Tag Archives: trade exchanges

Community Currencies — Questions and Answers

I receive a steady stream of requests for information and advice, which I’m not able to address as fully as I might like. For the most part, the answers that people seek have already been expressed in my various writings, presentation and interviews. Still, I understand and share the desire to save time and effort by finding shortcuts to enlightenment. So I take these inquiries as opportunities to rethink and work out better ways of explaining the ideas I’ve been trying to get across for many years.

Thinking that many of my followers might benefit from my recent responses, I’ve compiled some of them to share in this document.
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Q1: What is money and what is its purpose?

A: Money is a credit instrument that facilitates the exchange of value.
That’s a simply as I can state it.

Q2: Who can or should issue a currency?

A: Any business can issue a currency (essentially an IOU) to suppliers, who are willing to accept it. But to make it credible and acceptable to them, the issuer must be ready, willing, and able to redeem it in a timely manner. They redeem it by accepting it back as payment for the goods or services they sell. That’s all there is to it. But, it’s better if a group of sellers do this together with other others rather than singly. That can be done by organizing a mutual credit clearing circle (trade exchange) as I’ve described in numerous writings and presentations, e.g., Credit Clearing – Pure and Simple.

Q3: Why do communities adopt their own currencies?

A: There are various reasons why communities adopt their own currencies and there are various ways of issuing them.

Most of the hundreds of community currencies that have been issued over the past three decades in various places around the world have had the avowed purpose of keeping money circulating locally instead of “leaking out” to the wider world. The idea is that if money can be kept circulating within the community it will enable a greater number of local business transactions leading to greater community prosperity.

Most of these currencies have been backed by conventional money. That is all well and good, and there are various conditions and procedures that can be employed to maximize the impact, as I have described in my recent article, Monetary alchemy: how to turn bad money into good.

Another reason why communities issue their own currencies is to create “home grown liquidity,” i.e., to make up for the failure of the banking system to provide adequate amounts of exchange media to local businesses, especially the small and medium sized enterprises that for the backbone of every community economy. This type of currency is not backed by conventional money, but by the goods and services that local businesses stand ready, willing and able to sell. This type of currency may sometimes be spent into circulation by a single business then accepted back as payment for the merchandise it sell, but more typically, it will take the form of “trade credits” issued within a cooperative trading circle comprised of several hundred businesses and/or individuals. Illustrative of this are the scores of commercial trade exchanges that are operating in countries around the world, and the grassroots trade networks known as LETS, Local exchange trading system. For a comparison of the effectiveness of different models of currency and exchange systems, see my article, Local Currencies—what works; what doesn’t?

Q4: Do community currencies generally exist to solve a particular problem? In the case of Tenino, WA, I know the money is going primarily to low-income residents, but I’m curious why specifically they’re being given a local currency instead of cash aid in US dollars.

A: Yes, as described above, community currencies generally exist to enable more local transactions and/or to make up for the shortage of official exchange media (dollars).

I had not heard of the Tenino currency before, but after reading the article about it in the Seattle Times I understand that it is a dollar backed voucher currency in which theTenino2020 dollars are provided as a grant from the city government to eligible recipients. The city government may have their own reasons for giving out “a local currency instead of cash aid in US dollars,” but a couple obvious advantages of the local currency are that (1) it can circulate numerous times before being redeemed for dollars, giving a boost to the local economy, and (2) restrictions can be placed on how recipients can spend it. In the Tenino case, according to the Seattle Times, the local currency cannot be used to purchase alcohol, tobacco or marijuana. Of course some clever people will likely find ways to circumvent that restriction.

There are other restrictions that I would suggest be applied to maximize the benefits that derive from such a currency. These relate to who is allowed to redeem it for dollars (e.g., only local business operators), when they are allowed to redeem it (perhaps several months or years in the future), and on what terms (maybe at a 10% discount from face value). Each of these would encourage the local currency to change hands many more times and thus provide a greater stimulus to the local economy.

Q5: Does Tenino’s model resemble any other community currencies you’re aware of? How do these currencies differ from each other, generally?

The Tenino currency resembles a great many other local currencies around the world that are all backed by conventional money and follow the ‘convertible local currency’ (CLC) model. Examples include the Bristol Pound and Brixton Pound in the UK, Toronto Dollars and Salt Spring Island Dollars in Canada, and Berkshares in the US.

Further, Salt Spring Island Dollars and Tenino currency both have appeal as collectibles and will never be redeemed for dollars, thus providing a windfall profit for the community.

Q6: Many currencies base their value on how the public perceives its value. For example, the US dollar is the world’s most accepted currencies because people know they can spend it in most places. How do you convince individuals and businesses to use it and trust it?

A: Political currencies, like the US dollar, have the support of their governments and central banks. The US dollar has the “full faith and credit” of the US government behind it and it must be accepted “for all debts, public and private.” These are the factors that cause it to be generally acceptable as payment. As the global reserve currency, the US dollar is in high demand among the banks and governments of other countries, despite the fact of rapidly rising UD government debt and the dollar’s continual loss of purchasing power.

Community currencies do not have those same advantages so they must stand on their own feet as credible credit instruments. What makes such a currency credible, sound, and acceptable in trade is its redeemability either in conventional money, or in goods and/or services that are generally desired and needed.

Q7: If a community currency wants to survive for the long-term, what does it need to do?

To survive long-term, a community currency must be issued into circulation on a sound basis or foundation; it must be usable as payment for a wide variety of essential goods and services; it must be have the support of the local business community.

Specific design and operation details are provided in my various writings and presentations, including my article, How to Bring Liquidity Into an Economy, Free of Interest, Inflation, and Boom and Bust Cycles, and my most recent book, The End of Money and the Future of Civilization.

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2020 May Newsletter

In this issue

  • What could be nicer than this?
  • Planet of the Humans
  • The Need to GROW
  • Trade Exchanges and Credit clearing are No Longer Experiments, They’re Mainstream Business

There is so much going on these days, and so much I want to share with you that I hardly know where to stop. Yet, I do not wish to overwhelm my readers, so I’m choosing to keep my newsletters short. Whether they also become more frequent will depend on my own state of overwhelm and how the spirit moves me in the weeks ahead. In this edition I’m starting off on a lighter note with an amusing presentation by one of my longtime favorite authors. Oh, and by the way, there’s nothing in here about Covid-19. That’s not for lack of serious concerns or important sources to share, but I think we all need to take a break from it, so I’ll leave that for next time when we’ll get into it big time.
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What could be nicer than this?

Take a few minutes to relax and be amused. Whether or not you’ve ever been a fan of Kurt Vonnegut, as I have, I’m sure you’ll enjoy this lecture he gave in 2004 on the Shape of Stories.
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Planet of the Humans

This new and controversial documentary by Jeff Gibbs and Michael Moore lays out the hard, cold facts about our energy intensive way of living and the implausibility of renewable energy sources ever being able to replace fossil fuels. The inevitable conclusions are that we humans need to reduce our energy consumption, stop the growth of our population, and start making better public policy choices regarding infrastructure and technologies.

But vested interests have refused to believe the obvious facts and are intent of continuing on the present path in order to protect their material fortunes. In Tucson, where I live, tens of millions of dollars are being wasted on road widening projects just to deliver traffic more quickly to the downtown bottlenecks, a policy that in the process has been killing off more pedestrians and bicyclists and raising noise pollution to maddening levels.

The film has been controversial because it argues that the much vaunted shift to renewable sources of energy is an illusory savior, and the mainstream environmental organizations have been largely co-opted by corporate interests.  The movie is freely available for viewing at https://planetofthehumans.com/.

Among those featured in the film is energy and climate expert, Richard Heinberg of the Postcarbon Institute. Heinberg’s review of the film provides a more nuanced picture of our energy future and I encourage everyone to read it. The bottom line for me is my long held belief that there is no techno-fix maintain that will allow us to maintain the profligate ways of our current civilization, and that is a good thing because we are presently face with a multi-dimensional mega-crisis that is forcing us to transition to a different way of living that does not promote endless economic growth. I’ve also been arguing for a long time that we need to get off this perpetual growth spiral and shift our efforts away from ever increasing consumption and toward a Butterfly Economy that is in harmony with nature. If we do not make the necessary changes in the way we live, nature will do it for us.
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The Need to GROW

Speaking of living in harmony with nature, one of the most important things that we can do is to change the way we grow our food. This award winning documentary shows that it is possible. There are viable alternatives to industrial agriculture that are not only capable of producing an abundance of more nutritious food, but of saving the planet in the process. Get it here.
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Trade Exchanges and Credit clearing are No Longer Experiments, They’re Mainstream Business

This opinion piece by Paul Brandus appeared recently on the MarketWatch website: How small businesses can stay afloat during the pandemic without government help.

While still often referred to as “barter exchanges,” the scores of commercial trade exchanges operating around the world enable their business members to transact billions of dollars worth of purchases and sales annually without using conventional money. How do they do that? As I’ve been explaining for many years, established business members are given an internal line of credit in proportion to their sales volume, thus creating a new form of liquidity within the exchange that is independent of bank borrowing and conventional money.

The proliferation of trade exchange networks is a fundamental necessity in rebuilding the economy to be more resilient, fair, and democratic, and preserving the small and medium-sized enterprises (SMEs) that are the backbone of every community economy and political democracy.
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Monday, May 25 was Memorial Day in the United States. It is a day when we remember and honor all those who have fought and died in our many wars. Let us also remember the horror and utter waste that is the essence of war, and resolve to put an end to it forever.

Thomas

A conversation with Ron Whitney

In our latest Beyond Money Podcast we explore with Ron Whitney the evolution of the commercial trade exchange industry, which over the past 50 years has proven the workability of credit clearing as a way of doing business without the need for money payment.

Ron operated his own trade exchange for 15 years, and since 2007 has taken on the role of President and CEO of IRTA, the International Reciprocal Trade Association, the premier trade association of, and advocate for, the commercial trade exchange industry.

Ron shares his vast knowledge and insights about the current challenges, prospects, and opportunities, including a description of the benefits of trade exchange membership and the increasing use of Universal Currency (UC) to enable purchases and sales over an extended trade exchange network.

This interview can be found at: http://beyondmoney.libsyn.com/ron-whitney-irta, or https://soundcloud.com/user-27167973/ron-whitney-irta.

You can find links to all of our Beyond Money Podcasts in the menu at the top of this page or at https://beyondmoneypodcast.wordpress.com/.

Commercial Trade Exchange Architecture and Operations—A Conversation with Chip Davis and Charlie Davis by Thomas H. Greco, Jr.

Recently, I came across an article about what seems to be a significant development in the commercial trade exchange industry. Published on February 15, 2018, the article, TradeAuthority rebrands as Moxey with new digital currency, national expansion plans, tells about the expansion and rebranding of a commercial trade exchange heretofore known as TradeAuthority. Operating for the past several years in the Gulf Coast region of the southern United States, TradeAuthority has developed along lines somewhat different from most other trade exchange companies. I’ve had some peripheral knowledge of TradeAuthority for a long time but after reading the article I decided it was time for me to reach out to its founder, Chip Davis, with the intention of gaining a more detailed picture of how they operate and their plans for further development and expansion. The company, now named Moxey, is a network of 14 autonomous member-owned local trade exchanges, member ownership being a unique feature in the commercial trade exchange industry.

The key players in the Moxey enterprise are Chip Davis, founder of TradeAuthority and current  Executive Vice President of Moxey, Charlie Davis, President of Moxey, and Warren Sager, Moxey Vice President of Operations.

Some Key Questions 

In my message to Chip Davis, I posed the following questions:

  • What degree of autonomy do the various (14) exchanges in your network have?
  • Is it possible for a member in one exchange to buy/sell directly with a member of another exchange in the network? Does your platform provide that functionality or does the trade need to be pre-arranged with brokers in the two exchanges?
  • Is there a single Moxey ledger for the entire network or does each exchange have its own? If the latter, how are accounts reconciled among the exchanges, and how often?
  • Do you participate in UC? [UC is “Universal Currency,” a credit currency that many trade exchanges use to enable their members to buy goods and services from members of different trade exchanges.]
  • What are the factors you use to allocate lines of credit? How are they weighted? Are all exchanges in the network required to apply the same algorithm in allocating credit lines to their members?
  • You say, “Moxey intends to be a better Medium of Exchange by removing the concern of inflation.” How does it do that?
  • Is you online portal a complete marketplace that includes offers and requests? Vendor and client background? Reputation ratings?
  • When using the app or online portal, is approval of the transaction immediate?
  • You also say, “It also removes the extreme deflationary dangers that can exist in a purer form of money such as gold.” Can you explain that?
  • What additional functionality will be achieved by using blockchain? “The major thing behind all currencies is a trust and transparency in knowing the currency is strong and blockchain technology will allow an additional level of transparency,” says Warren Sager, Moxey vice president of operations. “It will allow our currency to become stronger and more trustworthy.” But that does not address the transparency of the credit allocation process. Please comment.
  • The trade exchange industry seems to have been for some time on a plateau or slow growth trajectory. How do you see moneyless trading alternatives evolving over the next few years, and how much of an increase in scale do you anticipate?

You can read Chip’s and Charlie’s answers, and our full conversation by clicking here. –t.h.g.

Local Currencies—what works; what doesn’t?

Local Currencies—what works; what doesn’t?
By Thomas H. Greco, Jr.

Community  currencies, and mutual credit clearing exchanges are key elements in the emergence of a new economic paradigm. These approaches to enabling the exchange of value are not entirely new, they have a long and varied history, but their enormous potential and possibilities have become widely recognized only within the past three or four decades. This is largely the result of increasing disillusionment with conventional money and banking systems, the emergence of Bitcoin and other non-governmental, non-bank currencies, and the growing interest in decentralized, peer-to-peer approaches in all realms of human activity.

The latest wave of exchange alternatives has seen the emergence over the past few decades of scores of commercial trade or “barter” exchanges, and hundreds, if not thousands of local currencies. The scores of commercial trade exchanges that have  been operating in many countries around the world for the past four or five decades enable moneyless trading among their business members, and collectively “clear” tens of billions of dollars’ worth of trades annually. Their success provides the strongest proof of the viability of decentralized, non-governmental, non-bank, moneyless exchange options.[i]

On the other hand, the plethora of local and community currencies that have popped-up all over the world have not been so encouraging. The avowed purpose of local currencies has generally been to keep money circulating locally instead of “leaking out” of the community. It is hoped that by keeping exchange media circulating within the local community, the vitality of the local economy will be enhanced and local businesses will be better able to compete with large global corporations and merchandising chains.

That is well and good, but it misses the main point of what ails our communities, and our world. It is the very nature of the dominant political money system that is problematic. So, localization is not the end in itself, but the necessary means to an end, which is personal re-empowerment and freedom; community resilience, sustainability, and self-determination; and the revitalization of democratic governance. Community currencies and exchange systems provide an essential tool kit for achieving those goals but they need to be designed in such a way as to make people less dependent upon political money and banks. So long as we remain harnessed to the dominant money and banking regime, there will be little chance of significant improvement in the human condition, in fact, the trend has been exactly opposite. ….  Read the full article or download the full PDF.

The Financial Times discovers mutual credit clearing

Journalist Edward Posnett, in an article that appears this weekend in the Financial Times magazine, describes the origins and operations of Sardex, a mutual credit clearing exchange that I visited last month and reported on here.

Posnett’s article, The Sardex factor, is fairly well written and begins with the subtitle: When the financial crisis hit Sardinia, a group of local friends decided that the best way to help the island was to set up a currency from scratch. You can read the full article here.

While I consider Sardex to be among “the best of the breed” and a trade exchange model worth replicating, it is by no means unique. Posnett’s article is well worth reading but I fault it on two counts, first for ignoring the scores of similar commercial trade exchanges that have been operating successfully around the world for the past several decades, and secondly for failing to emphasize the crucial importance of the value proposition that mutual credit clearing provides—the provision of liquidity to a local or domestic economy, independent of the banking system and without the disruptive and destabilizing imposition of interest.

There are several well run commercial trade exchanges but as I said in my interview at Sardex, most trade exchange operators are too complacent and satisfied with their modest levels of business success.

The ‘special sauce” that seems to make Sardex stand out is the underlying values and social mission of the founders. Their primary purpose in launching their credit clearing exchange was to help improve the local economy of their home island. I hope that will continue to inspire their operations and development in the years to come.

They have tried to assist entrepreneurs in six or seven other regions of Italy to replicate their design and operations, but told me that the results have been disappointing. I’m speculating that it may be for lack of that “special sauce.” If that’s the case, then successful replication will require that they work selectively with social entrepreneurs who share the same values and mission of serving the common good.

That seems to be quite a rare breed right now, so these people will need to be nurtured through a process of selection and education–perhaps somewhat akin to what the Jesuits have historically done. The need is for people who have the right values, strong motivation, and technical competencies to create the new socio-economic paradigm.

The interview that I gave at the Sardex offices during my visit focuses on The Changing Picture in Complementary Currencies and can be viewed in the post below or on YouTube at https://youtu.be/epOebHTQpDI. The pictures that I took are in my online photo gallery at, https://picasaweb.google.com/112258124863172998784/201508SardiniaItaly?authuser=0&authkey=Gv1sRgCILAwtjOyOetvAE&feat=directlink.

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Interest and the Role of Trade Exchanges

As cashless exchange becomes an ever more significant portion of total transactions in the economy, the regulatory issue will become a greater concern. It is important that trade exchanges NOT be perceived as issuers of credit, so as to avoid running afoul of banking regulations and possible tax liabilities. Everything that trade exchanges do needs to support the position that the role they play is that of “third-party record-keepers” and that it is the members themselves who provide credit to one another.

Paul Suplizio, former Executive Director of the International reciprocal Trade Association (IRTA), has expressed it this way:

“This means members with positive balances are the issuers of credit and the exchange has only administrative powers, delegated by the members, to regulate credit extension.”

It can be argued that the credit clearing process is simply one of generalizing (collectivizing) the longstanding practice of businesses transacting trades with one another on “open-account,” i.e., selling to one another on credit and allowing some period of time in which to pay.

It has properly been a cornerstone of the trade exchange business that there is no interest charged on negative account balances and no interest paid on positive balances. Therefore it cannot be argued that trade exchanges are acting as banks or lenders of money.