A Plan for Hard Times: Print Cash

NEWSWEEK - Tony Dokoupill - When money is scarce or stops flowing, alternative currencies can keep a local economy afloat. They convert time, skills, and other resources into wealth, and keep resources circulating among community members so there is greater demand for local businesses' goods and services.

How would you like to be able to move house-packing, transportation, cleaning, moving materials removal, and gardening included-without spending a dollar? If you lived in New South Wales, Australia, you could use shells, issued in points, to pay for everything but the gardening, which you would pay for with time.

This may sound wacky, but it is a hypothetical example of how three well-established alternative currency systems, the Local Exchange Trading System (LETS), Time Banks, and Community Exchange System (CES) allow users to get what they need when they join communities that use alternative or complementary currencies (see "Alternate Currencies" below).

Why would anyone bother juggling multiple types of alternative currency when traditional cash seems to work quite well? There are advantages to using a local currency for buying and selling: resources keep circulating among community members so there is greater demand for local businesses' goods and services, and comunity residents can purchase more. When a time trade is made, the needs of an individual needs are matched with resources that satisfy those needs, and community life is enriched because more needs get met.

This is particularly true when the disenfranchised are brought into the system-for example, newly released prisoners, the working poor, the elderly, sick, or handicapped-who might not otherwise get to participate in community life or have access to bank accounts or loans. In a moneyless system, they are not burdened with interest payments or monetary debt.

But not all alternative currencies function this way. Complementary currency systems like the "Terra" can produce profits in the traditional sense while strengthening community ties because they are backed by hard currency deposits or commodities.


Bodene Gilham laughs as she tries on wool, acrylic, and mohair hats at the LETS Central Coast Trading Day in Woy Woy. Textile artist Sabine Parge takes about four hours to make each beanie and trades them for 25 shells. © Changemakers.net

Several entries in the Ashoka Changemakers / Citi Banking on Social Change - Seeking Financial Solutions for All collaborative competition use alternative forms of currency to stimulate positive change in local communities and beyond (see "Alternate Currencies" below). Many of these have already expanded well beyond their initial settings, serving as models that are adaptable around the world.

While adopting different approaches, these alternative currency systems were all founded with a focus on community enrichment, using payment systems characterized by openness, relationship, and trust in lieu of fees, interest, and penalties. They aim to develop and fuel local economies, and/or increase access to goods and services. Further driving their mission is a compelling sense of social justice.

When law professor and social activist Edgar Cahn invented Time Dollars (the currency of Time Banks) in 1980, he was reacting to government's pullback from providing social services. If there was not going to be enough of the old money to fix all the problems facing our country and our society, he reasoned, why not make a new kind of money to pay people for what needs to be done, meeting unmet needs with unused resources?

Time Dollars value everyone's contributions equally. One hour equals one service credit. By agreeing on the terms of a transaction with Time Dollars, two people literally create the necessary "money" in the process; there is no scarcity of liquidity and they don't need to get funding from elsewhere, says Bernard Lietaer, author of The Future of Money and a research fellow at the Center for Sustainable Resources at the University of California, Berkeley.

Lietaer invented the Terra, a complementary currency backed by an inflation-resistant, standardized basket of the dozen most important commodities and services in the global market, to address what he sees as shortcomings of our conventional currency system. He believes the Terra will help to stabilize world economies by providing a reliable, inflation-resistant standard of international value.

"Money is like an iron ring we've put through our noses," Lietaer has said. "We've forgotten that we designed it, and it's now leading us around. I think it's time to figure out where we want to go-in my opinion toward sustainability and community-and then design a money system that gets us there."

Designing a complementary currency system can be very esoteric, even when the base assumptions seem self evident. Time Banking, for example, rejects price, valuing all hours equally because prices equates value with scarcity, relative to demand.

"This is a very difficult concept for many to grasp," said Christine Gray, Cahn's wife and managing director of Time Banks, USA. "We call it the 7th-and-½ floor: through the building of a Time Bank, people discover that they enter a new realm."

This is the realm where communities become more than the sum of their parts. Joy Smith, a psychiatric social worker, recently earned one Time Dollar giving a workshop on elder safety at the Time Banks offices in Columbia, Maryland, which she will spend on help configuring her computer.

"I think Time Banks are a means of people being able to help each other and themselves at the same time," she said. "People really do need people."

It's an ancient idea-that people do things for each other and keep a record, usually a mental record, said Tim Jenkin creator of CES and an Ashoka Fellow since 2007. The same principal applies to CES, except the record is kept on the internet. The system is self regulating and unacceptable trades, such as animals for research purposes, are blocked.

Jenkin has spent most of his adult life fighting for social justice and to end apartheid in South Africa. He believes that the present global money system is at the root of most of the social, economic, political and environmental problems that confront us today and that we can only begin to tackle these problems if we have a money system that places the "money power" in the hands of the people who use it.

I came to realize that an economy based on a usurious money system would never provide equality and relief from poverty," Jenkin said. "We needed a system that had no limits and could work for everybody as well."

CES was originally started as a type of Local Exchange Trading System (LETS) and has grown to become the most popular, and user friendly, system available to LETS and similar groups, said Korina Ivatt, Central Coast LETS administrator.

LETS is a monetary system, unlike direct barter, with members able to earn credits, or points, from any member and to spend them with anyone else on the scheme. The alternative currency used in Australia's Central Coast LETS is called "shells."

Using shells, a debit balance does not represent the onerous burden it can imply in the cash economy: the main thing is for shell account holders to be engaged with others in their community so that their balances move up and down regularly. This engagement is available to all. But the very idea of indebtedness can pose a challenge to alternative currency systems, even in systems like LETS where hard currency plays no role.

"Sometimes it's hard to convince new members to just start trading," Ivatt said. "We are all ingrained with the idea it is ‘bad' to go into debt, but LETS points are not charged interest and the only real debt is to give something back to your community. The system makes things available to those without cash, meaning everyone can afford what they need and what they want to be happy in their community."

Alternative Currencies: More Than Just Cute

Alternative currencies fascinate and engage Viviana Zelizer, Lloyd Cotsen ‘50 Professor of Sociology at Princeton University and author of The Social Meaning of Money.

Zelizer coined the term "circuits of commerce" to capture a distinctive form of economic interaction conducted in specifically defined social and cultural settings in which grassroots organizations create their own means of exchange. She uses the term "commerce" in the old-fashioned sense, meaning conversation, interchange, social intercourse, and mutual influence.

"The standard assumption by economists and others is that money is only legal tender which is state issued," said Zelizer. "What I am arguing is that we have multiple monies-a whole range-and these monies are not just peripheral, cute things but functioning currencies." Using alternative currencies builds community and profitability at the same time, she adds.

Palmas Bank, a community bank in Brazil, provides an excellent example of this principle. Created by João Joaquim de Melo Neto Segundo (an Ashoka Fellow since 2004), a theologian, educator, and community leader, Palmas Bank serves the community by helping to develop the local economy while earning revenue.

After 20 years of organizing collective action to urbanize Conjunto Palmeira, the poor town in which he lived, Melo saw little improvement in standard of living. "We discovered that we were making ourselves economically poor because all the goods we consumed were coming from outside the community, moving thus our financial resources out of the community, and to the large corporations." he said. "In order to generate employment and income for the residents, we created the community bank Banco Palmas whose challenge was to stimulate local production and consumption."

Banco Palmas was followed by creation of the Palmas Institute, which has organized dozens of other community banks across the country. Revenue is generated from interest and tax income from microcredit transactions; fee income from services (Bank of Brazil pays Palmas Institute for all transactions done in their ATMs located inside community banks); and from government payments to Palmas Institute for the creation of new community banks. To date, 33 community banks in six states in Brazil now use the Palmas Bank methodology, and 200 have been created in Venezuela.

Another South American example, a community bank in the highlands of Argentina known as the Community Hours Bank, provides financing for the SOL (Solidarity, Organization, Liberty) Foundation through donations of goods and contributions from residents and the city council. The SOL Foundation created a community currency system that finances mutual credit operations, family projects, social organizations, and community activities.

Marcelo Caldano (an Ashoka Fellow since 2003) is founder and president of the SOL Foundation and designed the Community Hours Bank. He said he was motivated to create the system when he recognized that many of his fellow community members have valuable knowledge, skills, and abilities, but were stifled for lack of funding.

"I realized they didn't have the money needed to cover their basic needs or to develop community projects," Caldano said. "I realized that the country's money goes from the poorest regions to the wealthiest ones and that it was necessary to create a reliable and stable local currency system, based on a community currency that can make visible each person's skills, allow them to exchange skills with their neighbors, and support common projects." The recirculation of resources within a local economy is central to all alternative currency schemes.

BerkShares, a local currency system in the Massachusetts Berkshire mountains in the United States, has attractive mainstream financial incentives as well. Residents purchase BerkShares at 90 cents on the dollar while participating businesses accept them at full US dollar value-a 10 percent purchasing power incentive for those using the BerkShares currency.

According to the Rudolph Steiner Social Finance Fund for Complementary Currencies, more than 1.8 million BerkShares have been issued and 300 local businesses are using them. The organization refers to BerkShares as "a successful project that is already an engine for local sustainable development, one which highlights the role small banks can play in a vibrant local community."

Photo caption:  [Sample Berkshares: each BerkShare features a prominent local figure from the region’s dynamic and rich history, including author Herman Melville, scholar, historian, sociologist, and founder of the civil rights movement Dr. W. E. B. Du Bois, artist Norman Rockwell, and foremost pioneer of the community Supported Agriculture (CSA) movement Robyn Van En]

The participating banks hold hard currency deposits to back BerkShares, but bank involvement is hardly based on financial interest, according to Luanne Harvey, vice president of Berkshires Bank. "It is a lot of extra work for the bank," she said. "But we know we are supporting the local economy; we want to see the community do well."

In return, the community must physically go to the bank to get their BerkShares. This "face time" gives banks invaluable marketing opportunities.

Opportunities are what alternative currencies are all about. In their different forms, whether online, in tokens or hours, or as scrip that complements mainstream specie, alternative currencies give access to the underserved and strengthen community cohesion by creating mutual ties between and among community members. They demonstrate that economies-local and national-can flourish with the right kind of commerce and that "money" can transcend its roots.

"All monies are not the same," said Zelizer. "The social life of money is as busy and intriguing as its economic life."

Alternative Currencies - How They Work

"Currency" is defined as a unit of exchange facilitating the transfer of goods and/or services. The following nine entries in the Ashoka Changemakers.net / Citi Banking on Social Change collaborative competition use alternative currencies created to bolster local economies and promote larger social missions.

Four of these are pegged systems, in which locally issued tokens complement national currency. Two entries are commodity-based systems, which involve credits that are ultimately redeemable in earmarked goods or services. And one entry is a time exchange, the store of value is measured in hours contributed by members.

This is how they work:

Banco Palmas in Brazil operates with two currencies, the official country currency (the Brazilian Real) and a social currency issued by the bank (the Palmas currency). The bank is owned and managed by the community and offers loans for productive activity to stimulate local enterprise and consumer credit, including a local Palmacard credit card, for products and services produced inside the community.

The intention is to create a local financial system based on a network of producers and consumers. The social currency is used as a strategy to stimulate financial circulation within the local community.

BerkShares were first issued on September 29, 2006 by BerkShares, Inc. in cooperation with the E. F. Schumacher Society and the Southern Berkshire Chamber of Commerce. Individuals purchase BerkShares at 90 cents on the dollar from one of 12 branches of five local participating banks in the Berkshire region of Massachusetts.

Local businesses then accept BerkShares at full dollar value, a 10% effective discount for the user. Accepting BerkShares identifies a business as one that supports the BerkShares values of local economy, ecology, sustainability, and community.

These businesses can then use these same BerkShares to purchase goods and services from other participating businesses, make change, pay salaries, or support local non-profits, increasing the local economic multiplier effect and keeping value within the regional economy. If businesses have an excess of BerkShares, they may also be returned to a participating bank for an equivalent of 90 cents per BerkShare.

The Community Exchange System (CES) helps people buy goods and services without having to use scarce national currency. Goods and services for sale ("offerings") and in demand ("wants") are advertised on the CES web site. Those with computers can search for what they require or what others want; those without computers can obtain the information through their local area coordinators, who function in effect as branch offices.

Coordinators act as brokers assisting users without their own computers to match offerings and wants, sometimes finding suppliers. After the buyer has received the good or service, and has indicated satisfaction, the seller enters the value of the transaction into the database. This credits the seller's account and debits the buyer's. The transaction is streamlined as no invoices are required and there is no waiting for payment.

Trading in this system requires no supply of money. Instead of using a hard currency the currency of this system is simply the values exchanged in trade which are recorded as credits for sellers and debits for buyers. There are CES exchanges in a number of countries around the world.

Local Exchange Trading System (LETS) networks use interest-free local credit so direct swaps do not need to be made. For instance, a member may earn credit by doing childcare for one person and spend it later on carpentry with another person in the same network.

In LETS, unlike other local currencies, no scrip is issued but rather transactions are recorded in a central location open to all members. As credit is issued by the network members, for the benefit of the members themselves, LETS are considered mutual credit systems. LETS was developed in Canada in the early 1980s and there are now LETS programs all over the world.

SOL Foundation issues a bill (a SOL) that represents products and services administered by the Community Hours Bank. Products and services come from the members' contributions, and donations from companies and the local city council.

No bills are issued unless they are backed with real goods or services. Bills are put in circulation when bank collaborators get their honoraria: teachers, administrative officers, coordinators, janitors, etc. They are also put in circulation when a member is given a loan. Bills leave circulation when members get products or services from the bank administration.

The common accumulated bank capital from products and services supports different free services for the community; for example, distance university learning, school support, protection of children's rights, and the bank's own administration. Financing is always done with community guarantees and by using the local currency.

The Terra is a complementary, privately issued, demurrage-charged , Trade Reference Currency that is backed by an inflation-resistant, standardized basket of the dozen most important commodities and services (e.g., oil, wheat, copper, carbon emission rights, etc.) in the global market. The Terra will be issued as an inventory receipt by the Terra Alliance, a private, non-governmental initiative with an organizational structure that is open to all newcomers meeting certain pre-established criteria (organizationally similar to that of the Visa credit card system).

Such inventory receipts are issued for the value of the commodities sold to the Terra Alliance by producers of those commodities that are components of the Terra Basket. As a private initiative this scheme does not require governmental negotiations or international agreements.

From a legal and taxation viewpoint the Terra is simply a standardization of countertrade, and legislation for countertrade exists already in practically all nations around the world. Since it is fully backed by a physical inventory of commodities, it would be a secure, very robust, and stable mechanism for international contractual and payment purposes.

Time Banks use person-hours as the unit of exchange. Time Dollars are created via mutual credit: Each transaction is recorded as a corresponding credit and debit in the accounts of the participants. In a Time Dollars system, or Time Bank, each participant's time is valued equally, whether he/she is a novice or an extensively trained expert.

Time Dollars thus recognize and encourage reciprocal community service, resist inflation without encouraging hoarding, and are in sufficient supply, which enables trade and cooperation among participants. Time Banks have proven to be extremely flexible, working equally well across ethnic, socioeconomic, religious, or racial groups, and have been implemented in a wide variety of settings all over the world.

The Dane County Timebank uses the Time Dollar exchange mechanism to staff projects that would normally go undone due to lack of funds. For example, it uses Timebanking to staff a Youth Court where young people in trouble go to a jury of their peers (jurors earn time dollars as do adult staff), then get sentenced to activities that can involve them in their community and help them to succeed.

Adult mentors earn time dollars and the respondents are encouraged to stay with the program beyond their mandated sentence, earning time dollars and developing a new social network focused on helping them to succeed. Neighborhood-based steering teams, or "kitchen cabinets," in North, Southwest and East Madison and Stoughton will build the Timebank in each neighborhood, in ways desirable to the residents of those neighborhoods.

The Columbia Community Exchange is a service exchange program based in Columbia, Maryland that uses service currency (time dollars) instead of money, allowing neighbors to help heighbors through the mutual exchange of everyday services. They earn a time dollar for every hour of service provided, then use the time dollars to purchase services from any member in the network.

Through the sharing of needs and gifts, a member-driven community exchange is sustained, where everyone can be a contributor, turning "you need me" into "we need each other." CCE has more than 300 members who have completed more than 10,000 service exchanges for transportation, shopping, pet care, home repair, etc.

CCE's manager (Muriel Stone Nolen) was fortunate to work with the founder of Time Banking (Edgar Cahn, who was recently elected an Ashoka Fellow) to establish one of the first time banks 20 years ago in Washington, DC. Currently, there are time banks in more than 40 states and 22 countries.