speech by Professor Bernard Lietaer, designer of the Euro and
complementary currencies expert, delivered at the LETSLINK UK
Complementary Currencies Conference, October 16, 1998
The Future of Money
From Global to Local
extracted from the May 1999 newsletter
(Transcription and editing by Jan
I have been looking at money for 25 years from many perspectives,
through my careers in central banking, currency speculation,
financing developing countries, in academia and business.
Every time I have been exposed to a different dimension of
money, and have had to change my whole view of the money system.
beings that know the least about water are the fish. We are
all fish when it comes to money. It therefore takes an extraordinary
effort, or luck, to see the whole picture.
to be discussed
My first point is remarkably similar to the point made
by Jan Wyllie, the previous speaker. I would say it is amazing
that coming from such different backgrounds, we have actually,
without coordinating or agreeing, ended up with roughly the
same analysis ‹. The
second point I want to talk about is the role of the many
different types of complementary currencies. LETS is the 'Bible'
in the UK. But there are many other different forms operational
elsewhere, from which we can learn.
will have also three proposals.
1. It is time to go mainstream, come out of the margins and
work at the level where changes are being made, because we
will be propelled into that position by the troubles in the
main system. Let's not be reluctant to press home the point.
The second has to do with using the demurrage system in developing
truly sustainable complementary currency systems.
And finally I will propose the formation of an automatic clearing
house for complementary currencies using the Internet.
happening in the Global Economy
current turmoil of the conventional global currency system
did not happen in one fell swoop. It has built up over 25
years. The process started in 1971 when we moved away from
the Bretton Woods Agreement, when the US dollar was detached
from its connection with gold. I am not a gold bug, but it
was the first time in history that we entered a world of floating
fiat currencies. This experiment is now coming to a rather
second ingredient is the near universal acceptance of open
financial systems as the best thing since sliced bread. Deregulation
started in Britain with Thatcher, spread to America with Reagan,
and from there to the world. In the early 1980s, 17 Third
World countries became pioneers of deregulated open financial
systems as a US policy response to the Less Developed Countries
third ingredient has been the creation of a fully integrated,
computerized global foreign exchange market.
result of these three changes can be seen in the growth of
speculative foreign exchange transactions. In the 1970s the
volume per day of speculative foreign exchange transactions
represented between 10 and 20% of all foreign exchange transactions.
Now the figures indicate that the tail is wagging the dog.
speculative foreign exchange tail is now 98% of the total
foreign exchange transactions. Foreign exchange transactions
for the purpose of international trade, is now only 2% of
reason is the invention of a fourth class of asset where money
is invested, after real estate, bonds and stocks. This fourth
asset class is currencies.
is now the biggest of all asset classes being traded 100 times
larger than the trading volume of all stock markets in the
world. The amount of foreign exchange traded grows at the
breakneck rate of 20-25% per year, while the real global economy
grows at only 3% per year. It is clear that the situation
is not stable.
consequence according to Paul Volcker, the former governor
of the US Federal Reserve is "We now have a growing constituency
for instability". Traditionally, big money was on the side
of stability, along with governments. Now we have big money
partially on the other side of the table, actually making
money from instability. The total volume of the world's central
bank liquid reserves is about $250 - $350 billion. So the
whole thing could be blown out in 2-3 hours of active trading.
follows from this situation is now front page news. The Mexican
financial crash of 1994-95 was the prototype of the subsequent
financial crises, a model of how the other ones are going
to be. Nobody is in charge, a system without rudder. The Asian
crisis (1997) and the Russian crisis (1998) are part of the
same process of economic dislocation caused by the rapid flow
into and out of national currencies.
system has gone unstable. When I break something like a pencil
it cracks all at once. However when something which is dynamic,
it vibrates and pulses in waves first, before it falls apart.
What we are seeing in the news are these growing dislocation
waves. The next wave could be Latin America, Europe, or even
the US next. None can resist.
financial regulators are not alarmists. It is the one domain
where you do not say you have a problem. If you say you have
a problem, you are going to have a bigger problem.
the warnings by the likes of Camdessus, Rubin and Greenspan
are particularly significant in this context. My
personal opinion is that we have at least a 50-50 chance --
trying to be kind of optimistic -- that this thing will fall
apart in the next three to five years.
consequences of that are dramatic. Jan has explained some
of them. The likelihood is very low that the necessary consensus
to implement corrective actions by governments and businesses
will be reached in time. So we have to face the probability
that the whole thing can fly off the handle.
the Euro -- I know this is a hot topic in the UK -- I think
that Europe does not have a chance to have any influence at
all on its monetary future unless the Euro happens.
we did not have the Euro, Spain and Italy would already have
had to devalue by 25%. With 20% unemployment, as is the case
in Spain, it is inhuman not to ask the government to devalue.
would then have to follow up with the same policies. We would
be in a 1930s type competitive devaluation spiral. The Euro
is a way of avoiding this danger. Without the Euro, the integration
of Europe would fall apart in three to six months.
I think the Euro is good only if at the same time there are
social policies that provide the safety net below the national
other words, we will be better off
with the Euro and 500 local currencies in France, than with
the French franc by itself. And Britain in that sense has
been pioneering with the highest density of local currencies
in the world. So you are actually doing what I am talking
about, although it still remains marginal. I think the time
to question the marginality is now.
are of course negative aspects to the Euro. The main one is
that the larger scale of production and marketing units will
is particularly true because the Euro will be a strong currency,
a tight, tough ultraliberal form of currency with the consequence
that its political viability will only be maintained in the
long-run if we do something at the social level with complementary
European bank will out-Bundesbank the Bundesbank for the first
three or four years in an environment where there is 12% average
unemployment. Something has to give. We must not go back,
but we must jump forward with the Euro and a centipede of
complementary currencies. We have the real possibility that
the Euro could help propel the multiplication of complementary
role of complementary currencies
need to find a way of healing the social fabric of the community.
By the way the word community itself means "to exchange gifts".
The main reason that community has been falling apart as modern
progress has been steaming ahead during the last century is
that monetary exchanges of an artificially scarce currency
have replaced previously informal gift exchanges.
reason that Japan, for example, has by far the strongest social
fabric among all the developed countries is the strong survival
of the tradition of butsu butsu kokan or "object-object exchange".
I give you something I make, a little poem or drawing or tea
ceremony and you'll do something else another day. And they
perform these small gift exchanges in all kinds of environments,
among workers, neighbours, guests ‹ it's
a perpetual gift exchange which is the hidden mechanism which
keeps the fabric of Japanese society together.
contrast, conventional national currencies are designed to
be competitive and scarce ‹ artificially
scarce. Typically, there will be almost a third of society
for which money will be unbearably scarce. So we have had
to invent tricks, often inefficient devices, such as progressive
taxation and welfare, to make available to these people some
medium of exchange.
am not saying that such a process involving national currencies
is bad, but I claim that they need to be complemented by the
availability of other, non-scarce currencies. The solution
you are all familiar with. We need the two sides -- national
and complementary -- to be active at the same time.
see only one part, the competitive economy that is mediated
by the national currency. The other part is forgotten, for
example work that used to be done traditionally mostly by
women, in an "invisible" gift economy. We need to find new
tools to fuel that other economy. The mutual
credit systems of which LETS is one type, the most frequently
used type in the world, is a currency that is compatible with
a gift economy precisely because it is not scarce or programmed
for competition. You make it as you go along. As soon as we
have an agreement between you and me, the currency is there.
We don't have to compete for it. That is why the complementary
currencies are feeding the cooperative economy.
the US, they call any currency that is not the dollar or the
pound "alternative". This word is a trap. An alternative basically
implies that it could be a substitute and these cooperative
currencies are not a substitute. Do not have the illusion
that they will become true substitutes. Do not expect to pay
for your gasoline or telephone services with complementary
currencies. It is a complementary tool, which is doing things
which national currencies can't do and are not designed to
do. Finally, complementary currencies also provide a safety
net below the existing system.
in 1998, my latest database has 1650 complementary currency
systems operational in the world. [As of February 1999 there
are over 2.000]. Britain was not quite the pioneer, but definitely
has the largest number.
like the case of France because it demonstrates the speed
at which this complementary currency development can happen.
Since 1994, 250 systems came into being. This proves that
when conditions are right -- high unemployment and social
needs for which national currency is not available -- complementary
currency systems can come into being very quickly. Unfortunately,
I think these conditions are about to become more prevalent
is also important to realise that this is not the first time
that local currencies have appeared. In the US for example,
in the 1930s there were over 5000 local currencies. Some were
more sophisticated than those we have today, such as the stamp
script currencies inspired by Silvio Gesell. It also happened
in America in 1857 and during the Civil War.
is a real first today is that complementary currencies are
beginning to flower before any crash. That is interesting.
Somehow there seems to be a collective wisdom in action. It
also could be an unconscious sign that the next crash is going
to be a big crash. Just in case, you better get ready and
fasten your seat belts.
currencies - Fiat money, run by central banks.
Hours - Paper fiat currencies issued at Potluck dinners,
39 - 40 systems. Its weakness is that someone has to decide
how much to issue. Although it is more democratic than central
banks, potluck diners are liable to make the same mistakes
as central bankers
- Mutual credit. Its main power is that the quantity is
always in exact correct supply. This is the dream of the central
banker, which he can never realise. Main weakness for those
that use a national currency equivalent for their unit of
account: if you had LETS in Russia or South America they would
have collapsed at the same time as the national currency.
If the national currency collapses, so will the value of the
LETS currency. You may want to consider that aspect. It may
help shops become involved in a LETS scheme, though. Those
that use a combination of time based and negotiated value
independent of national currency value are free from that
/ European model community currency exchanges - Also known
as LETS Schemes. Mutual credit, as well. There are
more than 900 exchanges in the UK, France, Germany and the
Netherlands. Major differences include locally determined,
negotiated value (trend: moving from being pegged to national
currencies with negotiated hour exchanges, through to standard
rates per hour, with real value of currencies arising from
the total value of community exchanges). It is community organised
and democratically controlled. Its prime objective is adding
value to the social economy.
Dollars - Mutual credit with the hour of service as the
unit of account. My feeling is that this is the most robust
system currently available. The main weakness is not structural,
but a rule that one hour has to be an hour. The brain surgeon's
hour is not the same as the gardener's hour. It may not be
politically correct to believe that, but I suspect you will
not have many brain surgeons operating on Time Dollars, and
if a brain surgeon accepts at this rate, I would be worried!
a number of activities there are legitimate differences in
the value of work, for example due to the need of long training
and expensive equipment. Insisting on that totally eqalitarian
rule will simply imply that a number of people will not trade
in that currency. People will lose on both sides. I say let
a dentist charge five hours for one hour. I don't mind. However,
there is strong evidence that such price differentials narrow
when people trade using flexible time dollars.
- Only fully mature complementary currency system has
now 80,000 members. Total volume of trade is equivalent to
over $2 billion per year. Shows the scale to which it is possible
Health Care Currency - In Japan, there are 1.8 million
handicapped people who need daily care. They created a system
where people are paid in hours for (say) helping the lady
down the street with shopping and house chores between 9 and
5. When it is outside 9 and 5, the rate is 1 1/2 hours for
an hour. When people do body care, the rate is two hours per
hour. People put their time credits in a savings account with
a monthly statement with the number of hours they have. They
can either keep the hours for themselves for when they are
sick, or they can give it to their parents who may be living
on the other side of the country. Two private clearing houses
have sprung up to perform that function, and the government
is considering creating a national clearing system.
was most fascinating to me about this complementary currency
service is that people prefer the service paid in the health
care currency to the same service paid in Yen because it is
more caring. While a professional paid in Yen gives only a
standard service, the little old lady I am helping represents
my mother, so I am inclined to give a bit extra.
difference in quality is something which economists cannot
see, but is extraordinarily important. One way that I recommend
that LETS in the UK launch itself into the mainstream with
the Blair government is to model itself on the Japanese Health
an Ideal hybrid - The last system doesn't exist. It is
a hybrid of the most robust elements. Hour unit, mutual credit,
negotiated exchange rate. I believe that will resist almost
have three ideas to offer you. Some may be controversial.
I believe they show a way that what has started can flourish
and become mainstream. First, I think it's time to come out
of the woodwork. It is time to talk to power and government
local, regional, national, European -- about what you are
doing. I think you need people who can speak the language
that Blair, for instance, can hear.
time to make the complementary currency movement legitimate
by implementing robust designs, sound structures, and develop
a plan that makes sense. I think what has been done in the
UK so far has been extraordinarily productive, and I have
great admiration for anyone with the strength and patience
to get any system going because I know the work it represents.
Too often, the amount of dedication necessary is not appreciated.
second recommendation is the concept of demurrage charges.
Usually, the costs of running the system are absorbed or written
off. I think this is not sustainable. Typically LETSystems
die when the originators of the systems are tired and fed
up. Demurrage is the answer.
third is the automated clearing house.
words about each of these ideas follow.
don't know what your agenda is with public authorities, but
I would suggest that there is a valid case for tax deductibility
for transactions performed in complementary currencies. Time
Dollars managed to obtain that status with the IRS, the toughest
tax regime in the world. It is time to put this on the political
agenda. It will take five perhaps even ten years, but it is
be technology shy and don't be technology dependent. And involve
local businesses. This is something LETS has not tended to
do. There is a systematic advantage for small business to
make a deal with you. Why? Small local businesses can use
the currency. Chains cannot. Go to the locally owned smaller
businesses, because you have a case to make -- complementary
currencies can be their best way to compete against the large
scale chains. Use mixed payment systems on smart cards. Make
a deal with Mondex, or other smartcard applications, they
are already set up to deal with multiple currencies.
I would say connect to other applications, such as health
care, which may be sector and application specific. Make your
local LETS convertible to health care units which can be used
regionally. The Time Dollar and Japanese model has some value
of precedent here. It will help in reinforcing the perception
of value of your local currency, and help in mainstreaming
demurrage. Any service has a cost. I think the people who
do LETS administration work should be paid in a mixture of
national and local currency. The way to feed overhead or project
expenses has traditionally been service charges or transaction
charges which -- thinking about it systemically -- do exactly
the opposite of what you want. They penalize trading and therefore
give an incentive to hoard the currency, the opposite of what
is desirable. Transaction charges are a carry over from the
official bank-debt money system. One result of this hoarding
incentive is that the promotion of the system will be left
to the initiators. Most members do not feel the pressure to
sell the system to new people.
charges change that dynamic. Silvio Gesell's idea was to calculate
charges on the balance, not on the number or value of the
transactions. Demurrage is a time-related charge on balances,
equivalent to a negative interest rate. Both the positive
balance and negative balances would attract such a charge,
in order to give an incentive for both sides to trade. The
ideal situation for any member is to have a zero balance,
but with many frequent trades on both sides. Demurrage provides
an automatic incentive to go in that direction.
the way demurrage is not inflationary. The unit of account
keeps the same value. It simply provides a disincentive to
hoard. What usually happens when complementary currencies
are introduced? People always ask what do I spend it on? With
demurrage, they start looking themselves. Varying the per
cent of "rusting" according to the size of the balance can
provide further refinements in the incentives.
Automated Currency Clearing House
final proposal is a complementary currency clearing house
(CCCH). Cyberspace is the first Yin space that exists. In
other words, it is the first self-organising, decentralised,
non-controllable, non-limited space. Physical space is not
of that nature. Cyberspace is therefore the ideal space for
different paradigms to co-exist. From the complementary currency
viewpoint, the clearing house amounts to adding one member
to your community, which is your computer. You would have
access to trades which would otherwise not be available, while
still keeping the management of your local currency completely
local. I believe cyberspace will be important for creating
jobs in the future, and denying it is just depriving yourself
of such a possibility.
way to handle this opportunity best would be to set up a complementary
currency clearinghouse. Each participant pays and receives
only his or her own currency. The CCCH accepts trades of each
participant community up to a maximum debit of the outstanding
internal accounting of the CCCH would be in hours. So for
currencies based on hours, there is no need for an exchange
rate. Otherwise an exchange rate has to be agreed for the
hour. This is a way of not losing the identity of each group
and complementary currency type, while providing opportunities
for new trades.
conclusion: The importance of diversity
conclude, I believe it is important to have a variety of systems.
What is really happening is prototype experimentation. Nobody
knows where this is going in the long-run. Nobody has the
Bible. I certainly don't claim to have one.
think it is important to experiment with different systems.
Practice is ahead of theory, here.
are doing things that theoreticians haven't got the theory
for yet. So go on doing it. Don't be afraid of experimenting
with something new, while learning from other experiments
around the world.
I think it is important to cooperate among systems, a process
which a meeting like this is already doing.
Bernard Lietaer, Letslink UK
Complementary Currencies Conference, 16/10/98