Complementary Currencies for social change

An Interview with Bernard Lietaer. Part I

by Ravi Dykema courtesy Nexus Magazine

What is money? And how well does it work to solve society's ills? Bernard Lietaer, author of Access to Human Wealth: Money beyond Greed and Scarcity and The Future of Money has made a life's work of exploring these questions. Lietaer has been involved in the world of money systems for more than 25 years, and his experience in monetary matters ranges from multinational corporations to developing countries. He co-designed and implemented the convergence mechanism to the single European currency system (the Euro), and served as president of the Electronic Payment System in his native Belgium. He also co-founded one of the largest and most successful currency funds.

RD: You're very experienced on the world stage with currencies and money - it's the world you've moved in much of your life, right?

BL: Yes, both in the area of conventional money such as the Euro and more recently with less conventional money systems. Below the radar beams of official thought, there has been a resurgence all over the world for the last 15 to 20 years of what I call complementary currencies, currencies that are operating on a smaller scale than the national level, and that can solve social, environmental and education problems.

RD: People think of someone who works with currencies as being a materialist. Yet it sounds as if your interests are towards social change through complementary currencies. How did you come to be interested in this other dimension?

BL: The reason I went to the Central Bank in the first place was to check whether it was possible to improve the conventional money system from within. I had been working for a number of years in South America, and I had seen the damage that the existing money system has created on a huge scale in Latin America.

RD: You thought it was the money system and not just the governments?

BL: It's a chicken and egg story: unstable currency equals unstable government. There is practically no way today for a developing country to have a reasonable monetary policy within the current rules of the game. Joseph Stiglitz, Nobel laureate in economics and formerly head economist at the World Bank, makes the same claims in his book Globalization and Its Discontents (Penguin, 2002). Whether you fix your currency to the dollar or let it float, you end up with an unmanageable monetary problem, like Brazil, Russia or Argentina have experienced. Eighty-seven countries have gone through a major currency crisis in the last 25 years. Their fiscal policies are imposed by an International Monetary Fund (IMF). I am afraid that if the United States had to live by the rules that are imposed on, say, Brazil, the United States of America would become a developing country in one generation. It's the system that is currently unstable, unfair and not working.

I don't want to spend a lot of time and energy attacking the existing system. It is an obvious fact that America is the sole super power. But when people say, "Well, there are fiscal crises in other countries because the governments are less stable," my question is, "How long would any government last in a country if you had to repeatedly cut back on education programs, social programs, building roads and all other programs?" How could that make a stable democratic government possible? Like I said, it's a chicken and an egg sequence.

There is no way of winning in the current monetary game, particularly for the less developed countries. It's not accidental that investments in the Third World have dropped proportionally by a third since 1975. Currently, investments happen mainly between developed countries, and that trend isn't going to create a sustainable world anytime soon.

RD: So the Third World is just being abandoned?

BL: Yes. Entire continents. Africa for instance has been dropped off the world economic map for most practical purposes.

RD: And re-envisioning and re-engineering money itself could change this?

BL: Correct. And the good news is that such re-engineering of money has started to happen if one knows where to look. What do you think a frequent flyer mile is, but a currency issued by an airline? In Britain, you can go to J. Sainsbury, the largest supermarket chain, and use British Airway miles to buy your goods. Initially, it was only designed as a loyalty scheme for people taking planes. Today, you can earn this currency without ever taking a plane. On Visa cards you get miles. And you can use them to pay long-distance telephone calls, taxis, restaurants, hotels.

First, let's define what a currency is, because most textbooks don't teach what money is. They only explain its functions, that is, what money does. I define money, or currency, as an agreement within a community to use something as a medium of exchange. It's therefore not a thing, it's only an agreement - like a marriage, like a political party, like a business deal. And most of the time, it's done unconsciously. Nobody's polled about whether you want to use dollars. We're living in this money world like fish in water, taking it completely for granted.

Now the point is: there are many new agreements being made within communities as to the kind of medium of exchange they are willing to accept. As I said, in Britain, you can use frequent flier miles as currency. It's not a universal currency, it's not legal tender, but you can go to the supermarket and buy stuff. And in the United States, it's just a question of time before privately issued currencies will be used to make purchases. Even Alan Greenspan, the former governor of the Federal Reserve and the official guardian of the conventional money system, says, "We will see a return of private currencies in the 21st century."

RD: In other words, private currencies are coming back. How would that change the circumstances for poor people, for the Third World?

BL: I gave you that first example of a “commercial loyalty currency” only because it would be familiar to most readers. But in addition to those commercial private currencies, there are now more than 4,000 communities around the world that have started their own currency for social purposes as well.

For example, there are about 300 or 400 private currency systems in Japan to pay for any care for the elderly that isn't covered by the national health insurance. They are called "fureai kippu" (caring relationship tickets). Here's how they work: let's say that on my street lives an elderly gentleman who is handicapped and cannot go shopping for himself. I do the shopping for him. I help him with food preparation. I help him with the ritual bath, which is very important in Japan. For this help, I get credits. I put those credits in a savings account, and when I'm sick, I can have other people provide such services for me. Or I can electronically send my credits to my mother, who lives on the other side of the country, and somebody takes care of her.

Here is an agreement within a community to use as medium of payment something other than national currencies, to solve a social problem. And it makes it possible for hundreds of thousands of people to stay in their homes much longer than they otherwise could. Otherwise, you'd have to put most of these people into a home for seniors, which costs an arm and a leg to society, and they're unhappy there. So nobody's winning. In contrast, Japan has created a currency for elderly care.

In the United States, Florida is the only state that has the same density of elderly people as Japan does-18 percent of the population is more than 65 years old. But Florida is a model for our collective future. Colorado will be there in 2020. Germany reached there in 2006, France in 2008, Britain in 2012. Partly because of the baby boom generation, and partly because of the fact that health care has improved and people live longer. If you put all of these elderly in homes for seniors, you'd go bankrupt. Japan has been looking for another way, and has found it by introducing a monetary innovation.

Let me give you other examples, already operational here in America today. There are now several hundred "time dollar" operational systems in the United States. The unit of account is the hour. I do something for you. I have a credit for an hour, while you have a debit for an hour. If I can use my credit with someone else, this creates a currency between us. For those people who are willing to give some of their time, the money manifests automatically. It doesn't quite work that way with dollars, does it? One of the two of us has to get dollars by competing for them somewhere outside of our community.

Time dollars are helping in a lot of communities where conventional money is scarce: in ghettos, retirement communities, high unemployment zones, student communities. There are 31 states in America that are paying employees to start such time dollar systems, because it solves social problems. There are some operating in Chicago, fairly big ones in Florida. For example, in Chicago, there are entire neighborhoods that used time dollar systems to create a neighborhood watch system that got rid of drugs and gangs. It's working, it doesn't cost anything to the taxpayer, it doesn't create a huge bureaucracy, and it encourages the solution of the local problems by and with the very people who know most about them.

RD: What do they use their time-dollar credits for?

BL: Well, it's a closed circle. If I do something for you, I have a credit, which I can use with any member of the community that is part of the system. I can't buy cars or pay my telephone bill with this system because the suppliers of such items don't participate now in such systems; but I can obtain services-so I could have my car repaired, my house painted, my kids mentored.

The inventor of the time dollar system is Edgar Cahn, who's the author of No More Throw-Away People (Essential Works Ltd, 2000). He claims that if you can't compete in the dollar economy, you're thrown away. He shows how a time dollars system provides a solution to this process, because it operates in parallel with the conventional competitive economy, and it creates an environment where everybody can contribute.

RD: So you envision a world where there are a lot of these alternative currencies?

BL: I don't call them alternative, because they aren't intending to abolish or replace the national currency. I'm not claiming that we could or should abandon national currencies or the competitive economy. This is a complementary currency system. It facilitates exchanges additional to the normal system. It makes it possible to match unmet needs with unused resources.

RD: I can't see how you'd be able to pay your rent with that.

BL: Well, in Ithaca, New York, there is a currency called Ithaca hours, and some people pay part of their rent with it. Not all of it: for some it is 50/50, for others it is 80/20. And the landlord or lady can go to the farmer's market and buy his vegetables and his eggs.

RD: So the big things-transportation, housing, food - those are covered in the concept of complementary currency?

BL: It all depends on the agreement you're making, and whom you are succeeding in including in that agreement. Let me give you a real-life example. In Curitiba, the capital city of the State of Paran in Brazil, if you bring pre-sorted garbage, you are given bus tokens. So in Curitiba, public transport is clearly part of their complementary currency system.

It depends on the agreements you have with your landlord, with the transportation company, with the university, with the business community. It just depends on who wants or is willing to participate. You can't force anybody to accept this currency. They are not what is technically called "legal tender." I call them "common tender": commonly accepted as payment for debts without coercion of legal means.

RD: I understand that the government wants to get its chunk out of barter transactions, just as if they were a cash transaction.

BL: Yes, and those taxes will need to be paid in "legal tender", i.e. dollars. The tax issue has nothing to do with the currency you use in an exchange, but with the kind of transaction you're performing.

Say I'm a plumber. I come to your house and fix the plumbing. And you give me a nice cake in payment. I'm supposed to declare the value of that cake and pay taxes on it, because I'm in the plumbing business. Now say I am a professor at a university. I come to your house. I fix your faucet. You give me a $100 bill. I'm not obliged to declare it because I'm not in the plumbing business. As I said: it is not the currency used that determines whether a transaction is taxable or not, but the nature of that transaction.

Interestingly, there is one complementary currency, the time-dollar system that we talked about earlier, that is officially tax-free in the United States. It's used only to resolve social problems, and the IRS has ruled that time-dollar systems are tax-free.

RD: I think complementary currencies, barter included, should be tax-free, because they offer solutions to a social problem.

BL: Then I suggest you go and lobby for passing such a law. Currently that's not what the law says in the United States. The use of complementary currencies is fairly recent. It took off only in the last 15 years. Even in 1990 there were less than one hundred complementary currency systems worldwide. Today there are over 4,000. It's definitely catching on.

Part II of this interview will run in the September issue of The Global Intelligencer.