Community Currencies—An Innovative Tool to Promote Economic Self-Reliance
Jeff Powell and Menno Salverda *)
(August 15, 1998)
What’s Wrong With Money?
In 1965, the wealthiest quintile of the world’s population accounted for 70% of total income. By 1995, this same group accounted for 85% of total income. In this regard, Thailand has one of the worst records. The Gini co-efficient for Thailand, a measure of income inequality, is one of the highest in the world; far more pronounced than neighbouring countries such as Indonesia, Vietnam, the Philippines and even wealthier Malaysia(1).
The global monetary system is extremely efficient at what it does, namely, generate profits for creditors. What it does not do is effectively distribute those resources. Too often, we simply accept the current monetary system as a given—an immutable fact of nature. In fact, money and monetary systems are fallible human creations. There are at least three major shortcomings in the current monetary system:
Community currencies seek to address these fundamental problems. In contrast to national currencies, community currencies are:
Community Currency Systems in Europe and North America
Approximately one thousand community currency systems are operating in Europe and North America. Roughly speaking, the systems fall into three categories. The first and largest group, based on the principle of mutual credit, includes LETS (Local Employment and Trading Systems) and LETS-like trading communities. These systems are located predominantly in Canada and the United Kingdom, with derivatives, such as the Noppes system in the Netherlands, appearing across Europe. The second group, fiat systems which print their own notes, has grown out of the Ithaca HOURS initiative in New York State (although there is an impressive historical precedent for such schemes). The majority of such systems are in the United States, although a few have spread to Canada and Europe. The final category is based on a ‘community service bank’ concept. The best known of such systems is called TimeDollars.
LETS was developed by Michael Linton in the Comox Valley in Courtenay, British Columbia, Canada, in 1983. Today, there are over 30 such systems in Canada, 400 in the United Kingdom, 300 in Australia and New Zealand and nearly 500 in Europe. Systems range in size from twenty to 1500 members.
During LETS trading, members’ accounts start at zero, and each exchange moves the account balance either plus or minus. A minus is not an overdraft, or even a debt, but a normal entry in a LETS account which allows members to create their own credit. If Ariya gives Boonrak 10 units of rice, Boonrak acknowledges this by transferring 10 units from his account to Ariya’s account. A record of this exchange is sent to a central administrator. Ariya’s account is now plus 10, while Boonrak’s account is minus 10. Later on, Chittrapa asks Boonrak to repair her motorcycle. They agree that the labour required for the job is worth 30 units. Thirty units is transferred from Chittrapa’s account to Boonrak’s account. Boonrak’s account is now plus 20 [(-10) + 30], while Chittrapa has a balance of minus 30--a commitment to future exchange in the community.
It is possible for part of the exchange to be made in Baht. For example, in order to repair Chittrapa’s motorcycle, Boonrak may need to buy parts from a supplier who lives outside the community and, therefore, can not accept the community currency. Boonrak and Chittrapa could agree on what proportion of the repair job would be paid in local currency and what would be paid in Baht. The community currency administration does not concern itself with the cash portion of its members’ transactions.
The HOURS concept, which employs paper notes representing hours of community members’ labour, was invented by Paul Glover in Ithaca, New York, USA, in 1991. The original system in Ithaca now has over 1500 participants and total trading volume is estimated at several hundred thousand US dollars per year. There are over 50 such systems in North America.
Community members wishing to participate in HOURS trading fill out a form which includes personal information as well as space to list offers and requests for goods and services. This is sent to the administrator, where the pertinent information is placed in the next offers/requests directory, and a pre-agreed upon number of HOURS notes are mailed to the new participant. Every so often, participants are sent more HOURS in return for filling out a renewal form in which they update their offers/requests. Quite simply, these HOURS are now considered legal tender for the exchange of goods and services.
There is tacit agreement that, in return for the right to use these ‘free’ HOURS notes, recipients must, in turn, accept them for the goods and/or services which they offer to the community. This means that HOURS notes are backed by the commitment of each participant to accept them; if participants refuse to accept them, for whatever reason, their value diminishes. Conversely, the more people that agree to accept them for a greater variety of goods and services, the more the value of the note increases. This is also true of LETS units.
TimeDollars is a form of ‘community service bank’ initiated by Edgar Cahn in Washington, DC, USA. The concept has enjoyed a good deal of support from peoples’ organisations and government bodies alike in the United States. There are now several hundred such systems in operation throughout the US.
Members deposit credits in the bank in the form of ‘hours worked’ to assist community members or projects. In turn, these credits can be used to obtain services or assistance from other members. For example, a member receives one TimeDollar for an hour spent fixing a neighbour’s bicycle. Later that week when they want to go out for dinner, they can use that TimeDollar for one hour of baby-sitting.
1. Doininger, Klaus and Lyn Squire, 1996. Measuring Income Inequality: A New Database. The World Bank, Policy Research Department, June manuscript.