Can money ever serve the needs of people and the environment - instead of the other way round?
James Robertson suggests ways in which it could.
BRILL-UNEP / STILL PICTURES
I HAVE a dream. The money system is ours, the people's. It is competently designed to enable us to exchange things which we need but cannot each provide for ourselves. It is efficiently and fairly managed for us by responsible professionals who respect people and the environment.
The reality is very different. People all over the world today experience the money system as a nightmare - an institution as incomprehensible, exploitative and corrupt as the pre-Reformation Catholic Church at the end of the Middle Ages. Financial events on the far side of the world deprive people of their houses, jobs and livelihoods while traders in funny money called 'derivatives' get bonuses larger than the annual budgets of schools.
Today's money system compels us to dance to the tune of 'money-must-grow'. 1 How much longer can we take the consequences?
- The tendency of savings automatically to flow out of poor areas, where investment is badly needed, to places where development is already booming and economic activity high. This gives savers, bankers and financiers a higher return than investing locally. Local financial institutions supporting local development have virtually died out. Grassroots savings banks like the Grameen Bank in Bangladesh and local development banks like the Aston Reinvestment Trust in Birmingham, England, are exceptions that prove the rule.
- Interest-bearing loans and debt result in a massive transfer of wealth from poor people to rich people. A 1995 study in Germany found that the richest tenth of the population benefited hugely from this, the second richest benefited much less, and the rest (80 per cent) lost out. 2 The Third World debt scandal illustrates the same thing on a global scale.
- The 'money-must-grow' dogma accelerates the destruction of natural resources. The effect of interest is that the value of a given sum of money is greater if you have it now than if you are only going to get it some time in the future. For example, if the money earned from selling a certain quantity of oil today could be banked at ten per cent compound interest per annum, it would double its value in less than nine years' time. Leaving minerals undisturbed in the ground, fish swimming in the sea, and trees living in the forests, generates no cash flows for early reinvestment. Under pressure from investors and the threat of take-overs, businesses are forced to raise production and sales to environmentally damaging levels.
- Finally, the lure of 'money-must-grow' draws more and more people into the increasingly Alice-in-Wonderland cyber-space where money is made out of money, and 95 per cent of the money changing hands has nothing to do with providing real goods and services.
We need to rethink the future of currencies, interest and debt in the 'Information Age'. Many desirable innovations, such as microcredit, local investment banks, social and green investment and the cancellation of Third World debt, are straightforward enough. But money itself is a slippery concept, clouded in priestly mystery. Working out an effective strategy to control it rather than let it control us is a formidable challenge. But it is a prerequisite to economic liberation, social justice and environmental sustainability.
Compelling everyone to use the same currency reflects the impulse to centralize power, and there are strong economic and political arguments against it. As the American economist Jane Jacobs noted: 'Today we take it for granted that the elimination of multitudinous currencies in favour of fewer national or imperial currencies represents economic progress and promotes the stability of economic life. But... national or imperial currencies give faulty or destructive feedback to city economies and this in turn leads to profound structural flaws in those economies, some of which cannot be overcome, however hard we try.' 3
Rural local economies suffer too. When any locality is compelled to use only a national - or supranational - currency, a decline in its ability to compete economically with the outside world brings too little money into local circulation to support even purely local activities. Unemployment then rises, land and other resources are underused, and local needs are unmet. The monetary policies which are appropriate for the prosperous parts of a national - or continental - economy are bound to be inappropriate for poor areas.
Economists like Milton Friedman have seen this lack of flexibility as a convincing argument against the single European currency. 4 But he and other mainstream economists and politicians seem not to recognize that it applies to single national currencies too. You have to look to the grassroots for pointers to the future in this respect. In many countries - including the US, Canada, Britain, Ireland, Australia and Aotearoa/New Zealand - local currencies or quasi-currencies are rapidly growing in number. Ithaca Hours and Time Dollars are among the most successful in the US. Local Exchange Trading Systems (LETS) are among the best known elsewhere. Many draw inspiration from the way local currencies reduced unemployment in Worgl and other Austrian towns in the 1930s before being suppressed by the Central Bank. 5
The introduction of both supranational and local currencies would be in tune with the increasingly global and increasingly local nature of twenty-first-century life. It would give people and organizations a range of appropriate currencies to use for different purposes. Computerized banking systems can easily handle customers' accounts in more than one currency.
In Europe these could include: a common - not single - European currency; national currencies in countries that have kept them; local currencies issued by those local government authorities that so decide; and neighbourhood quasi-currencies like LETS, initiated by community groups.
Unfortunately, as former international banker Bernard Lietaer says, 'Evaluating the implications of multiple and, particularly, complementary currency systems... is practically a virgin academic field.' There is urgent work to be taken forward here.
The perverse effects of interest and debt raise further questions that governments and central banks need to address. 6
- Should the creation of new money - 'credit creation' - continue to be delegated by governments to banks? This allows banks to profit from issuing money as debt in the form of interest-bearing loans to their customers, and requires governments themselves to pay interest on public borrowing. Why can't governments themselves issue new money directly, as payments for public spending programmes or as part of a Citizen's Income?
- As a general practice should we aim to discourage the lending of money in the form of interest-bearing loans and replace it whenever possible by risk-sharing investment? This would be in line with Islamic teaching, and earlier Christian doctrine, that usury is sin. The intention would not, of course, be to create a mass of new equity shares for speculation on the Stock Exchange. It would be to encourage banks, for example, to share more of the risks carried by the businesses and enterprises they help to finance, and not to bankrupt them by calling in their loans at awkward times as so often happens now. It would mean reducing the legal privileges of lenders - such as banks - who now have priority over other creditors - such as shareholders - when carving up the assets of bankrupt businesses. 7
- Should negative interest rates or 'circulation charges' be introduced? They were proposed at the end of the last century by Silvio Gesell. He was a successful merchant in Germany and Argentina, from whose theory of money and 'natural economic order' Keynes said the future would learn more than from Marx. Gesell inspired local interest-free currency experiments in a number of countries including Germany and Austria. The Mayor of Worgl was one of his followers. The Worgl and other Austrian local currency notes of the 1930s had to be revalidated monthly with a special stamp costing two per cent of their value. This encouraged people to spend the money, not hoard it, and so stimulated local activity at a time of depression.
Money as information
Over the centuries money has evolved from concrete to abstract - from metal bars and coins, to paper notes and cheques, and now to numbers electronically stored in computer files and electronically transmitted between them. The Internet and rechargeable smart cards (or 'electronic purses') will soon be everyday features of the money system.
This transformation of money payments into electronic messages which debit and credit the computerized accounts of payer and payee, reveals money as essentially an information system - a scoring system backing our claims to buy things from one another now and in the future. As this becomes increasingly clear, more and more people around the world may insist that money can and must be made to work for us efficiently and fairly.
The idea that there must be only one kind of money - a single currency that everyone should be compelled to use - may also soon seem archaic. The notion that we must rely on monetary and banking experts, whose arcane knowledge we cannot hope to grasp, to keep money values in line with mysteriously existing numerical realities out there, may increasingly be seen as superstitious and fraudulent.
In practical terms, today's LETS and other local currencies are still 'alternative' and marginal. But they offer a vital model for the future. They provide examples of how we can create people-centred, interest-free money to facilitate exchanges between us, without ceding to others the power to control us and exploit us.
James Robertson set up and directed the Inter-Bank Research Organization for the British banks in the 1960s and 1970s. His latest book is Beyond The Dependency Culture, (Adamantine Press, 1998). He is an Associate Fellow of the Oxford Centre for Environment, Ethics and Society.
1 The significance of the money-must-grow imperative was convincingly brought out by Willem Hoogendijk in The Economic Revolution (Green Print, 1991).
2 Margrit Kennedy, Interest and Inflation-Free Money (Jon Carpenter Publishing, 1995).
3 Jane Jacobs, Cities and the Wealth of Nations (Penguin 1986).
4 See The Times, London, 19 November 1997.
5 See also Richard Douthwaite, Short Circuit: Strengthening Local Economies for Security in an Unstable World (Green Books,1996).
6 Discussed by Alan Armstrong in To Restrain The Red Horse: The Urgent Need for Radical Economic Reform (Towerhouse Publishing, 1996) and Michael Rowbotham in The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics (Jon Carpenter, 1998).
7 See John Tomlinson, Honest Money: A Challenge to Banking (Helix Editions,1993).
...and this little pig went wee, wee, wee, all the way home.
I handle money - actual coins and notes - less and less these days. Soon I may not need to touch it at all. Banks are busy planning the switch to 'smart cards' that can be used for all transactions, however minor. I can already slot my credit card into a machine on the opposite side of the globe and withdraw money, in the appropriate currency, instantly. And soon, in much of Europe I won't even have to think in terms of appropriate currency - there will be just the one, the Euro.
This is all presented as simplicity and progress. But the question least often asked is: who will it empower? The move to the Euro marks a shift away from control over their own currencies by individual governments, and towards control by a European central bank. This means power moving away from elected, accountable - we live in hope! - politicians, and towards unelected, unaccountable bankers. There's some fudgy talk about introducing accountability at a later stage. Well, let's see...
Meanwhile the new electronic money, the 'flexible friends' of our credit card age, may not be quite so flexible or friendly. Will the poor, the homeless, those without bank accounts be entitled to a 'smart card'? Not likely. So does that mean they will be pushed out of the money system altogether?
Financial services being available only to the relatively well-off is all too common in the Majority World. But 'redlining' of areas - regions where banks simply won't lend money - is happening in Britain and the US too.
This is mad. Can't we get off this not-so-merry-go-round and make money people-centred?
Off the hook
... how micro-credit and local exchange systems work.
Two small, and complementary, revolutions have been gathering momentum - one in the North, one in the South.
In the Majority World, people too poor to get bank loans have been getting the relatively small sums of money they need to establish themselves in trade via micro-credit schemes. So successful has been the Grameen Bank, set up in Bangladesh in 1993, that the model has been replicated in many countries far from its birthplace. Millions have benefited from the low-interest loans offered by such community banking schemes.
Meanwhile, in the industrialized world, community- based currencies have been stimulating small business and providing employment for people who are increasingly marginalized by the mainstream economy. This experiment, the Local Exchange Trading System (LETS), has also been repeated in many countries far away from its Canadian birthplace.
While micro-credit has helped communities in poorer countries discover they could lend themselves their own money, community currencies have helped people in the industrialized world discover they could issue themselves their own money.
HOWARD DANIEL / PANOS PICTURES
This is how each system works:
Farida is a mat-maker in a village in Bangladesh. It takes her five days to complete a mat that she sells for the equivalent of two dollars. With this she buys food for the week and, until recently, she used to pay back cash she borrowed for materials from a money-lender. There was no money to spare for emergencies.
One day, someone from the Micro-credit Project came to her home offering her a loan at a fraction of the money-lender's rates and invited her to join the project. She was told that members took collective responsibility for the loans they made, and supported and encouraged each other in the course of repaying them. As repayments were made, the money could be lent to the next person, and so on.
Now, take the case of John, living in a Canadian mill town. The mill where he worked was laying off staff. John's work was cut by half - and so was his paycheck. When he read in the local paper that a new type of barter system with a 'local currency' was being set up, he decided to go along to the first meeting. As he entered the town hall he was asked to list the goods and services that he was able to offer and those he would like to receive. Soon, the blackboard was full and the system explained to him:
'You can cut firewood. Susan, the local potter, needs wood to fire her kiln but you don't want pottery, you want groceries instead. That's where a barter transaction would stop. But it says up on the blackboard that the local grocery store is accepting 20 per cent of a purchase in the local currency on a particular day. So you call Susan and arrange to receive part trade dollars (or LETS dollars) and part national dollars. When she gets her wood, she phones the Local Currency Network office and says 'Hi, this is Susan, my account number is 263. Please credit John 100 trade dollars for providing me with firewood.' You can now take those trade dollars to the grocery store on Tuesdays. Meanwhile the grocer can buy vegetables from a local farmer for part trade dollars, and so on.'
Since 1983, LETS has increased local cash volume, solvency and employment and helped people to meet their needs while building community. It is now active in more than a thousand communities worldwide. Whereas national currency tends to flow out of town, the community currency circulates within the community.
The micro-credit and community currency systems are complementary. John, the under-employed millworker, could benefit from Grameen Bank-style micro-credit to start a new local business. While Farida, if she found that people in her community didn't always have enough money to buy her mats, would benefit from a LETS-type system whereby they could pay her with another good or service she would otherwise need to buy.
by Stephen DeMeulenaere, co-ordinator of Cambio Local en el Mundo en Desarrollo community currency research project, Mexico City. http://web.lets.net/ccd