The Community Currencies in the Developing World" Research Project


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The "Cambio local en el mundo en desarrollo" community currency research project is studying the effects of the Tlaloc community currency in Mexico City, and designing methods for simplifying the introduction of these currencies in other localities and countries. We are also compiling and distilling the large body of information on local currencies to be of use to groups wishing to start these systems without dependence upon technology. It is our intention to produce a high-quality report that will be of practical use to people and organizations that wish to implement their own community currency systems while pursuing their own community and local economic development projects that fit their own particular context.

Currently, any group wishing to start a community currency system must distill usable information from a wide variety of sources. Much of this information is intended for groups with access to technology such as computers, telephones, photocopiers and fax machines. While knowledge exists of how to operate such systems without the need for any of this technology, in a context which is appropriate to the situation as it is found, this information is currently very difficult to access and put into practice. Our project seeks to change that by compiling this information and making it available, and presenting it in a way which gives the user freedom to tailor the design to suit their situation and needs.

Generally speaking, when we hear about Community Economic Development in developing countries, the terms "microcredit" and "microfinance" most often come up in the discussion. The remarkable success of these initiatives in many parts of the world, and of the Grameen Bank in promoting microcredit has made it the cornerstone of many successful CED projects.

The use of community currencies in pursuing CED/LED strategies is much more recent. Currently, there are only a few known examples in developing countries, but interest in initiating such projects is great. However, these groups must wait for the technological and information gap to be bridged to make this knowledge accessible and implementation practicable.

Noting the complementary aspects, we think there are great possibilities for a strong partnership between microcredit and community currency system. While our current study will only focus on community currency systems by themselves, it is our hope that these systems will prove to be of great benefit to the microcredit movement in the near future. Microcredit can only relieve financing crises and not monetary crises; community currency systems can relieve monetary crises while supporting microcredit initiatives.

Alternative currencies and trading systems are by no means new concepts. Stretching back to the early days of human civilization, community currencies are attracting increasing attention on the part of practitioners and researchers across a full range of established disciplines from economics to anthopology . In the literature of community economic development (CED) practitioners, community currencies are generally seen as providing alternative employment strategies and "community mutual aid" amongst marginalized and unemployed individuals and households, and a new strategy for integrating the local economy.

Nonetheless, the Local Exchange and Trading System (LETS) and other types of community currencies which exist in the more technologically advanced economies of North America and Europe have not, until very recently, been a part of the long history of the response of localities in the underdeveloped/overexploited southern countries to the pressures of the capitalist world-system.

Instead, other innovations in local money forms have often proven more successful and are more well-known in non-Western and southern countries, including revolving loan circles, reciprocal gift exchange, the SINTRAL system, the microcredit movement, and other mechanisms of mutual aid. While these have proven successful, current developments in the global economy are effecting the monetary aspects of developing countries more and more. Further, current information on community currencies is intended for groups which have easy access to information technology, and the time to sort through material primarily available in English in order to develop methods by which to apply such systems to their local situation.

In this light, we are proposing a study of the various forms that LETS and related community currency systems can take depending on the cultural context in which they are implemented so that practitioners can decide for themselves which methods will fit best into their context. We also wish to provide materials for implementing such without the need for computers, telephones, fax machines, photocopiers and the like. Our systems can be run using the simplest of record-keeping materials.

The Local Exchange Trading System, first initiated in 1983 in Canada, is the community currency system in broadest use in the world today, with over 2000 systems in about 15 countries, primarily located in the northern hemisphere with industrially-developed economies. LETS is formally defined as a "system of accounts which allows its users to issue and manage their own money within a community currency system." This form of "credit-based tally" currency allows its members to decide and issue themselves how much they need, interest free, and is backed by the promise to return that value at a later date. This community currency has the immediate benefits of keeping the national currency local by encouraging joint circulation, and over time increases the volume of money in circulation, and the rate of circulation flow. It can also be used for financing projects, fundraising in "hard" currency, and increasing local business.

Community currency systems attempt to balance the influence of an "efficiency-based" global monetary system with an "equity-based" community one. An interest-free currency is introduced as a medium of exchange. The value of these currencies is determined by members of the community. Variously, the value has been tied to the national currency (LETS "Green Dollars"); equated to an hour of labour (Ithaca HOURS); or allowed to determine itself through member's exchanges (New Berries in Newbury LETS, U.K.).

Unlike barter trade, which requires a direct exchange, local currencies commit the individual who receives a good or service to supplying goods or services to the community at a future date.

All accounts start at zero, and each exchange moves the account balance either plus or minus. A minus is not an overdraft, or even a debt, but the way the currency is created: it is spent into existence. Assuming member A gives member B ten sacks of rice in exchange for ten units of currency, member B acknowledges this by transferring 10 units from her account to member A's account. The record of this exchange is brought to a central office. A's account is now plus 10, while Bs account is minus 10, and the money used has been created in the agreement between the two to exchange.

Later on, member C asks B to repair his motorcycle. They agree that the labour required for the job is worth 30 units. Thirty units is transferred from member Cs to member Bs account. Member Bs account is now plus 20 [(-10 from the purchase of rice) + 30], while member C has a balance of minus 30--a commitment to future exchange in the community.

It is possible for part of the exchange to be made in the conventional currency. For example, in order to repair Cs motorcycle, member B may need to buy parts from a supplier who lives outside the community and therefore can not accept the community currency. Member B and member C could agree on what proportion of the repair job would be paid in local currency and what would be paid in conventional cash. The community currency network does not concern itself with the cash portion of its member's transactions, but such a system clearly encourages the national currency to stay local.

As an interest-free currency, the possibility of using the currency as a store of value is eliminated. Any community member with a need can have it fulfilled, irrespective of their account balance--there is no requirement for a central body or wealthy individuals to issue credit. Currency scarcity is eliminated, but only in so far as there are goods or services available for exchange. Community currency systems can not create resources where there were none before. They may, however, mobilise resources that members did not know they had and allow those members who face conventional money scarcity to trade the future value of their labour for current needs.

The introduction of a community currency offers numerous potential benefits to the community:

-Support for locally produced goods and services is encouraged. As community currency only has value in the community in which it is generated, it stays circulating to create more wealth for members. National and multinational corporations are unlikely to accept local currency in payment, due to the impossibility of repatriating profits. This reduces community economic drain and encourages local import substitution, which, in turn supports community employment.

-Traditionally undervalued activities gain greater significance. Community members themselves decide the value of such things as childcare, artisanal skills or community organizing. In particular, this gives them the opportunity to reassess the value of womens work, either undervalued or unvalued in the larger market economy.

-Environmentally destructive activities are discouraged. Without interest, there is no incentive to cut down a tree today in order to begin accumulating interest from its sale. Indeed, in some systems where a negative interest rate is used, future units of local currency are worth more than those exchanged today. This encourages activities which will facilitate future exchanges, such as planting trees.

-Small enterprise development is given a boost. Rather than relying solely on a high-interest commercial loan, entrepreneurs are able to procure at least part of the goods and services they need for startup simply by making a commitment to supplying the fruits of their labour to the community sometime in the future.

-Social relationships are strengthened. While local currency systems have not been proven to have any inherent power to overcome social inequities, it is generally agreed that they do yield tangible social benefits. An intricate social network is reinforced/created as a by- product of members meeting to value and exchange each others goods and services. In an indirect way, it may be exactly these social benefits which determine economic success over the long run.

The proposed research aims to study the extent to which the introduction of a LETS-type community currency system is helpful to a particular community and its ability to ameliorate the difficulties faced by workers, women, the poor and the unemployed who are, through this system, able to meaningfully participate in exchange for the meeting of their needs.

We are interested in determining the degree of participation by citizens within the community, social and technological barriers to diffusion and use, and what the experience of administrating the system teaches about community needs and the limits/possibilities of a locally-developed and implemented community currency system in meeting them.

While community empowerment through alternative credit and exchange systems alone does not provide localities with a panacea for all economic, social and environmental problems, it may help to provide the tools for increasing independence from foreign assistance and increasing self-reliance among individuals and communities among its many benefits.

Under the project coordination of Stephen DeMeulenaere of Victoria, Canada, and a core group of researchers including Mr. Luis Lopezllera of the Promocion del Desarrollo Popular A.C., Thomas Greco of Tucson, Arizona (Community Information Resource Centre) and Maeve Lydon and Sandy Ockenden of VIDEA (Victoria International Development Education Association) as our Canadian Partner, we will be conducting this study with the support of a broad group of community currency advocates, researchers and academics including Dr. Makoto Murayama, Professor of International Relations at the University of Tokyo and Dr. Bernard Liaetaer, Research Fellow at the Center for Sustainable Resources of the University of California at Berkeley, among other supporting academics.