New Currencies For a New Economy

Last spring, I completed the Master in Management – Co-operatives and Credit Unions graduate program; my final research was on governance of complementary currencies. I believe that this somewhat obscure topic (almost entirely absent in the academic literature) is actually a key question, as our dominant global economic system has largely lost its accountability to the public and is spinning out of control. If we are to find a way out of this mess, it needs to include additional means of exchange so that people will be able to trade even during the financial crises that are growing both more frequent and more severe.

Complementary currencies have always flourished during economic turbulence, when either inflation or deflation signals a disconnect between the supply of currency and the supply of things that people want to purchase with currency. Complementary currencies can include physical scrip or tokens, but more likely these days they are electronic exchanges that keep an account of each members’ trades and maintain records of each member’s balance – surplus or debt.

In my paper, I looked to the explosion of “self-help co-ops” in Depression-era California. I sought lessons for the modern time banking movement – specifically TimeBanks USA and hOurworld – organizations that are each currently undergoing a growth spurt. Both the historic and contemporary movements represent forms of barter-based “complementary” currency, which facilitate trade in cases where two parties do not both desire the same trade (e.g. I offer you a chicken in exchange for a ticket to the opera, but you don’t want a chicken).

The self-help co-ops numbered in the dozens, with concentrations in Southern California as well as the Bay Area. Essentially each exchange was a ledger of points that could be earned and spent. In  many cases the exchanges developed into highly specialized local economies that helped their members subsist during the early 1930s, after the crash but before the government-based New Deal could take hold.

I found that both movements lacked a clear system of governance, both on the exchange level and in how the exchanges worked together on everything from intercity trade of goods to political advocacy. In some ways their struggles resembled the current Euro crisis, albeit on a smaller scale.

Complementary currencies are popping up everywhere these days. This is to be expected, as the common term for a whole range of exchange media denotes that they complement official national (or supranational) currencies – as one rises the other falls. So as the Euro struggles with what may prove to be fatal design flaws (at the center of which lie deep disagreements about how to make decisions, manifesting in a growing number of court cases) it is only natural that individuals should be hedging their bets.

Although it isn’t possible to stockpile physical drachmas or pesetas in advance of their potential reintroduction, both Greeks and Spaniards have been organizing systems that will allow them keep trading with each other regardless of what happens in the official Euro-denominated economy.

The Washington Post and Common Dreams both published recent stories about how Spaniards are turning to other forms of exchange as the euro-based economy continues to sputter. Both stories feature a quote from complementary currency researcher Peter North suggesting greater potential: “Instead of just being a desperate way for people to survive a horrible economic crisis, this is part of the cooperatives, credit unions, community banks, organic farms and recovering factories — the alternate economy — that the Occupy movement is groping towards.”

This dynamic is currently most obvious in Europe, where technocrats make emergency decisions of increasingly grave importance, with an ever-decreasing amount of public input (which predictably leads to unrest and departure from the official economy). However, the same is effectively true in the United States, where the public is increasingly sidelined from vastly important decisions even as the decision-makers seem to be running out of solutions.

But just because a currency is an idealistic alternative to the dollar does not mean that it will function better than the dollar. As no less than Paul Krugman has written, even the simplest currency needs careful guidance for smooth function and even a humble baby-sitting co-op can provide guidance that “could save the world.” Krugman is pointing to the need to make key decisions to regulate the money supply. For complementary currencies to rise above the usual flux and become durable means of exchange like the WIR of Switzerland, my research indicates that solid governance is essential.

Governance addresses the Big Picture and includes questions like the following: Should the currency be used by businesses, consumers or both? What is the geographic scope of the circulation? Is the currency tied to a specific dollar amount or to an hour of labor regardless of prevailing market values? How does the currency interact with other complementary currencies, if at all?

Governance is distinct from management, which deals more in how experts make day-to-day decisions in managing the system. Management decisions would include approval of applications to participate, regular tallying of circulation to identify breakdowns in circulation, and short-term decisions to address problems as they develop. These sorts of decisions are better left to more authoritarian management systems, which are guided by the participatory governance decisions and accountable to those who use the currency via some form of election.

Complementary currencies have been shown to play a counter-cyclical role; when the national currency becomes scarce, people find other methods to fill the gaps until things improve. But what about the transition to something entirely new? At what point do these stop becoming “alternative” or “complementary” and become, simply, “currencies.” I argue that this can’t happen until they figure out how to make decisions for the long run.

Whatever the ultimate fate of the global economy, complementary currencies will play a key role in helping individuals and communities navigate the tremendous turbulence thrown off by the massive organizations that dominate mainstream economics. And they just might help us build a bridge to a new economy that is based on human needs instead of profits. But to do so, they’ll need good, solid, democratic governance to keep them connected to their purpose.

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