08.- Community Currencies

posted Mar 11, 2012, 9:36 AM by Desperado PEREZ   [ updated Jul 20, 2014, 4:19 AM ]

New monetary systems

New monetary system proposals are blooming. One thing is clear: we must get rid of the Fractional Reserve Banking system (FRBS).

For the state money, several proposals exist, like the monetary reform proposed by the American Monetary Institute [1] or the very similar NEF Creating New Money - A monetary reform for the information age [2]. In both approaches the state issues the money (Seigniorage) and puts it into circulation for purposes not yet agreed (public spending, replacing public debts, interest-free loans, etc.). Some others, like Digital Coin [3], which foresee a proliferation of barter systems in form of Credit Coin, see the state money as one more amongst other Credit Coin systems, the money issued by the state to pay public spending and collect taxes, ideally with currencies by country, state or city, much in line with a localization of economy.

Anyhow, this "little big bang", when the legal tender money moves away from the Fractional Reserve Banking, is going to happen at the end. I almost all proposals, Parallel and Unofficial Currencies, play a role before and after the reform.


50 mark from Jewish ghetto in Łódź 1940

There is the increasing use of non-official currencies, quasi-currencies and vouchers, initiated by businesses and communities. Business examples include WIR (the currency of a co-operating group of Swiss businesses). Community examples include several hundred LETS (local exchange trading systems) and similar schemes like Time Dollars and Ithaca Hours [4] [5]. 


YouTube Video


YouTube Video

There is no need to arrive at the final clarity about how all this will be set in the future. Probably the right balance between state currency and parallel currencies will become a non controversial, very practical, monetary policy issue, once that the Fractional Reserve Banking is abandoned.

What is clear is that the new economy islands will need to work with this new money, having probably several currencies.

Local Exchange Trading System currencies

Local exchange trading systems (LETS), also known as LETSystems, are locally initiated, democratically organised, not-for-profit community enterprises or local for profit companies that provide a community information and transactions services for members exchanging goods and services by using the currency of locally created LETS Credits [6]. Historically, they had a boom at the financial crisis of the 1930's. Hundreds of LETS systems exist today, many promoted by governments. In Africa, MobileMoneyAfrica [7] reports 14 million users.


YouTube Video


YouTube Video

Ideally, LETSystems should be as little dependant of a central server as possible.

One of the most convenient and consistent definitions of LETS credits can be found at the Digital Coin initiative [3], mainly because it´s a conceptual explanation clean from technical implementation details. In particular, LETS credits have a very comprehensive description in the Document "Digital Coin – Bejond Money" [8] where the definition of the Credit Coin applies especially well. To make the long story short:

  1. Each enterprise (or association of enterprises) issues each year a number of LET CC, or Credit Coins, expressing value equivalent to the foreseen sales.
  2. Every Coin has an expiration date, not too far from the end of the commercial cycle. LET CC cannot be accumulated. They expire.
  3. The enterprise LET CC, or Credit Coins, are only redeemable in goods or services of the enterprise. The value at the Coins is expressed in terms of quantities of goods or services of the enterprise. When the enterprise produces a range of products or services, each of them may have a different price, also expressed in that particular coin or currency. Company ACME expects to sell products they fix to have global value of 1.000 ACMEuros. ACME issues 1.000 ACMEuro coins. Production of product A is 50 units priced 10 ACMEuros each, production of product B is 100 units priced 5 ACMEuros each.
  4. Monetary theory [9] can be applied very straightforward to find out the optimal dimensioning of coins to be issued.
  5. These LET CC are spent to pay all suppliers of the enterprise, labour, machinery, consumables, etc., including the profit, if any. The profit part requires some elaboration not worth expanding here.
  6. The suppliers use this particular currency, as any other currency, freely and anonymously in the market. It is voluntarily accepted (or rejected) based on the trust (or mistrust) of the issuing enterprise.
  7. Finally, the consumers of the products or services of the issuing enterprise will seek these coins in the market, exchanging them with other currencies.
  8. There are two pricings involved in this market, the price of the product expressed in the enterprise Credit Coin, and the price of that particular Coin in the coins exchange market.

The benefits of the LET CC, is that "Credit Coin is directly backed by real products and services, not an artificial intermediary of value like gold or silver. And, the Issuer of Credit Coin is only responsible for providing its own products and or services in return for its Credit Coin, never “money” in any form. This is a very important point. In the Credit Coin System, an Issuer’s ability to honor its credit is never dependent on the general availability of “money” in the economy, the way the ability to pay back bank loans are. The Issuer’s sole responsibility in issuing Credit Coin is that the Issuer must be able to redeem its own Credit Coin with its own products and/or services."

In order to facilitate the coexistence of different currencies at multiLETS economy islands is important is that all LETS currencies express the commitment about redemption of goods or services in the same common format, like, for example, a Ricardian Contract.

Describing digital value for payment systems is not a trivial task. Simplistic methods of using numbers or country codes to describe currencies, and ticker tape symbols to issue bonds, shares, and other financial instruments soon run into shortcomings in their ability to handle dynamic and divergent demands. The seemingly arbitrary variations in the meanings of different instruments are best captured as contracts between issuers and holders. Thus, the digital issuance of instruments can be viewed as the issuance of contracts [10].

In the simplest possible terms, a Ricardian Contract is a formatted document that is both human readable and program parsable. It identifies a Legal Issuer and an Issuance Server, and includes (OpenPGP) keys for those parties. The document is signed in (OpenPGP) cleartext form by the Legal Issuer's contract signing key. A unique identifier is formed by a canonical message digest (hash) which provides an unforgeable link to the accounting system [11].

    In the market cases we have discussed for the desperado islands it works very well.

    1. At the Osmotic pump of value business, volunteers are paid with Credit Coins worth services of the NGO they volunteer for. They go to the exchange market to buy desperado island taxes CC to pay their taxes and get their civil rights.
    2. At the Desperado employment business, workers are paid with CC of that particular enterprise association. They spend whatever they need in these products and with the rest. They go to the exchange market to get CC to buy other goods.
    3. At the internal barter of services business and at the internal barter of goods business, probably all what is needed is the CC used at that market. 

    Electronic community currencies

    There is a long tradition of on-line banking with Community Currencies, and there is plenty of software development and open source available programmes.

    A proportion of desperados will not have the skills or the means to deal with electronic money. The model is conceived as electronic, supported on wallets at PCs, tablets, mobiles or whatever, with very strict data modelling rules, but with a version in paper vouchers as well.

    In fact, and until a number of enterprises is running at the Insula market and the relationships are understood intuitively, probably at the beginning its safe to issue the currency contracts electronically but the circulation is all in paper vouchers. That is, to conceive the Community Currency as electronic by design but with a stamping of the electronic records in paper vouchers.

    An option to be considered is to avoid a central printing and print shop, start with an electronic initial distribution, and let the HOLDERS decide when they convert their money into printed paper vouchers printed at their office or home printers.

    The traditional approach to digital CC is to keep a central database that can be accessed remotely at the PC via the internet, and lately also mobile. The central database keeps a record of all account balances of all participants and the transactions are managed through this database.

    This has several drawbacks:

    1.  It is vulnerable. It can be easily attacked and dismantled.
    2.  It works on totals of the balance, as an annotation on a record by user indicating the current total. The time depreciation and extinction that is so substantial to Community Currencies is poorly managed. All money of the same currency is mixed up whatever its time of issuing. Time is better managed, like in paper, in individual "coins", that have an issuing and extinction date. The contract may change slightly at each issuing. For example, the description of committed merchandises may slightly change by season or year.
    3. Transactions are not anonymous. This is not a severe problem in local currencies.

    There is an intensive development by the crypto community on P2P alternatives of totally encrypted, totally anonymous, totally P2P digital coins, the best known is BitCoin.

    For a local economy, the security requirements are not as high as for electronic money aimed at the global economy. Each Insula decides the security level. 

    Anyhow, at least one of the parts of any transaction is known, that is, the legal issuer that commits his products with the currency. We can take advantage of this to simplify the systems. For example, the full text of the CONTRACT can be provided as a link to a site where the issuer keeps it safe and public. There is no need to sign it digitally, its available at the issuer server.

    There are plenty of possible software and web technologies settings that can be used to support the currency, the accounts and the transactions. W3C approaches and tools are strongly recommended in order to guarantee a clear and homogeneous semantic, that is, what the money actually means, and eventually provide legally valid proofs.

    It also permits transactions with discrete quantities (coins), and transactions that do not necessarily pass any central server. A simple .RTF, .DOC or .ODT document, a document that can be send by email as an attachment to a file, containing an .XML file able to be exported to a personal wallet, or just saved at a particular directory, and digitally signed, will do the job.

    And finally it allows for different levels of security, some of them with very simple and generic implementations like standard digital signature of documents.

    Paper LETS have been traditionally protected against double spending by adding handwritten signatures on the paper vouchers at every new transaction, so that any double spending can be easily and quickly traced back to the "replication branch". The same approach can be taken electronically. Each HOLDER can add its own digital signature of the “coin” or “voucher” as it arrives. Double spending is not 100% avoided, but can be very detected, - as soon as vouchers with the same serial numbers are redeemed-, and easily traced back. Additional security may be added by encryption and authentication of the emails sending coins.

    All what is needed as transaction tool is a common digital signature system at every Insula. 

    Capital, investment and loans

    Sooner or later, the Insula Enterprises will need to do investments of small scale (say a little truck), and increasingly of larger scale. Sooner or later there will be a need of Banks lending money, be it in the form of microcredits.

    After all, the Fractional Reserve Banking crisis, is not a crisis of money circulation. It is a crisis of accumulative creation of money out of nothing. Putting in place Community Currencies dos not solve the problem, just anchors the liquid money into goods, making the gambling more difficult.

    Community Currencies are not suited at all for capital, investment or credit, as they extinguish in the period of one production cycle. Another type of contract is needed. In the Digital coin Draft proposal [12] it is said that "Shares in the enterprise is the obvious answer for venture capitalists. “profits” seeking further investment would be channeled into long term equity investments in Issuers and investments of all types in non-Issuers, including new enterprises lacking a track record that would allow them to be Issuers themselves."

    We have already seen that, even at a one production cycle, these profits are better saved at another type of currency, with the properties of something like BitCoin: detached form concrete goods, detached from a production cycle. This applies even stronger if the value has to travel to another industry and longer terms.

    In the long run, builders of large products or constructions could pay with their own currencies with their own build-in long term timings for redemption [13], obtaining like a smoothed social lending of all participants in the value chain. In the Digital coin Draft proposal [14] it is said that "Instead of additional bank financing, as is the current practice, special ‘Investment Coin’ could be issued."

    However, at an initial stage we will need to import these expensive equipment from the outside world. This requires that the investment currency can be EXCHANGED in the FRB world by FRB currencies.

    In summary, it looks that for Capital, Investment in expensive products to be bought outside, Savings and Loans, we need another kind of currency that:

    1. Is detached from a concrete good or enterprise
    2. Has no extinction date
    3. Can be exchanged in the global market of currencies but is independent of any government
    4. Has to be encrypted to be suited for global operation

    All in all, a good candidate to play that role looks to be BitCoin [15]. Note, anyhow, that BitCoin does not represent any good, does not embody any Ricardian contract committing products or services, and is therefore not suited for internal Insula barter trade. 

    Open-transactions wallet
    Can manage different Ricardian contracts

    Open-Transactions Walkthru from JOG Webmaster on Vimeo.

    A P2P cryptocurrency for the global market

    YouTube Video

    Crypto-Coin used to spare the profit and sign transactions

    The for profit enterprises or cooperatives operating in the new economy, in a system based on currencies representing goods, the money to pay the profits has to be put in circulation in CC at the beginning of the cycle. Instead of paying the stakeholders, we propose to invest in a Crypto-Coin like BitCoin [15], use them to feed the transactions circuit as a "transaction tax", and redeem them at the end of the sales cycle to pay the stakeholders.

    This transaction tax feeding a parallel circuit at each transaction may provide an additional channel to sign all transactions, to protect against double spending, without the complications of a local P2P crypto-system and without the need of a central server.  

    [1] American Monetary Institute http://www.monetary.org/
    [2] NEF - Creating New Money - A monetary reform for the information age    
    [3] Digital Coin http://digitalcoin.info/
    [4] Open Money http://www.openmoney.org/
    [5] Complementary Currency Resource Center http://www.complementarycurrency.org/
    [6] Wikipedia - Local exchange trading system http://en.wikipedia.org/wiki/Local_exchange_trading_system
    [7] MobileMoneyAfrica http://mobilemoneyafrica.com/
    [8] Digital Coin – Bejond Money http://digitalcoin.info/Digital_Coin_Draft_Proposal_Grignon_Aug16_2009.pdf
    [9] Wikipedia - Quantity theory of money http://en.wikipedia.org/wiki/Quantity_theory_of_money
    [10] The Ricardian Contract - Systemics, Inc., Ian Grigg http://iang.org/papers/ricardian_contract.html
    [11] The Ricardian Financial Instrument Contract http://www.systemics.com/docs/ricardo/issuer/contract.html
    [12] Digital coin Draft proposal http://digitalcoin.info/Digital_Coin_Draft_Proposal_Grignon_Aug16_2009.pdf
    [13] Mortgages in the Credit Coin System http://digitalcoin.info/Digital_Coin_Mortgages.pdf
    [14] Digital coin Draft proposal http://digitalcoin.info/Digital_Coin_Draft_Proposal_Grignon_Aug16_2009.pdf
    [15] We use coins http://www.weusecoins.com/
    [16] Complementary Currency Resource Center - ccMap http://www.complementarycurrency.org/ccDatabase/maps/worldmap.php
    [17] Regiogeld http://www.regiogeld.de/
    [18] FellowTraveler / Open-Transactions https://github.com/FellowTraveler/Open-Transactions
    [29] Community Exchange System http://www.community-exchange.org/ 
    [30] Community Currency http://communitycurrency.org/ 
    [31] Resources for Community Currency Activists http://www.communitycurrency.org/resources.html  
    [32] Community Currencies: A New Tool for the 21st Century, Bernard A. Lietaer http://www.transaction.net/money/cc/cc01.html  
    [33] International Journal of Community Currency Research www.ijccr.net  
    [34] Cyclos, Open Source Complementary Currency Software http://project.cyclos.org/  
    [35] Cclite, Open Source Currency Software in Perl/Mysql http://www.hughbarnard.org/content/alternative-currency-software  
    [36] Drupal Community Accounting http://drupal.org/project/mutual_credit  
    [37] Moneychanger https://github.com/FellowTraveler/Moneychanger  
    [38] LiteCoin http://litecoin.org/  
    [39] Ripplepay.com https://ripplepay.com/
    [19] Silvio Gesell http://youtu.be/hxdPIOUTd2k
    [20] American Response to the Great Depression http://youtu.be/aaXpNmrFZEM 
    [21] WIR Economic Circle Cooperative http://youtu.be/uQehEGGwy0Q
    [22] Complementary Currency Systems – networkeconomy http://www.youtube.com/playlist?list=PL91125F0E98033F85
    [23] What are regional currencies? http://www.youtube.com/user/regionalgeld
    [24] Building the Core Economy – RSA http://youtu.be/4deABsB3TBU
    [25] Open-Transactions Walkthru http://vimeo.com/28141679
    [26] Open-Transactions, Bitcoin and OT Markets http://vimeo.com/28142096
    [27] What is Bitcoin? http://youtu.be/Um63OQz3bjo
    [28] Introduction to Bitcoin http://youtu.be/ejiqbzqmxSE