What Do We Agree to in Our Money System — Complementary Currencies

A few years ago, I was talking with a friend about the beauty of the paper currency in some countries.  He showed me a BerkShare.[1]  At first I thought it was play money.  Assuring me it was real, he told me about a community in the western part of Massachusetts that had created its own complementary currency.  In the moment, this sounded like a great innovation.  In all of the economics classes I had taken, and after years as a business professor, I had never heard of these complementary currencies.  How many could there be?  Two to three?  I then found Bernard Lietaer’s writings.[2]  He identified two complementary currencies existing in 1984, growing to 200 in 1990.  He has documented over 4,800 in existence today![3]

These are called complementary currencies or alternative currencies, because people use these currencies alongside the national currencies – they complement the national currency.

This verb-level innovation speaks directly to the nature of agreements people make around the value questions: what is the value of an exchange, what is the mode of the exchange, and who participates in the distribution of value in the exchange?  To see the innovation in complementary currencies, I will start by describing the currencies we all know, national currencies.

Most countries have their own national currencies, the money people can use to buy stuff in that country.  Governments decree the value they place on a piece of paper they call their national currency.  For example, Japan has the yen, and Mexico has the peso.  With approximately 195 countries in the world, there are about 180 “national” currencies, allowing for some shared currencies like the euro and the dollar.[4]  Economists describe three functions this form of money has: medium of exchange; unit of account; and store of value.[5]  These three functions described the things-noun levels attributes of value, as seen through the value lens of “what criteria.”  The paper the currency is printed on has no value of its own, and it symbolizes a liquid form of something that does have value.  This liquidity makes it easy to exchange, and the paper form makes it easy to keep track of and store for awhile.  This money is designed to be scarce.  Governments and banks carefully control who gets to print it and who decides how much there is.[6]

Complementary currencies shift the things-noun level assumption of scarcity into a development-verb level assumption of abundance by changing the agreements that back up the currency.  When looking through lens #3 of “what critieria,” I showed how the three value questions look quite different at the light, verb, and noun levels.  The three questions address the value, mode, and distribution of exchange.  The verb-level expands the “what is of value?” question to include both the things we pay for and the things we do not usually pay for in our experience of the journey of life and our own development.  Examples include our time taking care of family and volunteering at the local soup kitchen.[7]  The verb-level also expands the “mode of exchange” question to include a broader definition of how we might exchange it, bringing into question noun-level concepts such as interest rates (e.g., positive, neutral, negative) and what is being exchanged (e.g., paper, time, bartered things and services).

The distribution question at the verb level suggests that the person who is doing something perceives the value, in addition to the noun-level fixation on value goes to the person who has the money.  One way this is done is by keeping the currency moving locally.  Economists use the “velocity of money” to determine how much a currency is exchanged in a given period of time within a given geography.  Simply defined, the amount of value exchanged equals the amount of money times the velocity of money.  This means that when $100 comes into a community, it is available for increasing the total value exchanged in the community.  National currencies promote coming into the community, say via wages and then being spent at a large store, which usually takes the money right back out of the community.  It was exchanged once for a total value to the community of $100.  A very different approach uses complementary currencies, such as the BerkShare to local use.  A consumer buys $1 of BerkShares at the bank for 90 cents of USA national currency.  This BerkShare can only be redeemed at the bank by local businesses.  This design promotes that same $100 to be used a dozen times locally before it comes back to the bank and leaves the community.  This would be $1,200 of total value exchanged with that $100.  This greatly increases the local output.

Each complementary currency decides which of these verb and noun-level features it designs into its complementary currency.[8]  In the case of time banks, a complementary currency now if effect in communities across the globe, people create their own “currency” by giving hours of their own time to an activity that someone else wants and receiving credit they can use to obtain services they need.  For example, I can give a day of management consulting to a local business, knowing I can get two weeks of daycare for my child with the credit I create.  This is different from having to work under a contract for a national currency, in which case employers tend to have the upper hand in determining how much they will give you for how much time you give them.  With the time bank, you as an individual decide how much currency you want to create.

As you can see from these examples of ABCD, town meetings, cooperatives, and complementary currencies, many groups around the world, involving millions of people, have succeeded in making agreements that bring greater abundance into their lives.  So far we have looked at how this can be done by shifting from a things-noun perspective to embrace the more dynamic perspective of development-verb.  I now want examples of innovations that generate much greater abundance by including those two levels and, simultaneously, taking on the perspective of possibility-light.


[1] For more on the story of BerkShares, visit (berkshares.org) or see (Barry, 2007).

[2] Bernard Lietaer has documented the development of complementary currencies, which you can follow at (lietaer.com) or read in (B. A. Lietaer, 2001).  Bernard co-designed and implemented the convergence mechanism to the single European currency system (the Euro) and served as president of the Electronic Payment System at the National Bank of Belgium (the Belgian Central Bank)

[3] For the number of complementary currencies, visit the Complementary Currency database or see (B. Lietaer, 2003, p. 12).  Bernard Lietaer estimates there are over 5,000 community currency systems in operation, as of 2009, as cited in (Gelleri, 2009).  Another estimate in 2006 was 4,000 (Wheatley, 2006).

[4] I say that the number of countries in the world is approximate, because it depends on who is counting, and the criteria they use, which are mostly political.  The CIA’s World Factbook counts 195 countries (The World Factbook 2011, 2011).  There are 193 member states in the United Nations.  One source for the number of active currencies in the world is (The World Factbook 2011, 2009).

[5] For standard, economic descriptions of the functions of money, see (Greenwald, 1983, p. 300; Mankiw, 2008, pp. 642-643).  For economic and anthropologic perspectives on the historical development of money, see (Ferguson, 2008; Galbraith, 1975; Graeber, 2011; Needleman, 1991).

[6] Currencies also have specific dynamics designed into them, which influence who has it, who does not have it, and who accumulates it.  For example, inflation is designed into national currencies, with money losing value over time – the costs are higher tomorrow, so the dollar you earned in 1990 will buy you less in 2000.  To compensate for inflation, people loan money to others with a requirement that they pay it back in the future, with interest.  While this interest covers the risk involved in loaning the money, the interest rate is higher because of inflation.  Because this national money is both scarce and inflationary, people require a positive rate of return for the use of their money – this means that their money makes money.  Once someone has surplus money, more than they need, then their money can make money on its own.  This feature is designed into the currency.  For more on the dynamics of money, see (Ritchie-Dunham, 2009).

[7] Riane Eisler, Lynne Twist, and colleagues have written extensively about the “caring economy” and new models for incorporating it into what is counted in the economy (Eisler, 2007; Twist, 2003).

[8] For recent descriptions of complementary currencies in use, see (Hallsmith & Lietaer, 2011; North, 2010).

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