Creating Complementary Currencies To Improve and Empower Communities Thomas H. Greco, Jr.

CreatingComplementary Currencies

To Improve and Empower

Communities

Thomas H. Greco, Jr.

November 2, 2004 Thomas H. Greco, Jr. 2

Common Problems of Community Economies

Local producers are forced to compete with outside producers that are subsidized, enjoy political privilege, or are not required to play by the same rules.

Terms of trade are dictated by outside buyers or sellers who dominate markets.

Money that comes in, goes quickly out again. Resources and wealth are siphoned off by

absentee owners.


A Rising Tide May Lift All Boats, But …

The Tidal Wave of Globalization

Smashes All but the Biggest

Building Safe Harbors


How to Insulate, but not Isolate, the local economy to:

Reduce exploitation,

Enhance economic vitality,

Enable self-determination, and

Optimize the community's standard of living and quality of life?


There Is A Fundamental NeedFor

Exchange Mechanisms that:

Enable all desirable trades, Reduce business costs, Favor local suppliers, and Enable community control over its own

economy.


Liberating Exchange

Two Synergistic Approaches:

• Mutual Credit Clearing Exchanges

• Complementary Currencies


Mutual Credit Associations and Community Currencies Provide

Exchange Media That Are:• Sufficient• Interest-free• Community controlled• Democratically allocated• Self-adjusting• Stable and Sustainable


Official Money Spent Quickly Flows Out of the Local Community

$

Local Vendor

Local Business or Municipality

$

Non-Local Vendor


Community Currency Credits Re-circulate Within the Local

Community

Local Business or Municipality


What is a Mutual Credit Clearing Exchange?

An association of buyers and sellers that provides for the direct settlement of bills due to one another, reducing or eliminating the need to use money as an intermediary payment medium.

It enables bills to be paid without the use of money.


How Does Clearing Work? Ultimately, goods and services pay for other

goods and services; Money is just an intermediary device that can

be dispensed with. When you sell something, your account

balance is credited (increased); when you buy something, your account balance is debited (decreased).

Remaining balances may be settled at periodic intervals, or may be carried over indefinitely.


Toward A Healthy Community Economy

Mutual Credit Clearing A group of businesses and/or local

government entities can organize into a mutual credit clearing association to enable cashless trading among themselves.


Mutual Credit Issuance and CirculationMember - IssuersMutual credit

clearing association Member - Non-Issuers

Issuing members begin the process by buying from other members.


Currency Issuance and Circulation

Non-member users

Member - IssuersMutual credit clearing association Member - Non-Issuers


Advantages of a Limited (Local) Circulation

Currency credits must return to the issuer(s) for redemption.

For this reason they are captive within the local economy and will not stray very far.

Their recirculation within the local area provides a built-in “buy local” bias, which stimulates the entire local economy.

They give local sources of supply preference over external sources.


An Example

Suppose $100,000 worth of community currency credits are spent into circulation by the associated businesses.

That means that their collective cash expenditures have been reduced by $100,000.

That $100,000 remains in the community instead of flowing out to pay for imports.


An Example - 2

If the turnover is 10 times a year, that means $1 million in additional local sales.

If the rate of profit on sales is 20%, that will result in additional yearly profits of $200,000.


An Example - 3 Further, the issuance of community currency

credits will have enabled some interest-bearing debt to be retired.

If the interest rate on debt is 10%, the businesses will save cash interest costs of $10,000 each year.

Every dollar’s worth of community currency credit issued means one less dollar that needs to be borrowed, and one less dollar that needs to be spent.


Assets Liabilities

Cash

Other current assets

Fixed assets

Notes payable

Other current liabilities

Bonds outstanding

Other long-term debt

Surplus

Typical Balance Sheet


Assets Liabilities

Cash

Other current assets

Fixed assets

Currency credits in circulation

Bonds outstanding (reduced)

Other long-term debt

Surplus

Possible Balance Sheet


In What Form Do Community Currency Credits Circulate?

Credits Can Have Various Manifestations As paper notes or tokens

• Circulate hand-to-hand As account balances that can be

transferred via:• Checks• Swipe cards -- Debit cards• Smart cards or electronic wallets• Online transfers

Business or Municipal

Issuer

Workers

Suppliers

CC=notes or credits G&S=goods and services

CC

Labor, services, supplies

G&S

Merchants

CC CC

G&S


Business or Municipal

Issuers

The amount of currency credits in circulation at any time (the level in the “tank”) is determined by the relative rates of

issuance and redemption.

Currency

Credits

Outstanding

Issuance

Redemption


A Community Currency Is Spent Into Circulation

Based on the Ability of the Issuers to Produce

Valuable Goods and Services


A Community Currency Spent Into Circulation By Local Businesses

Businesses spend currency into circulation when buying necessary goods and services, including employees’ labor.• Community currency provides an alternative means of

financing that is:• Interest-free• Locally created and controlled• Available in sufficient supply

• Does not depend on the banks, the Federal Reserve or the government.

• Enables business to thrive on a smaller supply of scarce official money.

• Enables the sale of (excess) productive capacity.• Enables local businesses to employ more of the locally

available labor, skills, and resources.


Examples and Precedents

In 2003 in Argentina, various currencies were in general circulation:

Argentine Pesos U. S. Dollars Provincial Currencies (up to 20 kinds in

circulation) Trueque Notes (community currencies - about

100 types in use)


Provincial Currencies

Since the mid-1980’s, due to the lack of sufficient federal currency, many of Argentina’s 24 provinces issued their own currencies to meet their liquidity and budgetary needs.

By 2003, 20 provinces had issued provincial currencies of various types. The province of Mendoza issued treasury notes backed by their oil

royalties. The province of Buenos Aires issued notes totaling one billion pesos.

These notes, named LECOP, expire in 5 years, bear no interest, and are accepted in payment of provincial taxes. They are backed by the province’s power of taxation.

LECOP is an interest free loan while while PETROM is borrowing for 5 years at 35% interest.


People Begin to Create Their Own Solutions

The first “barter club” in Argentina was started in 1995 by 3 professionals seeking to create better social, economic and environmental conditions.

Within two years, other “trueque” clubs sprung up around the country, and began to organize into a network called Red Global de Trueque.

Trueque clubs issued their own currency --credito notes.


A Successful Mutual Credit Clearing Association

The WIR business circle cooperative (Wirtschaftsring) was founded in Switzerland in 1934 as an answer to the money scarcity of the Great Depression, and still thrives after 70 years.

Membership, at first completely open, was later restricted in order to build solidarity among the “entrepreneurial middle-class.”

A balance between ideology, adaptability, and good business sense has enabled its long-term success.


Stages of Implementation

1. Organize a mutual credit clearing circle comprised of “trusted (business) members” having overdraft privileges

2. Accept to membership diverse other participants who are not given overdraft privileges to begin with.

3. Persuade non-member local merchants to be currency users willing to accept and spend currency issued jointly by the members of the mutual credit clearing circle.


Stages of Implementation

4. When the mutual credit clearing circle is functioning smoothly and the complementary currency has been widely accepted by the community, ease the restrictions on membership and extend the issuance privilege (overdraft privilege) to more members, but determine credit limits on the basis of recent sales history and inventories of goods offered for sale.


Operate the System as a Business

Charge sufficient fees to cover the costs of operation.

Some fees will necessarily be cash fees needed to cover unavoidable cash expenses.

Administrative and sales personnel should be paid, but a portion of their salaries may be paid in the community currency.

All salaries should be paid out of revenues generated from service fees.

System account deficits should be avoided or strictly limited.


Additional Information Sources

Money: Understanding and Creating Alternatives to Legal Tender, by Thomas H. Greco, Jr.

Explore the website:

www.ReinventingMoney.com

Creating Complementary Currencies To Improve and Empower Communities Thomas H. Greco, Jr.

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