Transforming our Money System – 5

By John BristowComments Off on Transforming our Money System – 5

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Transforming the Money System: (1) what are the Alternatives  Greco emphasizes the importance of design and trialling a transformation of the money system rather than attempting to reform it politically within the socio-cultural mindset that created the current system. He quotes R. Buckminster Fuller’s call for “participation in the design revolution” (The Critical Path 1981). He states clearly that design needs to be applied both to the system itself and the strategies for changing it. It needs to be based on an understanding of money and the money system and how it has developed historically, and also of social dynamics, markets and networks in relation to money. The elements of the solutions he is proposing are based on his understanding and on information about what has and has not worked in finding alternatives in the past, what look like promising ideas, and the market and social conditions that would enable them to work – or oppose them. All his solutions come from ideas, understandings and trial experiments that are already publicly available. He has put this all together in a new and compelling way.

 A key part of this is educating people about the money system – as it is and how it could be, and he quotes Riegel and his essay on Breaking the English Tradition on his reinventing money website.

Mutual Credit Clearing        The use of a clearing process is not new; it seems to date back to the medieval commercial trading fairs, before the establishment of banks. Claims between a group of participants were offset against each other, and “cleared”. It is a development of selling on “open account”, as it is multilateral and allows member’s expected sales (or other income) to pay for purchases up to an agreed limit. Banks have carried this out since using cheques. Associations of banks have been using “clearing houses” to settle claims between their members arising from cheques drawn on one another, with very little cash having to be transferred between them (and before that “runners” liaising between them, who may have started to settle between them to save running, using coffee houses to settle in). What is owed by one may be paid off by what another owes them. Now this is done be transferring deposits between banks in a computerised network, often using a central bank, as the banker’s bank, to hold deposits for them.

This clearing process is not restricted to banks. Commercial trade exchanges and local exchange systems (LETS) have used clearing processes for years too. Balances between what is payable and receivable, if not too large, can be carried over rather than settled, with an agreed limit on the amount of debt or debit. An updated version of this can be part of a new paradigm for the money system that follows the principles stated above. It would provide interest-free turnover credit within the process of mutual credit clearing for exchange between suppliers of goods and services or labour within their market or network, with the total amount of credit within it being the equivalent of the money supply for that system, self-adjusting according to members’ trading needs within it. This would mean off-setting purchases against forthcoming sales within an association of workers, manufacturers, and merchants or distributors, all of whom are both buyers and sellers within that association. This could be done independently of banks. Once this alternative credit clearing association is established between suppliers who sell to and buy from one another it could expand to include everyone who buys and sells within an economic area. The costs of operating this could be covered by a small transaction fee. Alternatively a token or note can be used in conjunction with a mutual credit clearing association instead of having to record each transaction as a seller or buyer and note the balance each time. Members can be given tokens up the limit of the debt they are allowed.

This saves the cost of interest on short term loans (or agreed overdrafts) and of transaction costs decided by the bank, and makes trading and exchange networks relatively more independent of inflation, the monetisation of government debt, bank credit polices and instability in global markets. It would also promote exchange and trade between more local businesses and customers.

 Examples of mutual credit clearing working and not working have been studied by Greco. These show that where there is a strong felt need (in the past through shortage of the official currency or other media for exchange when conventional money is mismanaged or when there is not enough credit for small businesses) and mutual credit systems can fulfil that need then a network of people who trade in key goods and services can come together. The mutual credit clearing systems need to be set up and managed on a sound basis, and to be available for regularly traded goods through having enough members over a wide enough socio-economic geographical area: see regional development and economic networks (below)  for the role of local councils within a region co-operating in this and other solutions and transformations of the money system.

 The design of the system and its rules would be determined by the members. But these can now be informed by the best thinkers on this who have set out the design principles and governance agreements that are specific to non-monetary (in the normal meaning of money) exchange systems, and mechanisms that are sound, effective, economical, –  and honest, fair, decentralised and empowering. Greco sets out a model membership agreement for mutual credit clearing associations in Appendix A. An example he gives is the Swiss WIR bank (originally called the “economic circle co-operative” – see section on implementation of change for description of this) which has been operating mutual credit for 70 years or more for small and medium sized businesses with security provided by a debt limit (related to average sales) and some real estate or other collateral as surety against leaving the system without settling debts. (WIR bank is currently being studied by the World Future Council). Another principle that has been adopted instead of collateral is one of co-responsibility where each member together cover for one member’s default. Or members can create a pool of reserves or insurance for bad debt, which could be paid for out of a portion of the transaction costs, debited to members’ accounts and credited to an administration account. This has been used in microlending (e.g. the Grameen bank) and in group insurance. It can now be supported too by the latest developments in electronic telecommunications that can provide the tools and infrastructure needed. All this exists already; this will entail changes in culture in a group or a society (c.f. shared, largely implicit, cognitive “rules” organising our minds and normative rules organising our expectations of and relationships with one another), and in institutions (formal, explicit rules and ways of co-operating and organising) alongside innovations in technology and the ways of operating and living that are found to be needed to accompany them. All of these can come together as parts of an evolving new system. These local circles or networks could be part of a web of interlinked networks based on the same principles, as they are tried and tested and seen to be working and promoting mutual trust and confidence in the system. These systems need to win widespread support to counteract those with vested interests in the current system.

 Community based Alternative Exchange Systems: Learning from Experience  These are described and discussed more in two of Greco’s earlier publications: Money: understanding and creating alternatives to legal tender. And New Money for Healthy Communities (see his website, reinventing money). There are thousands of mutual exchange alternatives throughout the world (the non-commercial community exchanges such as barter, LETS, time dollars, local currencies etc, alongside commercial business-to-business exchanges described below), the current wave dating back to the 1970s, attracting media interest. With a couple of notable exceptions that he knows of, Greco sees most of these failing and seeks to analyses the cause of failure, so as to learn from them, including system design deficiencies. He sees the commercial part of the movement having much potential that has just not been realised. Most grass roots community initiatives he sees as starting with great enthusiasm on the part of the organising group, with access to sound advice on design of the system and implementation process (money system experts and in some cases also Permaculture design consultants, followed by a rapid growth in participation – and then volunteer burnout, inconvenience factors and slow decline. Even well-designed systems can suffer from this. Relationships and knowhow nevertheless remain in a community and the system can be resuscitated in times of crisis.

The main reasons for failures in mutual credit clearing and community currencies Greco sees as a failure of reciprocity and an inadequate scale and scope of operation.

Anything that interferes with the necessary principle of reciprocity (giving as much as you get and vice versa) – see above in section on principles, or creates doubts about how this is enacted in reality, will lead to lack of support in initiating or maintaining the system, whether currency, credit clearing or investment. This can occur in the system design through lack of a clear agreement or unsatisfactory limits on debt or the improper issuing of currency, and in the operational management of the system in lack of clear procedures and controls or accountability and transparency (sometimes due to over-reliance on volunteers). Also the failure in more strategic management – identifying and responding to internal and external threats – can lead to decline.

The other common cause of failure (see above in section on principles), inadequate scale and scope (c.f. critical mass and tipping point) takes different forms: too narrow a collection of goods and services covered, failure to attract all steps and levels of the supply chain, failure to achieve critical size of participants, and failure to gain acceptance in the mainstream of business activity. He recommends starting with suppliers whose goods and services are in greatest demand and who having a track record of financial stability.

Specific principles are set out in Chapter 14 for making complementary currencies work in four key areas: system design and system management – the two dealing with design of the strategies for implementation of the change will be described in the “how to change” section below, and these can apply to implementing alternatives in all 3 areas of the money system as well as to social and technical innovation and change more generally.

 Business to Business or Commercial Trade Exchanges and the IRTA   These have been growing in number across the world over the last 40 years but remain small in their local economies, limited by the number and diversity or their members, their geographical coverage and their failure to include all stages of the supply-consume-dispose chain or cycle. The International Reciprocal Trade Association ( ) said that in 2007 there were 40.000 businesses who were members of one of these, mainly small and medium-sized companies, enabling trades worth around 10 billion US dollars.

The mission of the IRTA is to provide all industry members with an ethically based global organization dedicated to the advancement of modern trade and barter, and other alternative capital systems, through the use of education, self regulation, high standards and government relations, and to raise awareness of the value of these processes to the entire Worldwide Community. 

Greco sees trade exchanges to have arrived at a consolidation stage and plateau with larger corporations like IMS, ITEX and Bartercard taking over small ones which in his view have much unrealised potential. Extending the scale and scope of their membership is part of realising this potential, especially to include more manufacturers and commodity suppliers to match the retail members in size, by members inviting their own suppliers to join as well as their business customers. Linked to this is the need to communicate better the benefits – in addition to member-to-member marketing, where members become preferred suppliers to fellow members as they accept payment in the form of exchange credit – of mutual credit clearing (e.g. ease of admin and interest free credit to cover the delay of receiving payment and to be able to use their later sales to pay for their immediate purchases); the value of this increases geometrically as the number of members increases, as with any other such network. To protect the value of the trade credits and confidence in the system, trade exchanges need to have contracts and operating rules to protect members in case of conflicts of interest (e.g. some using insider information to cherry pick what members are offering to the disadvantage of their fellow members) or to guard against failure to repay debt or keep it within agreed limits related to their average quarterly sales, with an agreed way of covering for bad debts, while these are kept to a minimum. As 3rd party record keepers of their members collective credit (with some members in debit for others to be in credit –they should be in balance), trade exchanges have a professional responsibility to their members, but in some cases these rules and agreements are not established or adhered to. Operating agreements can ensure members make their offerings clear to all before selling to other members, for example (transparency principle). If unable to discipline themselves they may be subject to government regulation or the operating rules of larger networks of trade exchanges in the future that allow for members of one to trade with members of another by following the same standard procedures. Making joining a trade exchange as easy as possible (with lines of credit being interest free, while some admin and insurance fee is chargeable) is another way to increase membership (as with any network or on-line exchange medium). As the number and diversity of members (including employees as customers) increases the financial value of the exchange is much more apparent as the range of goods and services exchanged this way increases. Tax would be collected annually by the government on the basis of the association sending a report of their members’ barter or exchanges for the year to the inland revenue. Greco sees cashless payments based on mutual credit clearing between buyers and sellers as an innovation as important as the printing press freeing people from dependence on one group or elite (scribes and scholars).

 Investment for Future Provision of Goods and Services: Partnership Finance    Most of us save through some form of investment in shares or bonds or pension schemes, though money on deposit in banks, for which we would normally gain some interest, is used by the banks themselves to make more money by investing it in stocks or bonds elsewhere, apart from money held in reserve to pay depositors seeking to withdraw. Savings as investments are financial claims that can be converted or liquidated into money by selling them. We meet our security needs this way (emergencies or unusual expenses) and save during the productive period of our lives to have money when we are no longer able to work and earn, either privately or through paying the government for a state pension. Our savings in the form of investments then can help finance future productive capacity through capital formation in this form; saving and investment are two sides of the same coin. To save we, and the economy as a whole, needs to produce a surplus over our consumption needs, represented by our collective savings and investments. But banks and credit unions (member savings lent to other members) often lend money for consumer spending rather than investment in future capacity. 

What is needed is a form of loan or equity that does not itself involve currency as this creates money that does not always follow what is currently being produced and sold or likely to be in the future. The loan or bond needs to be paid back when the borrower has earned the currency from labour or sales to do so, rather than through regular interest payments. There are ways of converting investment credit into turnover credit and vice versa. People who have excess turnover credit may want to save and those needing investment credit for future turnover can borrow from them, a capital formation process. In this way future investment credit is based on reallocating money that already exists, rather than creating more money by debt. Money will no longer be created to finance government debt or for consumer credit (which would need to be financed out of savings too) or for capital formation that does not put goods and services into the market in the foreseeable future.

This can be done within mutual credit clearing associations, the other key change suggested, and with any local currencies that these associations may issue on the basis of their productive turnover of goods and services within a local economic region. This can be done in the same way as with conventional money but using local currencies or the credit in the balance of a member if a clearing system. Savings for retirement or major purchases n the future can be accumulated and invested within this system once it has developed and there is a way of denominating the value or purchasing power of the currency in a concrete, objective basket of commodities (rather than by a national currency issued as legal tender). Surpluses can be accumulated as credit and then saved by lending to or investing in another member of the credit clearing exchange or of the community – for their own private purchases (e.g. for a new energy efficient car or for building insulation and solar panels, which in themselves may or may not produce savings or increase the value of a property) or for investing in their business or social enterprise. If the borrower then purchases from other members of the credit clearing exchange or a local business or supplier than the money is increases productive local exchange as well as gaining a return for the lender/saver. The risk would need to be assessed. There can be a number of forms of debt or equity or mixed arrangements.

Temporary Equity– rather than Debt – Financing: Partnership Financing There are two types of financial claims – debt and equity. Lenders of money on interest with often some collateral security have a debt claim on the borrower as their creditor. With an equity claim there is partial ownership with no fixed returns, obligatory repayment schedules or demand for collateral. In the securities market, debts take the form of bonds, notes and bills. Equities are represented by preferred or common stocks (shares) or shares in a limited partnership or other form of incorporation. Corporations and mutual funds often have a mix of bonds (loans) of different kinds (e.g. mortgage bonds or debentures raised against assets) and equity, preferred and common stock, to raise money for investment. Bondholders have priority over shareholders in making financial claims. Debt contracts mean that entrepreneurs take all the risk and have to pay back loans regularly even before they start making profit (if they are just starting). The relationship with lenders can therefore be adversarial, with creditors calculating whether they want to call in their loan or allow the business more time to succeed. An equity investment is based on a partnership sharing risk and reward and allowing time for the returns on the investment to materialise. It is consistent with the move towards greater collaboration in societies and world-wide and with religious traditions that forbid usury.

 For the finance function of money that does not create money through debt Greco recommends a shift from interest bearing debt financing to temporary equity financing in which risks and rewards are shared for finance (savings and investments for the future), making the interests of both parties congruent rather than opposed. This is a practice that already exists, in different forms, and was used in the middle ages when usury or interest was outlawed – as it is today with Islamic forms of finance. He compares a debt and an equity financed mortgage (in the Islamic community called a “halal” mortgage transferring the term from meat to finance!). This is relevant to making housing more affordable and also to all forms of loans to people and enterprises in a locality, for example: an investment in solar energy for heat or electricity in a house or commercial property for example, a local food growing or distribution initiative or a resource recycling business and so on.

With an equity mortgage the co-operative bank or financing organisation buys a temporary share of the property. The key factors are the down payment for a share of the equity, the amount of rent (rather than interest) paid each month by yourself or your tenants to the partners in the ownership (including yourself as the person(s) seeking the finance), the time period or term of the mortgage and the agreed arrangements for failure to pay the rent. You can calculate how long it would take to buy out the bank’s share if you use the rent paid to you each month to do this. When comparing an equity mortgage to a conventional loan mortgage the reduction in cost increases as the interest rate of the conventional increases (from 7% on) and as the level of rent deemed to be fair decreases (while your monthly payment can still be the same as the conventional mortgage would have been, meaning that you can buy the full ownership quicker). With an equity share mortgage if you are unable to pay the rent your equity share will diminish and if this continues beyond an agreed limit then you will have to let out or sell the house. If selling, then both partners want the best price as the bank’s claim does not have legal priority over yours as it is an equity rather than debt claim.

Varieties of Partnership Financing       See for an example of partnership financing through sharing of risk (through mutual guarantees within a credit union or guarantee society) and reward (through co-ownership by investors and investees of a productive asset). The shares pertain to revenues, not profits, and the sharing arrangement is temporary.

Peer to Peer or Citizen to Citizen Lending, Investing and Borrowing in the UK is currently a successful example of this, part of what is called the “social lending” movement. The equivalent in the US, is currently having its hands tied by legal registration processes. With Zopa, the system authenticates the identity of the loan applicant which is then given a risk rating. Borrowers can say what is the maximum interest they are prepared to pay, and lenders state the minimum rate of return they will accept. The system matches up lenders and borrowers. The request is then posted on the website as an offer for prospective lenders who can then offer an amount of their choosing. The risk of default is spread among many lenders. Lenders can diversify their investments among different borrowers. Typically savers have a higher rate of return and borrowers a lower rate of interest than they would get from a bank or other intermediary. Zopa states clearly that it is no party to the contract between lenders and borrowers; its function is to operate the lending platform. Zopa USA operates through a credit union which is mainly for consumer finance and at the usual rates, and is therefore just a marketing device for that credit union. It is not offering a solution then to linking all financing to savings or all lending as investment in future capacity, future goods and services.

 A Standard Measure of Value and Unit of Account    This would be based on a basket of regularly and widely traded commodities would fulfil this function in the place of national currencies that can be manipulated by governments, central banks and investment banks, a political-financial elite. This, together with a means of credit clearing and payment, enables exchange to take place particularly between mutual credit clearing circles, business-to-business trade exchanges and alternative currencies, private and public. Without legal tender status an inflated currency will be discounted in relation to an objective standard of value.

An Alternative Pricing Unit or Measure of Value    To be less tied to the national money system, local economies will need to be able to develop an alternative pricing unit or measure of value when they need to.

Whatever the local credit unit is, people will initially need to translate it into the national currency as we value what we buy or earn using that as a standard, probably being equated one to one (e.g. £1 = 1 local credit unit). With a mutual credit clearing system credit is not held long enough for any loss of value of the national currency to have any effect. Only when credit is more long term or there is double digit inflation would there be a need to define a local credit unit in objective terms – namely relative to a “basket” of commodities that meet basic, regular needs. A national currency was valued initially in terms of a specific weight of silver then gold, but this was abolished when it became legally enforced as tender. After that a national currency would lose value in so far as government and banks issued money that did not match goods and services in the market (see above). Rather than seeing gold and silver and other basic commodities as having a price in terms of the legally enforced currency, people need to think of this the other way round – the value of the currency in terms of these commodities, and the price they are traded at. (The US dollar lost 58% of its value in silver between 2005 and 2008.). To have a stable standard unit of value a basket or group of commonly traded commodities is suggested (and how to do this spelt out in an appendix and an earlier book by Greco on Money and Debt: A Solution to the Global Crisis, with criteria for selecting and weighting 15 or more commodities). This is based on earlier real life experiments or test cases by R. Borsodi in 1972 Inflation and the Coming Keynesian Catastrophe – the story of the Exeter Experiment with Constants.

 Looser Links to the National Currency; Greater Separation of State and Money    This means finding alternatives to the national currency as a medium of exchange and as a measure of value or a pricing unit.

To empower a local economy and community in the process of exchange a credit unit (or currency) can be issued on the basis of goods and services in everyday demand that are changing hands regularly within an existing socio-economic network and area around a group of towns or a city. Such a unit amounts to an IOU or credit instrument that is accepted voluntarily by some other provider (a supplier or employee).  This is redeemed in kind by the original issuer. In this way community members “monetise” the value of their own production, based on their own values and criteria, without the involvement of the government or banks and without the need to have any official money at the start. This liberates the exchange process and creates a “credit commons”, bringing this under local control; the community has a measure of independence from the official currency and the policies of the central bank. The “commons” refers to any resource that is open to the public and not owned privately or by a government organisation.

Issue of Local community currencies these have been issued till now on the basis of payment of a national currency. This is similar to a local traveller’s cheque. While encouraging buying locally, it may not mediate many local transactions before being redeemed or changed back to the national currency. Local currencies need to maintain their value and be widely used quite quickly. Principles are needed to govern the qualification to issue money, the basis on which currency is issued and how much currency is sent into circulation by each issuer. Greco sets these out in chapter 14, in summary:

Anyone putting goods and services into the market is qualified to issue money on condition that the goods and services offered need to be in everyday demand at prices that are competitive and published. Greco quotes E.C.Reigel who said: “He would create money to buy goods and services must be prepared to produce goods and services with which to buy the money” (principle of reciprocity and equity).  (See for this 1978 publication on Flight from Inflation.).

If regional networks of local mutual credit clearing between businesses supplying goods and services in demand become established, these associations can issue a currency or credit on account that can enable non-members who buy from members to exchange goods independently of the national currency and non-local banks (see regional development networks below).

Money in its current form is no more than credit but not all credit serves the exchange function. The basis for issuing money should be that it is for the circulation of short-term turnover credit as a counterpart to goods and services about to enter the market, enabling suppliers to buy what they need in order to supply what they give or produce. This should be distinct from long-term credit, investment in future production capability, a second function of money. What this amount is can be determined by the time it takes from delivering to being paid – the rate of turnover varying by business, the average being around 3 months. The rate for each business can be based on the average of its sales over such a period. This will determine the amount of currency they can issue, its debit balance in a mutual credit clearing association. The rate at which a currency returns to its issuer (normally a daily rate of 1%) needs to be fast enough to prevent its devaluation or rejection in the absence of legal tender status. So the goods or services need to be in everyday demand. It needs to be accepted by suppliers of what people need and want most (such as energy, telecommunications, water– utilities, food and transport. These can also be the main contributors to carbon emissions as well as being core needs that need to be met enough locally for local resilience). Then the issuers can be sure that their suppliers will also accept it. The currency needs to be used and to attract or pull people in rather than pushed onto people; for this the basis of issuing it needs to be in line with these principles. Otherwise it will stagnate in pools, not used enough and so exchanged back into the national currency.

 Using the Internet for Trade with Businesses and Direct Collaborative Exchange between people       Greco sees the emerging global web-based trading platform as an essential development with which his suggestion for reforms of the money system would need to be integrated, especially mutual credit clearing to provide temporary free credit and bypass the use of money for exchange. This is described in Part 2 on implementing change.

Forms of Organisation and Governance   Greco sees the key to economic survival and environmental sustainability in the future to be local communities gaining more economic independence and having more control over how their material needs are met. He also sees that where this has worked it has been based on an ethic of co-operation in which people come before profits. His examples then of organisational forms – Bali and Mondragon – are of this. His other discussion of organisational forms is about what is applicable to mutual credit clearing associations.

 For more economic independence he sees that any organised action needs to enhance the social, economic and political solidarity of the community, restore the “commons” – resources open to everyone and not owned privately or by the public sector (including the credit commons), support localisation of economic activity (in sourcing inputs, in production, distribution and consumption and in local savings and investments), and provide a degree of independence from the conventional money system, banking and finance. All this requires local organisation on a human scale, and personal responsibility alongside empowerment.

The Bali example is about the form of organisation for the civic community (a “Banjar”), a form that has lasted over a thousand years. Almost everyone belongs to a Banjar, with this playing a part in forming their identity. Their size varies between 50 people in small villages to more than a thousand in towns or cities in which there may be several of them. The scale is small enough for self-determination, with heads of households acting as representatives – as Gladwell points out any group bigger than 150 finds it difficult to reach agreements together, Everyone is expected to provide a service (time) or money to specific projects in their Banjar. They operate democratically and co-operatively. This maintains power at a local level and preserves a sense of community by mobilising resources independently of the monetary system and providing opportunities for families and neighbours to work together. Being egalitarian in nature it minimises differences in class and social status. See

 Regional Co-operative Economy in the Basque region of Spain: the Mondragon Example     This has been built up over 60 or so years since the late 1940’s. It is based on human and co-operative principles, putting people above profits, without ignoring making it work economically either. The Mondragon Co-operative Corporation is now the overall governing body. The priest who initiated the founding of this made economic development and education the priorities as the Basque people were suffering repression from the Franco regime following their support of his Republican opponents in the civil war. So there was a real felt need in terms of economic survival, a measure of local autonomy and maintenance of a cultural identity. Starting with a Polytechnic school, its ex-students later formed a worker’s co-operative and then a few years later a Credit Union, a People’s Bank, was formed to provide start-up funds, business advice and financial services to workers’ co-operatives in the region. This crucial third step enabled the growth of a co-operative economy. The priority here was regional self-reliance, production and sales, with RandD being part of co-operatives over time to make them less dependent on paying royalties to innovators elsewhere or being obligated to export to them. The principles of this whole development are expressed in a Mandala type symbol with education and the sovereignty of labour at the centre, and capital as supportive of it (a means rather than an end), alongside democratic organisation and participation in management and wage solidarity. The broader aim is to support inter-cooperation outside the region and be an example and driver of social transformation (following “be the change” principles). From the start they worked for the common good rather than confronting the Franco regime directly. There are now 250 companies in around 12 countries, with some of them moving towards the implementation of the complete organisational form. The corporate centre encourages and co-ordinates networking and the promotion of the values and principles. The aim here is to find a balance between efficiency and democracy, economic and social concerns, private and general interests, living the cooperative model and co-operating with other business models, equality and hierarchical organisation (for this last polarity or dilemma see and the book by John Buck and Sharon Villines We the People available there and on ). The elements making it a success included: whole movement starting with a clear vision and strengthening the existing strong social network, developing  a set of balanced values including business like efficiency and re-investment of resources generated, and organisations, systems and a network infrastructure for co-operation and co-ordination for education, finance, health and welfare and innovation and R&D in the region and for handling conflict and mutual support in crises, continuous education and ongoing adaptation to changing external conditions. The support in crises across between organisations in the region seems key. See  

Organising Credit Clearing Exchanges      There are a number of viable ways of doing this. Up till now the commercial exchanges have been for-profit or limited liability organisations and the community grass roots ones informal by sponsored by non-profit organisation to act as a legal or fiscal umbrella. Greco argues that it would be useful for find forms that fit local economic democracy and relocalisation. The key aim would be to retain power and control locally while being globally networked. As for-profit organisations get larger and shares more widely dispersed they risk becoming self-serving to far too great an extent, internalising profits and externalising costs. Existing laws for corporations encourage this by defining fiduciary responsibility as the maximisation of profits at the cost of putting social and other objectives aside. Peter Barnes in his book Capitalism 3.0: A guide to reclaiming the Commons (Berrett-Koehler 06) suggests that Trusts are set up to control access to the commons and to charge a rent to corporations for access to them, which then binds them into internalising costs that they have externalised and provides a dividend to citizens, Governments have failed to protect the commons. Greco suggests that Regional Development Trusts (with representative membership), something he is trying out in a project in India (see also regional development section below). To be locally controlled while being globally useful mutual credit clearing exchanges need to be small yet networked regionally and globally. (c.f. Gladwell).

 LLP: An Organising Form for both Complementary Exchanges and for Partnership Finance for Communities – e.g. for local Renewable Energy      Limited Liability Partnerships (with partners representing all the stakeholders) might be a way of setting up complementary mutual credit clearing exchanges in the future and also of providing finance for local energy generation and the greening of technology and the economy. Chris Cook is promoting the idea of combining risk guarantee, revenue sharing and temporary equity under the name of “Open Capital” . See for an example of partnership financing through sharing of risk (through mutual guarantees within a credit union or guarantee society) and reward (through co-ownership by investors and investees of a productive asset). He sees the interests of the provider and user of capital being aligned this way. The shares pertain to revenues and not profits and the arrangement is temporary.

 Mutual Companies   These cover not just mutual savings banks or insurance societies or credit unions but also guarantee societies and savings and loans associations. They have no shareholders; they are owned by their depositors, policy holders, clients and members. The conditions may be right again for more of these again as they could not survive the investment and interest rate conditions of the early 1980s.

 Mutual Credit Clearing: the Swiss WIR Bank example (This is written up by Tobias Studer in 1998 with an English translation – see for an electronic version. Also the World Future Council is conducting a study of it as part of its wider project on future finance – website and see note at end)

This started over 70 years ago and is the longest surviving example of this kind of system working. It was founded as a self-help organisation to enable its members, mainly middle class entrepreneurial business men, to trade between themselves during the Great Depression in 1934 when there was a shortage of official currency. An account credit was created at first by a deposit made by each new member in the official currency. Then later this credit was created by a “loan”, effectively making an “economic circle co-operative”, separate from the national currency and money system, existing in parallel with it. In one year it had 3000 members and one million Swiss francs turnover; it clearly met a felt need as the economies and currencies of the western world where in crisis, and there was much less credit available to finance the gap between purchasing of supplies or labour and income from sales. It continued to grow between 1952 and 1988. Then it became more like a conventional bank, making its ownership in the form of stocks, open to all, and accepting in 1996 Swiss francs as deposits and making loans in Swiss francs. Now Swiss law forbids banks being organised as co-operatives. In 2008 the Swiss franc portion of its business was twice as large as its credit account portion (see ). The total amount of credit cleared remains the same as in 1997 – around $1.5 billion, but the number of accounts is slowly decreasing from 77000 or so in 2003. Greco wonders if the success of WIR was a threat to the conventional banking system. Whether this is true or not, WIR showed how mutual credit clearing can be sustained if there are enough members and transactions.

 Social Money and Social Banking      The term “social money” can be used in different ways – including finding ways of funding the not-for-profit sector. But “social banking” is closer to the theme of this book.

The Institute for Social Banking ( ) promotes a concept of finance and banking that specifically orients itself towards a perception of and responsibility for the development of both people and planet. For this purpose, its members want to contribute to a change in paradigm. They see that this will be possible if more and more people develop a new – ethically and socially-ecologically oriented – understanding of the monetary, banking and insurance sector. So training and research is a key part of their activity, including training for internal and external change agents. See also International Association of Social Finance Organisations ( ) aimed at the financing of social and environmental projects. and Oikos International ( ) which sees itself as the international student organisation for sustainable economics and management and a leading reference point for the promotion of sustainability change agents.

Social money in Argentina, described by Greco: again in a country in financial crisis trading clubs formed around Buenos Aires in the mid-1990’s initially for barter and then with some issuing their own currencies or credit notes, many of which were accepted in a wider network. Despite counterfeiters and others issuing currencies of their own without social and economic backing, these continued. There was a Social Money Conference in Santiago, Chile in 2001, convened by professor H. Primavera, with representatives from all over the world. In 2002 during the financial crash in Argentina when the peso lost two thirds of its value, these trading clubs became a means of survival for thousands. But by August that year it all collapsed due to mismanagement and fraud or counterfeiting destroying all trust in the system.

The Roles of Central Government: its part in the Transformation of the Money System    While he advocates the separation of money and the state, Greco does see obviously a role for government eventually in this, although the initiative is more likely to come from businesses and community groups at local level supported by a global network of other groups and an emerging web-based global trading platform. There are two key sets of actions needed from governments:

 The first is o give up borrowing off central banks to support the over-spending of tax revenues and so abusing its power to issue new money, using the legal tender of a national currency, to pay off their debts. This is technically unsound and increases inflation. Governments will not want to do this and others will argue that deficit spending is needed to counteract deflation (following Keynesian ideas). But if credit can be issued in the ways Greco suggests he thinks that the extremes of the business cycle will be ameliorated or removed. It is almost as if governments are addicted to deficit spending and subservient to the vested interests of international finance who collude with them in deficit spending. The central banks of different countries are closely linked enabling a few individuals to control national and global economies and exploit people through their monopolisation of credit. By alternating credit liberalisation and restriction they bring about a boom and recession cycle in economies.The global interlinking of banking and finance and the institutions and procedures that encourage chronic indebtedness have enabled the banks of the more developed countries to dominate the economies and governments of the less developed countries.

 Public finance will then have to be managed differently, to balance their budgets, and government borrowing through bonds and other financial instruments will need to stand alone in the market place like other bonds and instruments. Long term government debts in the form of interest-bearing bonds would not have any special privilege affecting their acceptance in the market. Outstanding government debt will need to be gradually reduced over time, and not monetised by open market operations or other means. If the government seeks to meet short-term needs for credit it can issue its own currency or no-interest bonds in proportion to the anticipation of tax to be received (and redeemable as payment of taxes), and this currency would circulate on its own merits in the market, with no legal obligation to accept it. The Rentenmark and the conditions set for its use in Germany during their hyper-inflation in the late 1930’s is used by Greco as an example here. (see and for background )

 The second is to support community-based and private exchange mechanisms within a free market through legislation that establishes the necessary conditions: (1) Protection –  against inflation and deflation, involuntary unemployment, international financial and economic instabilities, the interference of foreign economic and political manipulation, and (2) Legislation supporting, and neither subsidising nor using taxes to discriminate against, the emergence of efficient and effective means of exchange of goods, services and financial instruments, sound practices, openness and transparency within them. These private exchanges can encourage the resilience of local economies free from the restrictions of governments, and the interference of national or international finance and banking organisations. They freedom of reciprocal exchange can lead to the matching raw materials supply with productive labour, products and customer needs, without using conventional money; and so foster local employment and prosperity. There can also in this be fewer losers within the supply chain – as currently with food growers or farmers in some areas.

 Inflation comes about when there is a monopoly in issuing money and that money is supported by legal tender laws that mean that it has to be accepted and traded without any discount. So for this to end legal tender laws need repealing and the value of money determined by an objective accounting unit based on a basket of commodities, and that there needs to be competition in the market between currencies and exchange mechanisms. So legislation is needed to end legal tender status and to establish a unit of account based on a defined and agreed value standard (e.g. specific weights and volumes of a basket of core commodities).It is also needed to protect against any monopoly control of the issuing of money and credit (money is credit) by any government, cartel or private organisation, and to encourage local private voluntary credit clearing utilities that conform to agreed standards of transparency and honesty and local currencies issued on a sound basis and to similar agreed standards.

 As noted above, initially politicians (not governments as such) can raise awareness of the issues, governments can support safe trials and protect them from sabotage once there is enough interest in the wider community and key interests are not threatened (including their own) and then hard-wire different systems in through formal institutions and regulations, once they are more widely trusted, accepted and wanted both by business and the community, and underpinned by valid knowledge (the scientific and research g networks).                                                                                                                                                 Local Government     Local government can support local complementary currencies by issuing, within their legal authority, their own currency to pay employees and suppliers after the Rentenmark model, and then redeeming it by accepting it back as payment of local taxes or fees. They can also support local currencies, mutual credit clearing associations, and community banks in the private sector, especially in the form of mutuals or co-operatives, initially encouraging inquiry and dialogue locally and bringing in expert advisors and those with practical experience. Greco gives an example of the monetisation of credit outside the banking system by a company in the US over 100 years ago that made rail track. It issued certificates as a currency acceptable to local shops based on bonds from customers who had ordered the product in order to pay their employees at a time of local disaster when there was no money available. This saw them through the crisis after which all the currency was redeemed.

Regional Development – Socio-Economic Networks in regions within a Country:   While globalisation has benefits, local economies and small local businesses can suffer from external forces driven by the decisions and actions of central governments, transnational businesses and central banks and international investment banks. Greco uses the analogy of a small boat harbour that provides protection from the sea and ocean while remaining open to it. Healthy economies in his view require both free trade and protection. Sustainability, relocalisation (enough for resilient and prosperous local economies) and more devolution and balance of power are now more often seen as linked. Local governments independently or together in a region have in the past offered large companies business opportunities in order to create employment opportunities, provide business to local suppliers and tax revenue – while it is recognised that smaller businesses can contribute more to job creation, productivity and innovation (OECD). Governments can create the environment and “metasystems” for local buying, selling, investing and saving. While not threatening or antagonising political forms of money and large banks, more local control over exchange and finance (investing and saving) can be enabled. Greco sees regional mutual credit clearing associations as one of these “metasystems” and enablers of local control leading to a more sustainable and higher quality life in every sense. These associations will include businesses that supply core goods and services and support from local governments or councils so that alternative exchange and investment media are part of a regional plan. This is all part of attaining critical mass of core goods and services, users and turnover. In this way a different kind of mix of global and local can be encouraged than that being shaped by the IMF, the World Bank and the World Trade Organisation. The boundaries of these “regions” within a country can fit the socio-economic, administrative (local government) and natural ecosystems or “bioregions” boundaries.

In addition to supporting a payment medium independent of the political currency and big banks (mutual credit clearing, commercial or community based), local governments can co-operate within a region to promote import substitution, a supplemental regional currency, structures to support local economies (especially local saving and investment) and an independent value standard and unit of account. In supporting “buy local” local councils can bring together key groups – local businesses and social enterprises with other sectors – to support network formation, create or enhance a local business data base, start mutual credit clearing and find “brokers” to bring suppliers and customers together and form “micro-lending” agencies. The businesses within the mutual credit clearing association can then use a voucher, gift card or credit in an account on a central server accessed by debit cards and point of sale readers –  or a regional currency note, to buy from non-members who can in return use these notes to buy the members – as their goods and services are in demand. This provides solid base to the use of this currency as it is linked to the productive capacity of the main businesses of the region. This currency together with the mutual credit clearing can protect and insulate (but not cut off or isolate) the region from the wider economy nationally and globally; the currency supplements the political, national currency.

For localisation of saving and investment independently of non-local banks who move such money around the world, structures can be created to channel surpluses of national currency or mutual exchange credits into local enterprises that add to production capacity and the quality of all life (see example of the Mondragon network in the Basque region of Spain that provides finance, education and research in support of its regional co-operative economy, motivated by the Basque people’s wish for more autonomy and for preservation of their cultural identity – see next section on Implementation).

Saving and investment by locals for locals can include, for example, pension schemes and financing of refurbishment loans for energy efficient buildings, with local suppliers providing the assessment, advisory and technical services for this.

With political currencies being vulnerable to continuing inflation and as regional networks becoming more interlinked nationally and internationally there will be a need to establish a unit of account and measure of value that is linked to a basket of valued and commonly traded commodities. This will make foreign exchange (between national currencies) unnecessary, and protect against exchange rate risks. The monetary science and the major systems components for this are now readily available.

Economics, Money System
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