When the Money Isn't Flowing: Invest Your Own Currency

Changemakers - Arin Farrington - 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.

A basket of hand-made hair clips offered at the LETS Central Coast Trading Day in Woy Woy, Australia sells for 5 shells per pair. A shell is a unit of currency that represents skills and time, instead of money, and exists only as numbers in members' accounts, moving from account to account. The recording of these transactions is done by members over the Internet.

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" at right).

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 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.

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" at right). Many of these have already expanded well beyond their initial settings, serving as models that are adaptable around the world.

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.

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-1⁄2 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

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 Rudolf 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.”

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.”