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8. Community Currency

"If you want people to fight, throw them a bone; If you want them to cooperate, have them build a tower."
--Saint-Exupéry, Citadel

Today, local currencies are again mushrooming all over the world in an impressive diversity and increasing sophistication. As Hazel Henderson has pointed out, the key to the success of a community currency, just as for any currency, is trust. In this case it is trust in your neighbors, in the community as a whole, and in the community's leaders.

My focus here is limited to emphasizing that once you have decided to have a community currency, why not use the best design available? It is important that community currencies concentrate exclusively on the two key functions of money--standard of value and means of exchange--and therefore discourage the use of this money as a store of value or a means of speculation. The best way to ensure this, in particular for the more sophisticated electronic forms of local currency now coming online (for example, the Minneapolis Commonweal experiment), is to build in a booster or another form of the demurrage concept.

The majority of the present systems simply use a "zero interest" concept. In contrast, the majority of local currencies implemented in the 1930s explicitly built in the demurrage idea, typically through the process of requiring periodic application of stamps. Stamps are a primitive way of achieving the desired objective; today, with smart cards or electronic accounting for local exchange (LETS) systems, demurrage could be achieved much more effectively and conveniently by simply programming a small charge on outstanding balances.

This small step would have several substantial benefits:

Every participant in the local currency system will become a motivated promoter. One of the features that many organizers of LETS systems have noticed is that over time the originators tend to remain the dominant force promoting the system to new users. Some systems simply die when their original promoter is no longer available for this. Paul Glover, the founder of the Ithaca money system, mentioned that he spends a good deal of his time convincing new participants to accept the money.(note 10) This is typical, because the other members have no major incentive to actively promote new participants: they can just keep the currency until they have some use for it. In contrast, in Worgl or in Swanenkirchen in 1930, each participant was personally motivated to convince his butcher, baker, or cousin to accept the money. One of the reasons that local currencies have multiplied in number today but have not spread as widely as in the 1930s is this structural difference in motivation for member participants. More jobs will be created. Community currencies now tend to create no more jobs in the community than normal currencies. This was not the case in Worgl, for instance, where we noticed that every shilling of Worgl money created fourteen times more jobs than a normal national Shilling.

Community spirit will be fostered. In many cases, the motivation for introducing community currencies today is often less to create jobs than to foster community spirit. Community currencies are indeed one of the most effective tools to achieve this. The word community appeared first in written English in 1283. It is etymologically derived from the Old French and Late Latin, where it referred to a group of monks who owned, operated, and lived from the fruits of their monastery. In other words, it referred to the material organization of a self-contained economic entity. Benedictus of Aniane (5th Century) felt that such a process would automatically support the sharing of the spiritual objectives of their members. Consciously promoting more frequent interactions and interdependencies with your neighbors has therefore long been successful in generating this elusive quality of community spirit. Building in the booster concept or another form of demurrage would increase the density of these interactions and therefore also spread its benefits.

Hoarding will become ill advised. Some community currencies have experienced the hoarding phenomenon. Sometimes this is even interpreted as a sign of success, because such behavior reproduces more closely the use of "normal" currency. But every time someone hoards the community currency, he or she is depriving others of its benefits. In addition, as was shown earlier in the discussion of conflict between the store-of-value and medium-of-exchange functions, there are even structural reasons why hoarding should be avoided.

Ecologically sustainable practices will occur spontaneously on a collective level. While other avenues can be used to promote sustainable behaviors, including regulations and education, why should we not use all the available tools? Reprogramming the "invisible hand" to push for ecologically sustainable behavior would be extremely helpful. These benefits will become generalized only if and when demurrage currency becomes the dominant currency. This circumstance is less farfetched than it appears, for some community currencies could play the role of prototype experiments in preparation for a new Bretton Woods agreement.