Rethinking Money

by Bernard Lietaer

  HISTORY REPEATS ITSELF?

  It’s impossible to prove that the ghastly years of Nazism wouldn’t have taken place if the grassroots currency initiatives had been allowed to thrive.

  What is known is that monetary crashes invariably leave people in fear, despair, and anger. This is an explosive social mix that irresponsible demagogues can and do exploit, even today. What started as a monetary problem in the former Yugoslavia, for example—exacerbated by the IMF readjustment program in the late 1980s—was swiftly transformed into intolerance toward “others.” Minorities were used as scapegoats by ethnic leaders to redirect anger away from themselves and toward a common enemy, providing the sociopolitical context for extreme nationalist leaders to gain power in the process. Within days of the 1998 monetary crisis in Indonesia, mobs were incited to violence against Chinese and other minorities. Similarly, in Russia, discrimination against minorities was aggravated by the financial collapse of the 1990s. With the fall of the Berlin Wall and the collapse of Soviet communism, it could be argued that the identified archenemy of the United States has now been supplanted with a new foe, immigrants and the poor. Today in the United States, there are some 1,018 identified hate groups compared to only 602 in 2000.18

  Another important lesson, and an expensive one in terms of human misery with regard to cooperative currencies, is revealed by the more recent economic crisis in Argentina.

  THE ARGENTINE CREDITOS

  As a model debtor nation, from 1991 to 2001 the Argentine government adopted all the policies suggested by the IMF, including privatization of government assets and a fixed parity between the Argentine peso and the U.S. dollar. Instead of leading to economic stability, however, these policies created an overvalued peso and a massive economic contraction.

  People at the grassroots level responded to the economic tightening with several mutual aid initiatives. In 1995, the first trueque (“barter”) clubs were started to enable groups of friends and neighbors to exchange goods and services. Trueque clubs soon spread throughout the greater Buenos Aires region and into other provinces. Various clubs then began to issue their own credito currency notes, and, by early 2001, there were several dozen currencies in circulation. An informal network, the Red Global de Trueque (“Global Trading Network”), allowed the different systems to interact.

  In December 2001, Argentina went into a financial meltdown: Banks closed for months, and people could not access their accounts. The peso suffered a massive devaluation, and chaos reigned. Without the availability of cash, huge numbers of people joined the trueque clubs to make ends meet, and the amount of trading in credito currency exploded. By July 2002, an estimated 7 million people were using cooperative currencies on a regular basis. By November of that same year, however, the trueque movement had shrunk back to about 70,000 participants, roughly a 99 percent drop.

  Sergio Lub is an entrepreneur born in Argentina and the founder of thank-yous, a global reputation currency used by the Friendly Favors network. Lub has traveled back to his native land frequently over the years and is very familiar with this chapter in its history: “The Papelitos system worked very well in the beginning. In 2001, when Tom Greco and I visited their clubs of trueque, they had hundreds of vendors who alternated as customers. They call themselves ‘prosumidores,’ a combination of ‘producer’ and ‘consumer.’ One participant could bring tomatoes from her garden and return home with ravioli for dinner, a voucher for a prepaid dentist visit, furniture, or fishing equipment, and all these goods and services exchanged hands at a dizzying speed using these crudely made papelitos, a substitute for money that people improvised to stay alive when banks closed and there was no more legal tender. They collectively have broken the illusion that people could not issue money on their own.”19

  Club de Trueque in Buenos Aires, 2001 Zona Oeste. Photo credit: Sergio Lub.

  Heloisa Primavera, a cofounder of over 200 barter clubs recalls, “We started off as part of a group of teachers and researchers in 1996. We were working with socially at-risk groups, such as homeless children, prostitutes, and former convicts, and trying to promote self-esteem and small jobs in the face of growing unemployment due to the structural adjustment plans imposed by the International Monetary Fund (IMF) to debtor countries, especially in Latin America. One of our activities was to train people to form knowledge exchange networks in which every member was supposed to both learn something and teach something else. This strategy came from the French group Réseau d’Échanges Réciproques de Savoirs. We created then the Economic Literacy Program, and the project expanded by leaps and bounds.”20

  Lub and Primavera see the reasons for the failure of the trueque movement as twofold: The value of the creditos became highly inflated because the money was fiat-based and run by a small group of leaders. Furthermore, the system, for the most part, was not transparent to its users; therefore, organizers were able to keep their actions secret.

  “Another major problem was that the creditos were primarily created as paper currency, without adequate safeguards against forgery. For example, in 2002, outside one of the big fairs, a couple of men were selling papelitos at a huge discount; you could buy $50 worth of creditos for $1 of official money. They were denounced, and a sympathetic judge ordered their arrest but had to release them the next day because counterfeit laws only protect legal tender. Furthermore, they were both employees of one of the large banks that had color copiers to make papelitos at will. To me it was clear that the bank, after reopening, counterfeited the people’s money as a way to destroy their competition and regain their monopoly on issuing money,” adds Sergio Lub.

  Such an accumulation of flaws provided ample temptation and opportunity for corruption, which led to the collapse of these systems. To aggravate the chaos, professionally counterfeited creditos had begun circulating, sabotaging the system.

  According to Primavera, “What we learned from this incredible experience in terms of governance is that money is a key aspect of democracy, that it is possible to distribute wealth instead of concentrating it, if we use social money. But we also learned it is very hard to sustain such a system, if a rigorous management is not available to promote permanent transparency of accounts and decision-making processes. Still, much deeper than the technical issue, we consider the aspects of human behavior that could explain the significant growth of Argentinean networks, which occurred exponentially during almost seven years: How was it possible that a group of 23 people became 2 million in seven years? Where can you find such an example anywhere in the world, without any external support? With only self-management of groups?”

  Lub reflects, “Ironically, we had already a transparent accounting system online with our thank-yous that could provide all the safeguards they needed to move their accounting online, where it would remain transparent and cannot be counterfeited (unlike cash transactions, every online transfer has to have a buyer and a seller to be recorded, so crooks cannot be anonymous). I offered our application as a gift to the leadership of one of the largest clubs, but the users were not computer literate and they were in a survival mode, unable to concentrate enough to learn how to access the Internet and make a transfer. So another important lesson for me was to do the preparations and training before the crisis starts. Today, I foresee the interface to be easier, thanks to cell phones, so people can access their accounts and make payments through their phones. I saw phones used to buy sodas in 2002 in Japan, and in South Africa in 2005, so eventually we shall have it in the United States as well.”21

  ROTTERDAM

  Curiously, even well-designed and successful currencies have hit the rocks. In Rotterdam, the Netherlands’ second largest city with the largest port in Europe, over 10,000 people participated in an alternative currency in 2001. The NU-card experiment was designed specifically to advance a long list of green activities, from taking public transport to recycling or volunteering. Green products could be purchased using ooins in one of the 100 participating shops. The currency was g
ood at the zoo and in cinemas, theaters, museums, and other recreational outlets. It was backed by the European Union and one of the largest banks of the Netherlands.

  The program was stopped after 18 months because the political climate in Rotterdam changed dramatically, following the assassination of Pim Fortuyn, an ultra-right-wing politician. Fortuyn’s party won half of all the seats in the city council in the elections that followed shortly after his death, and on assuming power, it halted all environmental projects in the city.

  “What we learned from this experience was invaluable. It is critical that all key players are stakeholders in the process,” Edgar Kampers submits.22

  It would be wise to heed history’s hard lessons. This is even more important today as there are greater possibilities for successful applications, given the convergence of new technologies, more access to information, and the maturity of local and regional currency system designs. Additionally, governments are learning that affording greater opportunities to their citizens bodes well for society and avoids the circumstances that give rise to civil unrest and turmoil.

  So what are the design features that bode well for a sustainable currency strategy?

  Chapter Eleven

  GOVERNANCE AND WE, THE CITIZENS

  An Ancient Future?

  The economy of the future is based on

  relationships rather than possessions.

  JOHN PERRY BARLOW, former lyricist for

  the Grateful Dead and founding member of

  the Electronic Frontier Foundation

  Bali is a small island in the Indonesian archipelago that fervently embraces and preserves its Hindu culture, though it is situated in a huge, mostly Islamic nation. What makes Bali compelling is the longevity of its complex cooperative currency system, which is inextricably interwoven with its cultivation of rice, allocation of vital water rights, celebrations of festivals, and hyperdemocratic system of governance.

  From this ancient civilization, there are gripping and undeniable guidelines and strategies that may have some useful lessons relevant for our collective future.

  The community at large is organized into three main networks:

  • Banjar: the most important civic organization, which is in charge of the social aspects of the community

  • Pemaksan: a group responsible for the coordination of religious rituals

  • Subak: water irrigation cooperatives for rice production

  John Stephen Lansing, a professor at the Santa Fe Institute whose research explores the ecology, common property, and social theories of Bali, as well as integrative modeling of environmental changes, explains that an agrarian system of rice cultivation flourished there for almost 1,000 years.1 Then, in the 1970s, the World Bank insisted, as part of its financial aid package, that the “unsophisticated traditional methods” be replaced with modern techniques and know-how, coupled with the use of chemical fertilizers. The well-documented experiment was a disaster, causing crop failures and massive ecological issues, such as the depletion of large swaths of native coral reefs. It was then decided that the customary agricultural practices could be reintroduced. So the Balinese went back to producing two bountiful crops a year while managing pest control naturally.

  Interestingly, what Lansing and his associates demonstrated, using agent modeling,2 is that the Balinese traditional, socially complex, multitiered, hyperdemocratic methods of sharing precious water, along with the timing of planting and harvesting, mirrored their optimal scenario for the environment at large.

  Intertwined with their time-honored agricultural and social practices is the longest-surviving cooperative currency ecosystem in the world. Before Indonesian independence in 1945, the conventional currency was the Dutch guilder, followed by the Indonesian rupiah. Working in parallel with this conventional money is a social currency networked through the Banjar system, which has been in use since before written records. Everyone in the Banjar is obliged to contribute to the well-being of the community by helping with jointly decided projects. The Banjar system extends beyond religious or cultural events and may include civic activities, such as support for building local roads, especially when the central government is unable to provide funding. In short, local resources are mobilized regularly to support a full spectrum of undertakings, whatever the community chooses to focus on. It is this system of mutual cooperation and assistance that accounts for the resiliency of Balinese culture.3

  Additionally, a physical form of money—an odd-looking Chinese coin with a square hole in its middle called the uang kepeng (“coin money”)4—was also used. This coin money was minted in China and used as trading tokens, much in the same manner that trading beads were used in North America by indigenous peoples.5 This coinage was outlawed, however, in the 1950s.

  “Chinese money, known also as pis bolong in Bali, has circulated as a local medium of exchange here for at least the past 1,000 years and only ceased to be used for local purchases in the early 1970s. Up until that time, a Balinese could use uang kepeng in many ways, from buying meat and vegetables in the market or snacks in front of the school, to watching movies with friends at an outdoor theater,” says Stephen DeMeulenaere, founder of the Cooperative Currency Resource Center and a long-term resident of Bali.6

  According to DeMeulenaere, uang kepeng became the official medium of exchange of the Banjar and could be taxed, spent on public works projects, and circulated as a fully functioning currency. Thus its significance to Balinese society was formalized.7

  It was only when new national banking and currency laws were put into effect, after Indonesia gained its independence, that the Balinese were forced to accept the Indonesian rupiah in place of the uang kepeng.

  “The decline of uang kepeng as a medium of exchange corresponded with a shift in economic behavior toward earning the Indonesian rupiah. Although many significant elements of traditional life remain vibrant in Bali, mostly thanks to the Banjar-based social currency, the monetary protection blanket they once had with uang kepeng has been stripped away, leaving the Balinese people and society increasingly vulnerable to situations beyond their control and subject to the same financial and consumption pressures faced by all of us living in the modern world,” DeMeulenaere adds. The social currency, the nayahan Banjar, continues today as the mainstay of the Banjar system and has served to partially fill the void created by the banning of the uang kepeng.

  The Balinese system of governance is of particular interest. A leader of any given Banjar is elected by a majority vote of members and, though this is rare, can be dismissed by another majority vote at any time. He or she receives no remuneration for this role. Anthropologists Clifford and Hildred Geertz describe the leader as “more an agent than a ruler.”8

  Each family has one representative in the krama, the Banjar council, in which every member is considered equal and has one vote. No special status is granted to wealthier or higher-caste members. When addressing one another in the krama, they do not use the formal form of language for those of a superior class, which is a prerequisite of daily interaction outside a Banjar meeting. At monthly meetings, new activities are proposed, and ongoing projects are discussed. The contributions of in-kind and conventional money for each project are then decided on, customarily by a majority vote. In short, the Banjar functions as a community-based planning and implementation organization, and it budgets all its activities in two currencies: the national currency and the nayahan Banjar time currency.

  Modern-day pressures on Balinese society, as in any developing country today, are increasing and whittle away relentlessly not only at indigenous culture but also at resources. Stephen DeMeulenaere adds poignantly, “Property values have as much as tripled in the past couple of years, especially following the success of the popular book and movie Eat, Pray, Love. The rice fields are being abandoned and sold to the highest bidder, and resorts and hotels are being built in their place.” 9

  To romanticize the Balinese experience would be a mistake, but to
dismiss its many teachings out of hand would be one, too. The rhetorical question of the relevance of some small island’s curious culture could well be proffered. The answer is that they have managed their resources and culture for centuries through a multitiered, highly participatory democracy that has survived countless foreign intrusions. There is a clear distinction to be made, nonetheless, between wisdom and education. One can be a lowly farmer toiling on the lands of the Ngong Hill in Kenya or be pushing a broom in some sweatshop in Shanghai, have little or no formal education, and be truly wise. The corollary to that also stands.

  A modern governance system, although very different, reflecting the fractal nature of the Balinese system, is holacracy. Its structure and procedures integrate the collective wisdom of people while aligning a venture, network, or business with its “broader purpose and a more organic way of operating and the result is dramatically increased agility, transparency, innovation, and accountability.”10

  DEMOCRACY, TRANSPARENCY, AND ACCOUNTABILITY

  The key aspects of the Balinese cooperative currency system—democratic governance, transparency, and accountability—are clearly necessary conditions for a cooperative currency to succeed over time. These are the same lessons learned from the Argentinean debacle, for instance, that convinced the German regio movement to incorporate the following principles into their eight conditions for a currency to be granted the use of the regio label, according to Margrit Kennedy, the initiator for the regio movement.11 These conditions state that these criteria need to be satisfied: