The Emerging Web-based Non-governmental Global Exchange Network – Part I

[This blog entry is based upon recent (April 2006) correspondence between me and several others in the monetary transformation community.]

There are a number of developing software systems that can enable a private, independent exchange network to be built. These are coming from both the grassroots, not-for-profit sector, as well as from the commercial “barter” or trade exchanges and are now being activated.

One notable example of the former is the CES system that has been developed by Tim Jenkin in South Africa (http://www.ces.org.za/index.asp). Tim deserves much credit for actually building and operating a platform that will enable mutual credit clearing exchanges to network together on a wide (even global) scale. Tim has provided a way for exchange alternatives to go mainstream and really make a difference in people’s lives. There are still a number of issues that need to be addressed in making the network perform effectively and to avoid problems. Tim and I, along with a few others, have been discussing these. Some differences of opinion exist, but here are some of my thoughts on the matter.

The most well-know type of mutual credit clearing system is LETS (Local Exchange Trading System) that was originated more than 20 years ago. I consider LETS to be a brand name, and indeed, LETS originator Michael Linton does too. One should note the specific design features that are prescribed in the various LETS documentation. I prefer to use the generic term “mutual credit clearing system” to describe the kinds of cashless trading circles that have evolved from the original LETS concept. Most of the hundreds of LETSystems that have been started have deviated at least somewhat from what Linton would consider LETS. Credit clearing is the highest level in the evolution of reciprocal exchange (which is the main purpose of money) and we should clearly recognize it as such.

In a paper prepared for a conference in New Zealand, Tim Jenkin states that CES “is a new money system that attempts to link diverse complementary currency systems into a global network that will one day challenge and, hopefully, replace the unhealthy global money system.” That is my hope as well, but if local systems are going to interoperate smoothly, they must conform to some common standards and protocols. Yes, we want to preserve local system autonomy while creating a globally useful exchange network, but it makes sense to not try to mix things that may not becompatible. Unless proper standards are adhered to, there will develop imbalances that could jeopardize the entire network. As a comparison, if you want to generate your own electricity that’s fine, but if you want to feed it into the grid, it had better conform to the agreed upon network standards, i.e., it must be the proper frequency and voltage, and the interface should have proper safeguards like circuit breakers and surge protectors, etc. to protect the network from local anomalies. You get the idea. There is a science of networks that we need to be cognizant of.

Other remaining issues that must be dealt with:
1. Limits on account debit balances (and possibly credit balances, also).What should they be and how to set them?
2. Dormant accounts. When does one recognize a “bad debt” and write it off?You can’t just pretend that someone who died three years ago is still alive, even if he’s still breathing.
3. Balance of payments problems among the various local systems. Just as individual accounts must be held within proper limits, trade imbalances between local systems cannot be allowed to become extreme.
4. How do these procedures and protocols get enforced?

We are literally reinventing money, and we must therefore understand sound principles of money and banking, AND APPLY THEM. Yes, practice can inform action and we have hundreds ofyears of experience with money and banking that can inform what we do. We’re reinventing money and banking on the basis of a different set of (more humane and beneficent) values. The dysfunctions inherent in the dominant system stem less from a lack of understanding than from political interference and manipulation. We’re not starting from scratch here. There are sound banking principles and past monetary and banking experience that can be applied in addressing the issues mentioned above. The main task is to get the FINANCIAL architecture right. The programs can then be written to conform to that.

The social, political, and economic are all inseparable aspects of human relations. Change in one aspect causes changes in the others. The main issue here is how to create systems of reciprocal exchange that empower people generally, not just some elite group. I think the key lies in organizing on a foundation of small, human-scale, autonomous units AND networking thoseunits into something that is globally useful, something akin to how we have networked micro-computers into the internet and worldwide web. Keeping power at the base level requires that these units be small (perhaps less than 150, as per the rule that Malcolm Gladwell describes in The Tipping Point) and that people stay active and take responsibility for what happens in their group.