Herpel, 2006), both backed by precious metals.
• The Fiat Community Currency is similar to legal tender in that it is neither backed by real goods, nor by labour. The most famous Fiat Community Currency initiatives include the Capitol-hill baby-sitting co-op (see Sweeney and Sweeney, 1977), and the Ithaca Hours system in New York State (Schraven, 2001: 6).
• Mutual credit systems (MCS) are a completely different means of issuing money, based on 19th century French social-anarchist Proudhon’s idea of mutual banking (See Dana, 1896). All members of such a system open an account with a central administration unit, which records transfers in ‘units’ between these accounts. Transactions are facilitated by members running down balances or going into debt, thus ‘creating’ money according to transaction need. In a well-administered system, all accounts sum to zero. The system operates as a pure accounting system of exchange (Black 1970, Fama 1980, White 1984) without an initial stock of cash. (Schraven, 2001: 6) The most renowned of such systems operating as Mutual Credit System Currencies is the Local Exchange and Trading System (LETS) developed by Michael Linton (Cohen-Mitchell, 2000).
Seyfang & Pearson (2000: 2) distinguish between three main types of community currencies operating in different parts of the world, namely Local Currencies, Volunteer service credits, and Community barter currencies:
• Local Currencies refer to locally-issued notes or tokens, circulating freely among individuals and businesses in an area, with the most commonly cited examples being the ‘Hours’ issued in Ithaca in New York State (Seyfang & Pearson, 2000; Douthwaite, 1996; Cohen-Mitchell, 2000 et al) and BerkShares operated in Great Barrington, Massechussets (Kirschner, 2008; Cohen-Mitchell, 2000, Douthwaite, 1996, Witt, 2004 et al)
• Volunteer service credits are specifically focused on the provision of social and community services, for which credits can be earned based on the amount of time spent engaging in such socially responsible activities. The Time Dollar scheme developed in the United States in the 1980s is the most well known example of this type of currency. (also see Douthwaite, 1996 et al)
• Community barter currencies are a form of ‘mutual credit’, meaning that the currency is issued by individual users and is generated by the act of exchange itself as described under Mutual Credits Systems above. As such these currencies exist as purely notional credits and debits in a set of accounts which keeps score of trade in goods and services among members. LETS --or Local Exchange Trading Schemes which have been widely adopted in the UK and Canada, with variants including SEL in France, and Green Dollar Exchanges in Australia and New Zealand are examples of this type of currency. (also see Douthwaite, 1996; Cohen-Mitchell, 2000 et al).
This paper and thesis will focus primarily on the Mutual Credit System or Community Barter currency type, which forms the basis of the Community Exchange System discussed in the following chapter.

3.2.2 Mutual Credit & Credit Clearing

According to Riegel (1976) the substance of money is comprised of the composite credit of private competitive traders, based on the actual exchange of goods and services (Greco, 2001: 66). Greco (2001) defines mutual credit as the generic term used to describe an association of traders who have agreed to create and utilize their own exchange medium. Mutual credit systems are designed to surmount the limitations of barter by provides an intermediary device that allows two parties to trade even though one of them may have nothing the other wants in the same way as money.
Members of a mutual credit system empower themselves by creating their own money in the form of credit, but saving the cost of interest, while distributing the money themselves according to their own needs. In this way they essentially do what banks have done for years. Holding credits in such a system is evidence that so much value has been delivered to the community, while a debit balance shows that a member has received more from the community than delivered. “A debit balance thus represents a person’s commitment to deliver that much value to the community sometime in the near future” (Greco, 2001: 68). In this sense, mutual credit systems depend strongly on reciprocal relationships between members, and commonly have built-in systems whereby such reciprocity can be encouraged.

3.3 Conscious currency

“We have the ability to create a new system with new values inherent in it. A network of local and complementary currencies, whose money is created interest free, would dramatically alter our national behavior and culture. A wealth of dormant and disenfranchised capacity would be unleashed as citizens became engaged maximizing creative utilization of already existing local resources. This is not a dream; it has happened thousands of times in the past and today there are over 4,000 local currencies now strengthening local economies around the world.” Kirschner, 2006)
According to Schumacher (1979) alternative community currency systems naturally encourage cooperation, reciprocation, self-reliance, and mutual aid – four elements he considered to be the foundation of social interdependence and socio-economic solidarity.
By shifting a degree of economic control from remote external agencies to people within the community, community currencies empower people. Greco (2001) believes that such currencies can provide a strong component in building economic equity and participatory democracy, provided they are properly designed and managed. The greater degree of economic independence thus acquired allows a community to set its own quality-of-life standards. The fundamental advantages distinguishing community currencies or mutual credit systems from conventional money can be summarised as follows:
1. Being created interest-free, they are low in cost, and thus able to provide an abundant medium of exchange, (Greco, 2001)
2. Created locally, in accordance with the needs of the local economy, they stimulate the local economy and promote local self-reliance. (Greco, 2001)
3. They help to creating employment by unleashing local productivity (Lietaer, 1997)
4. By building and strengthening relationships and networks, they enhance social capital. (Seyfang & Pearson, 2000; Lietaer, 1997)
5. They assign value to skills and services not traditionally recognised by the market (Seyfang & Pearson, 2000; Squires, 2009)

3.3.1 Interest free abundance

Rushkoff (2009: 2) emphasises that, throughout history, local currencies were earned -- not borrowed -- into existence, reflecting the abundance of the season's grain, and not depending on artificial scarcity for their value. By contrast, official currency is created by central authorities external to the community, which have been shown to have little sensitivity to or concern for the needs of the local population. Furthermore the supply of such money is artificially limited. According to Greco (2001) the destructive effects of official money is in large part due to its intentional scarcity, which can be alleviated by the creation of supplemental community currencies.
The use of complementary currencies to overcome the scarcity problem is echoed by Ayley & Ayley (2005), who argue that by allowing people to trade what they need at a local level, local currencies bridge the gaps in the conventional money system. For this reason they cite many local currencies as examples of money systems based on abundance. Describing the LETS system, Ayley & Ayley note that trading depends on what goods and services are being offered by other people, rather than being limited by how much currency people have in their accounts.
“The idea that money could be so plentiful as to allow us to meet all our needs is a shock to many people. We have become so accustomed to our usual currency of scarcity that it is hard to imagine money could be abundant. In accepting our present limited supply money system, we have accepted a limited way of thinking about and using money.” (Ayley & Ayley, 2005: 1)
A distinguishing feature of complementary currencies noted by Rushkoff (2009) is that they treat money as a utility, rather than an asset class, and are thus biased towards functionality instead of savings, and transaction instead of speculation. Rushkoff demonstrates how historically local currencies backed by grain actually lost value over time, as grain stores needed to be paid, and some grain was always lost to moisture or rats. For this reason people wanted to spend the money as quickly as possible, rather than holding on to it, resulting in constant spending and reinvestment of money. Consequences of this approach, according to Rushkoff, were that people paid more attention to preventative maintenance of their equipment, and paid their workers well which improved motivation and productivity. “They worked less and ate better than we do today. (Women were taller in Late Middle Ages England than they are in 2009.) People had so much extra wealth that they invested in their futures by building cathedrals.” (Rushkoff, 2009: 3)
The key factor contributing to the abundance versus scarcity of alternate currencies is the fact that they are created interest free. As shown in Section 2.3.4, the artificial scarcity of money is due largely to the fact that its very creation depends on interest bearing debt. While alternative currencies, particularly those based on mutual credit, also essentially involves a debiting and crediting of accounts, the fact that no interest is charged (or earned) encourages spending of an essentially abundant resource, rather than hoarding of one designed to be in short supply. A further means to encourage abundance-based spending would be to build in a negative interest or demurrage into the money system, as evidenced from mediaeval grain-based currencies noted above. A more recent example of the positive impacts of such a demurrage based currency is the WIR in Switzerland (Douthwaite, 1996).

3.3.2 Keep the benefits local

Schumacher (1974) referred to a system in which the goods consumed in a region are produced in the same region using local resources and local labour as “an economy of permanence,” emphasising that such local emphasis is essential for sustainability. His 1974 book Small is Beautiful: Economics as if People Mattered, is often cited as the most compelling case for building vibrant regional economies as a counterpoint to our increasing reliance on far flung global production systems. (Witt & Lindstrom, 2004:1)
The fact that official currency can, and does, circulate far and wide further aggravates scarcity of money in the local economy. Money can easily be spent to buy goods and services from remote regions, and spent outside the local community, such money is no longer available to facilitate trading within the community. It must thus be replaced by attracting more money from outside, which is done by either exporting products, receiving government transfer payments, or attracting tourists and businesses to come and spend. (Greco, 2001). Seyfang & Pearson (2000) argue that community currencies “respond to situations of market failure or economic exclusion, by circumventing the problems in conventional money-based market systems which have seen money being systematically withdrawn from peripheral localities and regions for investment elsewhere, leaving a shortage of local liquidity and a lack of effective demand for local goods and services.” (Seyfang & Pearson (2000: 2)
Witt & Lindstrom (2004) show that in the global economy of the late 20th and 21st century, national currencies have undermined local communities by centralizing ownership of wealth and thus widening the gap between rich and poor, while devastating indigenous peoples, and polluting the environment. To counteract these destructive effects of globalisation, they believe that decentralized regional currencies can help to redistribute wealth more broadly while supporting unique regional identities, cultures, and communities. “A local currency defines a regional trading area, favouring those small independent businesses willing to trade in the currency. Local businesses, unable to compete with the products of an increasingly predatory global economy, become strong players in resilient, regional marketplaces.” (Witt & Lindstrom, 2004: 1).
By emphasising local exchange, alternate currencies promote local self-reliance by “building up a locally provisioned economy, rather than relying on imported and transported inputs and commodities” (Seyfang & Pearson, 2000: 2). In addition to its social benefits, such localised emphasis is also considered to be central to visions of more environmentally sustainable ways of living and working.
While the universality of national currency may be considered its greatest advantage in terms of flexibility and spendablity, is also its greatest disadvantage when it comes to local self-reliance and integrity of the local economy. Greco (2001) argues that local unemployment and business stagnation most often result from the fact that the money necessary to connect needs with supplies has gone elsewhere, rather than from lack of skills or physical resources.
By contrast, a local currency is, by its nature, limited in scope, as it is only recognized within a limited area, and can therefore only be created, earned, and spent within that area. According to Greco this fact tends to favour local producers who have agreed to accept the currency, and due to its narrow range of circulation the spender will be more likely able to earn it back. In this way local currencies can be seen to stimulate local production and employment. Greco frequently uses the image of a breakwater protecting a harbour from the extreme effects of the open sea, to describe the manner in which a local currency “protects the local economy from the extreme effects of the global market and the manipulations of centralised banking and finance.” While total reliance on national currencies and the global market’s competitive conditions “tend to force all communities to the lowest common denominator of environmental quality and working conditions”, local currencies “provide a buffer that allows local communities to set their own standards and maintain a higher quality of life.” (Greco, 2001a: 53)
Robertson (2009) believes local currency development to be an important aspect of monetary reform required to deal with the current financial crisis, noting that such currencies can make a significant contribution to economic decentralization. In addition to facilitating local trade, the spread of community currencies can also promote greater local economic self-reliance by supporting new institutions like local banks, credit unions, and investment funds.

3.3.3 Create employment

Community currencies contribute to employment creation in that they provide a means whereby un- or underutilised potential within a community can be utilised to fulfil the needs of others in the community, who in turn could compensate for such skills with similar offerings, despite the scarcity of ‘official’ money currently preventing such exchanges. By compensating services that would otherwise be exchanged for free (e.g. caring) or not at all due to lack of money, they have the potential to unleash productivity and well-being through the additional parallel ‘income’ provided.
In 1997 Lietaer predicted that local currencies would become a major tool for social design in the 21st century. Lietaer believed the main reason for such an expected move towards local currencies to be employment creation, as such local economies could provide a form of employment that would not be threatened with the extinction of ‘jobs’ in an age of information and technology driven production. He cites the example of France where, at the time, there were already 300 local exchange networks, called Grain de Sel, literally "Grain of Salt." These systems, which facilitate exchanges of everything from rent to organic produce, arose exactly when and where the unemployment levels reached about 12 percent. Lietaer distinguishes between ‘work’, which he believes local currencies can create, and ‘jobs’, which he expects will become obsolete:
“Local currency creates work, and I make a distinction between work and jobs. A job is what you do for a living; work is what you do because you like to do it. I expect jobs to increasingly become obsolete, but there is still an almost infinite amount of fascinating work to be done. For example, in France you find people offering guitar lessons and requesting lessons in German. Neither would pay in French francs. What's nice about local currency is that when people create their own money, they don't need to build in a scarcity factor. And they don't need to get currency from elsewhere in order to have a means of making an exchange with a neighbor.” (Lietaer, 1997: 2)

3.3.4 Enhance social capital

Another important impact of community based currency is the fact that they have been noted to build trust and social capital, and foster mutually supportive community networks. This is accomplished through interpersonal transactions and face-to-face contact which many people feel is missing from conventional economic relations and society. (Seyfang & Pearson, 2000)
According to Ayley & Ayley (2005) a thriving local currency revives the elements of community, relationship and goodwill in our transactions. Once the limitations of a scarce money supply are removed, emphasis shifts from “Do I have enough money?” to “Do I want to trade with this person?” This leads to a heightened emphasis on goodwill between people, as this becomes the basis on which community members will choose to trade with each other. “As relationships, rather than money, become primary to exchange, the social alienation fostered by our current monetary system is replaced by the connections between people that build and strengthen community.” (Ayley & Ayley, 2005: 3)
Although the majority of local currencies are started with the primary purpose of creating employment, Lietaer (1997) notes a growing group of people who are starting local currencies specifically to create community. The community building power of such exchange is illustrated in the following example:
“I would feel funny calling my neighbor in the valley and saying, "I notice you have a lot of pears on your tree. Can I have them?" I would feel I needed to offer something in return. But if I'm going to offer scarce dollars, I might just as well go to the supermarket, so we end up not using the pears. If I have local currency, there's no scarcity in the medium of exchange, so buying the pears becomes an excuse to interact.” (Lietaer, 1997: 2)

3.3.5 Valuing ‘non-monetary’ services

By valuing and rewarding services and skills that are not recognised by the market economy, Seyfang & Pearson (2000) believe that community currencies can reinvent or restructure the market. Examples of such services include caring socially reproductive services, as well as the labour of the unemployed for whom the market currently has no demand.
Avid community currency and social networking enthusiast Les Squires is passionate about the potential of community currencies to put an end to ‘volunteerism’, which he believes to be one of the major scourges of society. Squires describes volunteers as people who put their hearts and souls into something because they are passionate about it, noting that they are usually used by organisations until they burn out, at which point they are replaced without having gained anything but their experiences over that time. Volunteerism is thus regarded as exploitative, especially of women, as in many cultures it is the female who volunteers. In more traditional cultures, the husband goes out and brings home the money for which he renders his labour, while the woman renders her labour in terms of childcare and household duties which are uncompensated. Women are also more inclined to volunteer for social causes outside the home. As this work is unpaid, it is not recognised as equal to what the man is doing. Community currencies have the potential to reward such work in a manner that can be of value to those involved in it, thus potentially adding to the total supply of services focused on social care:
“I want for instance, say to teach a class, volunteer to teach a class, teach some kids how to read or take in an elderly parent and I want to be compensated for that, not in Dollars or Rands but I want to be compensated. I want to be able to go to the grocery store and buy some food for the value I’ve given to others.” (Squires, 2009, telephonic interview).

3.4 Potential obstacles

Much evidence points to the fact that complementary currencies can provide people with a partial response to immediate economic crises such as that currently experienced globally. Robertson (2009) believes that such currencies should be encouraged to expand after mainstream monetary reform whereby the national money supply should be created as a public service under democratic supervision. Despite the potential for such sustainable currency reform, there are a number of obstacles that could prevent the true benefits of community based money from being unleashed. External obstacles include opposition from powerful interest groups, as well as issues related to legal implications and taxation, while internal obstacles pertain to creating sufficient awareness and maintaining the momentum of alternate currency systems, and building of trust within networks. These are discussed below.

3.4.1 External: Powerful interest groups and Legalities

Why Central Governments and Central Banks don’t like Local Currencies

Despite the immense potential for alternate money systems to address the current economic crisis and promote social justice and well-being, Robertson (2009) believes that, in the absence of monetary reform, private banks will do everything possible to prevent the expansion of such locally controlled currencies in order to maintain their profits, just as they did after the 1930s Great Depression. “As a result, most people will probably remain too dependent on earnings, pensions, benefits, etc., all denominated in a national currency, to commit themselves to decentralized alternative currencies instead.” (Robertson, 2009:PAGE?) The issue of commitment and motivation is discussed in more detail below in terms of obstacles to maintaining momentum of local currencies.
Lietaer (2009) agrees that the first objection to any form of alternate money system will come from the banking system, which would prefer to keep the status quo. A likely objection would be that such alternate currencies may be seen as excluding the banking system from their usual function; thus "disintermediating" the banks. Such an objection Lietaer argues is only valid if the banks themselves choose not to get involved in providing accounts and transactions using alternative currencies. To show that such exclusion is not as essential as one might think, he cites examples of several (particularly local and regional) banks that have gotten involved in providing account and payment services for complementary currency projects. These include the Bank of Ithaca, which deals with Ithaca HOUR accounts in the city of Ithaca, New York; the GLS Bank in Germany, and the Raiffeissenbank in Vorarlberg, Austria. The logic behind these banks’ decision to assist with the administration of local currencies is that local or regional banks can only compete with giant national and global banks by providing services that the big ones do not bother to provide. This is thus seen as a way to attract clientele, based on the assumption that a client with (for example) an Ithaca Hour account with the Ithaca Bank, will tend to open a dollar account with the same bank. (Lietaer, 2009)
Another possible objection banks could have to alternate currencies is that using multiple currencies within a national economy could reduce the efficiency of the price formation process and of the exchanges among economic agents. While this argument is valid, Lietaer emphasises the fact that this overarching emphasis on efficiency is precisely what has reduced the resilience of the system, and made it so brittle, leading to the current economic crisis (2009).
The type of opposition that may be expected from central authorities towards alternate currencies can be evidenced from the raiding of the Liberty Dollar in Evansville by The United States’ Federal Bureau of Investigations (FBI) in 2007. FBI agents seized gold, silver and platinum used to back the currency, as well as currency notes, files and computers, and froze the group’s bank accounts (Lesnick, 2007).
On the other hand, the possibility of banks collaborating with local currency proponents is illustrated in Brazil, where the National Secretariat for Solidarity Economy has encouraged the establishment of Community Development Banks, as non-profit organizations responsible for issuing “social currencies for local circulation”. The Secretariat has gone to great effort to establish a regulatory framework for a solidarity financial policy, using social currencies throughout Brazil at the federal, state, and municipal levels of governments (MTE, 2006, in Freire, 2009: 78)
Fully aware of these events, the Central Bank of Brazil has engaged in a project to research and evaluate the main theoretical and practical aspects of worldwide experiences with social currencies. The Bank hopes to use this research create mechanisms to enable permanent monitoring of developments in the field of issuing and use of social currencies in Brazil.
In presenting the preliminary results of an investigation into social currency systems to be used as a reference for the study currently being undertaken by the Central Bank of Brazil, Freire recommends that social currencies should be regarded as public policy instruments for local development, which he shows to be compatible with monetary policies to be taken under the responsibility of the Central Bank.
According to Freire “the use of social currencies neither affect the power of central banks to control the money supply nor poses a serious threat to the role of central banks in relation to national payment systems, nor even jeopardizes the stability of the financial system.” On the other hand, he argues that “the use of certain social currency systems […] may endow greater effectiveness to a differentiated compulsory deposits policy implemented in line with the credit needs of local economies, and thus contribute toward a better distribution of the supply of credit within the national financial system and, consequently, toward lower costs of bank credit for selfemployed workers and micro and small businesses within the local economy.”

Legal implications, taxation

In examining the legal and regulatory framework of social currencies in Brazil, Freire (2009: 92) finds that “each social currency system corresponds to a particular set of legal and contractual arrangements that acknowledge common interests and establish mechanisms for participation of members, and the methods for coordinating and managing local economic activities, thus enabling individuals to exercise greater control over the creation and use of the social currency, in accordance with the political will of the community.” Freire shows that this makes it possible to legally structure social currency systems in various ways, some of which can be compatible with the objectives of monetary policy and with banking regulations, as well as with “public policies for solidarity finance, targeted at generating jobs and income, fostering social inclusion, and promoting solidarity and fair local development.”
In addition to the potential legitimate benefits of community currencies, Schraven (2001) also notes some potential illegitimate benefits, the most commonly cited being the use of such currencies for underground or black economy transactions, thus evading taxes and regulation. Schraven argues that tax-evasion is not more prevalent with Community Currencies than with the national currency, citing the findings of research conducted by the Inland Revenue (1996) who note that they were not aware of any particular problems with Local Exchange Trading Systems and had no plans to evaluate these schemes. The Inland Revenue review emphasizes the fact that traders who operate within a Local Exchange Trading system are taxable on their trading profits, just like traders who operate outside of such a scheme.
Douthwaite (2000 (1996)) notes that in practice the question of tax rarely arises for members of LETS networks because either a) their national currency incomes are insufficient to place them in the tax net in the first place or, b) if they are income tax-payers, they do so little of any one thing within the system that the tax authorities are happy to ignore the tiny amounts of imputed income involved. As Angus Soutar, who worked with Michael Linton to set up Greater Manchester LETS, and advised British LET systems on tax comments: "There's nothing like a detailed account of dog-walking or granny-sitting to convince and inspector that further investigation is likely to be less than cost-effective." (quoted in Douthwaite, 2001: 12)
For this reason Douthwaite argues that only those members who do part of their normal business or profession through a LET system are liable for income tax on their local currency earnings. In such a case it is essential to determine appropriate valuation of services rendered for local currency payment. As Douthwaite describes, even with currencies that are nominally tied to the national currency, actual prices charged cannot necessarily be said to reflect a direct national currency equivalent. An example of such discrepancies in valuation include alternative healing practitioners who provide treatments in local currency to those who would not otherwise be able to afford such treatment at all. The comparison to ‘real income’ would thus not be between the local currency and its direct ‘monetary equivalent’ for the same treatment in national currency, but between the alternate currency charged, and nothing. Another example cited by Douthwaite involves differential rates paid for the time of service provided, whereby the value of the currency may be said to be determined by the service on which it is spent, and not the actual income earned.
Douthwaite believes that the optimal solution to the valuation problem would be for revenue authorities to agree to accept any income tax due on a local currency income in the unit in which it was earned, though noting that this is unlikely to materialize as, throughout the world, such authorities insist on payment in the national currency. Members of LET systems are adamant that if a transaction is completely in the local unit, that unit should also be used to settle any tax liability incurred, as such a system designed to enable people to manage with less official money is weakened if users are obliged to earn national currency to make their alternative arrangements work. The issue of taxation of local currencies, and the units in which such taxes should be paid, is considered particularly critical, as it has implications for the currency’s credibility, as well as its potential to optimize benefits to the local economy. As Douthwaite notes: “[I]f governments accepted locally-produced money in payment of taxes, it would give that money enormous credibility. Moreover, since this revenue could only be spent in the area from which it came among members of the group which generated it, the area would benefit twice: first in terms of the jobs created when the tax was spent and, second, as a result of whatever the spending achieved.” Douthwaite furthermore argues that the payment of taxes in local units could be beneficial to local councils too, since it would give them an additional source of income independent of central government. The most powerful opposition for such a move can be expected to come from national governments which, Douthwaite notes, will be “very unhappy to see even a trivial part of their financial power slip away.” (1996: 13)
Lietaer (2009) also notes the possibility of governments accept partial payment of taxes in money other than exclusively bank debt money, noting that the decision of whether to do so resides completely within a specific government’s own political decision power. Lietaer notes that the strategy according to which this may be achieved is very flexible, in that a government can decide to accept payment of certain taxes only, only for a given percentage, for specific types of complementary currencies chosen for their robustness and other positive effects, and/or only for specific fiscal years. In this sense he believes that complementary currencies can be tailored to be acceptable for payments of taxes, which in turn help to address monetary shortages faced by an increasing proportion of the world population in 2009 (Lietaer, 2009).

3.4.2 Internal: Maintaining momentum and motivation

Although the rise of the community currency movement has provided ample learning opportunities for a great many people, Greco (2001) believes these opportunities to still be the exceptions rather than the rule. While commercial "barter" exchanges involving business-to-business transactions have had some notable success, Greco (2008) notes that the grassroots alternative exchange movement remains fragmented and has not yet made a significant economic impact nor involved more than a handful of individuals. The typical pattern for grassroots-based mutual credit, LETS, and community currency systems according to Greco, is characterised by “strong initial enthusiasm and rapid growth in participation, followed by a slow decline and volunteer burn-out, followed by the system either going defunct or limping along at a minimal level with little trading and a much diminished participant base.” (Greco, 2008a)
One reason for such difficulties in maintaining momentum cited by Greco (2008a) is the fact that participants in local currency networks often have different motivations for becoming involved. While some aim at monetary reform, accepting as given the socio-political foundations of the present regime without question its basic assumptions, others wish to transcend the dominant structures of money and banking, taking little for granted and seeking to reinvent money and banking to better serve their intended purposes. Greco believes that despite the fundamental differences between these approaches, they may be brought into alignment toward a common goal, namely "empowerment of the people" (Greco, 2008).
Two key reasons for the waning momentum and motivation commonly noted about alternative currency networks include: 1) ongoing dependence on the national currency, and 2) lack of mutual trust of reciprocity between network members.

Dependence on national currency

In terms of dependence on the national currency, it was noted in 3.4.1 that central authorities can be expected to, and do, suppress alternate money systems wherever possible, maintaining the supremacy of national, bank-dominated, currencies. As people remain caught up in the ‘conventional money’ system – compelled to work for national currency as this is the only means whereby many obligatory payments (e.g. taxes) can be made, the time and energy they have available to partake in fledgling new systems requiring much initial nurturing is often limited. Limited time available was frequently cited as reason for non-participation in response to an online survey conducted with members of the Cape Town Talent Exchange, which forms part of the Community Exchange System (discussed in the next chapter) as part of this research.

Mutual trust and reciprocity

The other problem relates to the issue of trust in whether or not others in the system will reciprocate, which will determine if the community currency can procure sufficient exchange for services rendered. Those who do initially dedicate time to providing goods and services for alternate currency, thus earning substantial credits in the system, often find it unable to spend such credits as the services available do not meet their needs. By contrast, others go into debits without providing services in return, or decline from trading at all as they either do not have the time, or the inclination, to provide services. Unable to exchange their credits as the supply of available services is limited, many initial enthusiasts eventually drop out or become less inclined to offer their services, thus detracting value from the system as a whole. In a reasonably small and close knit community some degree of social pressure can be exerted on those perceived to be taking more from the system than they are putting in. Examples have also been shown of system administrators taking special initiative to encourage trading by approaching those seen to have substantial debits or credits in their account, assisting where possible to find appropriate ways in which units may be earned or spent to restore equilibrium and stimulate exchanges (Douthwaite, 1996). However, Schraven (2001) shows that, as membership increases beyond the lines of social control, such monitoring becomes more difficult and expensive, as transactors do not know each other. This trend is noted by Ellickson (1991:283, cited in Schraven, 2001: 49) who finds that people start resorting to the law when the social distance between them increases.
Ayley & Ayley (2005) feel that many local currencies fail because the founders do not place sufficient emphasis on facilitating the development of personal contacts and one-to-one relationships essential for the community building required for such currencies to thrive. According to Ayley & Ayley the corporatisation process has reinforced a view of trading in which monetary exchange is seen as primary, and personal relationship, if it exists at all, is secondary.
“Conditioned by this situation, it is easy to focus on the ‘trading’ aspect of local currencies, and forget that it is people who are making those trades, and it’s also personal relationships that underpin people’s willingness to trade with one another. Successful systems usually provide ongoing opportunities for social connections between members, fostering a sense of community and the personal contacts that facilitate trading.” (Ayley & Ayley, 2005: 3).
One way to encourage such personal interaction required to build relationships is through the facilitation of social gatherings where members can meet and interact with each other. Such interaction forms the basis of future trading and exchanges as people become aware of each others potential offerings and needs. Lietaer (1997) cites the example of an exchange in the Ariege, in southwestern France where a big party is held every fortnight where only local currencies are accepted. People come to trade produce including cheeses, fruits, and cakes as on normal market days, but also exchange (or agree to exchange) hours of plumbing, haircuts, sailing or English lessons.
Kirschner (2008) emphasizes the importance of trust, and the credibility of currency organizers to ensure the success of any alternative currency, noting that “[a] local currency is a financial instrument that only has as much power as the people who use it. We put our trust in banks with cherry furniture and marble counters. The measure of the strength of a local currency is not its physical assets, but the dignity and connectedness of those who lead and participate.”
The next chapter will discuss the impact of ICTs on extending the potential scope of community currencies, noting the implications such increased scope has on relationship building amongst often dispersed communities.

4 Conclusion

This chapter focused on the concept of ‘money’, beginning with a historical overview of where the concept of currencies come from, followed by an alternative perspective on currency design to promote human wellbeing. Throughout the chapter the socially embedded nature of money in society was emphasised, noting how the design, or ‘programming’ of a particular currency or system of money impacts on the society in which it is used. In this manner, the current conventional money system, in which money is created by banks creating interested-bearing debt, was shown to reinforce the concept of scarcity (shown in the previous chapter to have been placed at the centre of modern economics), which in turn promotes greed as basic condition for survival. By contrast it was shown that alternate money systems charging either no interest, or ‘negative interest’ (demurrage) have historically been shown to encourage spending rather than hoarding, thereby promoting a spirit of abundance rather than scarcity.
The essence of money as an ‘information system’ or ‘collective memory’ whereby debits and credits can be accounted was highlighted throughout the paper. Moving into the Information Age the essence of money is evolving rapidly as people are empowered to create alternative means of exchange required to keep account of transactions. This chapter touched briefly on the issues of electronic money, and the way ICT’s enable a shift in the power of money manipulation from central banks to the people who use it.
The remainder of the chapter looked at the rise of alternative and compelentary currencies, focusing specifically on what may be called community currencies, baseed on mutual credit clearing. Such currencies were shown to be more socially ‘conscious’, being interest-free, and promoting a spirit of abundance that enhances wellbeing by keeping benefits ‘local’ (defined as within a specific community that may or may not be geographically based), creating work, enhancing social capital through relationship building, and acknowledging services that are commonly offered for free.
Despite their potential to promote a more just society, alternative currencies face some significant obstacles. The most significant external obstacle is opposition from powerful interest groups, notably central banks and governments. While legal implications, particularly around issues of taxation, could become a problem when these currencies grow, these could be most effectively overcome if taxes on income earned in alternate currencies could be paid in these as well. Internal obstacles relate to maintaining momentum and motivation for alternate currencies, complicated by continued dependence on official currencies reducing the time and energy people have available to partake in al alternate economy.
Lack of mutual trust and reciprocity, essential for the effective circulation of goods and services using a community currency, also reduces motivation to partake. This can be most effectively addressed through conscious community building by designing means whereby real relationships can be fostered between members. While geographically proximate ‘communities’ have been known to do this through market days and other activities where members can meet face to face, this becomes more complicated when the ‘communities’ in question are virtual expanding over vast geographical distances. The next chapter examines the potential of the Internet to expand the scope of alternative currencies by providing a web-based platform where offerings and wants can be registered and accounts can be kept. While such extended scope becomes technically possible, the potential for larger groups spread across vast distances does have implications for the fostering of relationships essential for the reciprocal aspect of community currencies to thrive. These will be discussed in the following chapters.

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