IV International Conference on Social and Complementary Currencies: Money, Consciousness and Values for Social Change

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picture 1) title

Presentation for the

IV International Conference on Social and Complementary Currencies:

Money, Consciousness and Values for Social Change

Barcelona May, 10 to May, 14 2017

picture 2) classification of complementary currencies

Complementary Currencies can be seen as alternative monetary systems to the official money. Maybe except foreign reference currencies like the Dollar which sometimes substitute weak national currencies of small economies. The Dollar is in this case also a Complementary Currencies.

But I will speak about Complementary Currencies which will behave and benefits society different to the official money. Countless approaches for Complementary Currencies are possible but I want subdivide them roughly into 4 categories

·         Demurrage money (Freigeld)

·         Time accounts - local exchange time systems (LETS)

·         barter trading systems - electronic market places

·         Cryptographic currencies – bitcoin

picture 3) the need of complementary currencies

Official money tends to escapes into speculative trading and off-shore financial places and leads to very strong unequal distribution. Some people get very rich and others have to deal with a declining purchasing power. Declining demand causes declining business, in the worst case leads it to crisis.

One main target of Complementary Currencies is the substitution of absent official money to support the activation or reactivation of declined business cycles. As they are mostly used for local business cycles they are also called community currencies. In times of crisis they are also known as emergency money.

Money of Complementary Currencies is connected and strongly dependent from official money because it is often backed and/or created by exchange of official money. The exchange rate is mostly fixed.

A scheme for flexible exchange rates might help to apply Complementary Currencies in a more independent way of money supply to support demand oriented economic policy.

But to understand the idea better we have to go briefly back to the basic approach of the global system²⁺³⁺⁴⁾.

picture 4) Intention for the global approach

In the meantime is it obviously that our current monetary system, which is based on money creation by credits and interest rates, tends to lose stability in advanced time. It increases inequality and let people suffer¹⁾.

If we would want to domesticate capitalism, domesticate capitalism means
let the capital work for the people and not people for the capital

then it is useful to look closer onto the nature of money and to think about alternative monetary systems.

Therefore is it very important to work on Complementary Currencies and you are in front of new economic thinking.

One of the countless approaches is the neutralization of monetary systems.

Orthodox economist says that money is a neutral veil and does not influence the activities of the real business, visible trading - it is only a medium of exchange. But this contradicts our daily life experience. To own money or not influences our decisions very strongly. Especially the big business starts to decide for us and can force us in situations which we don ‘t want to have and which we can ‘t influence as individuals – for example unemployment.

It means, neutralization of money is something which we don ‘t have, it is something which we would want to have. How can we use the approach of Complementary Currencies to neutralize money?

picture 5) global approach - the question

Coming from the question:

“is it possible to find this absolute value for money?”

Could I recognize only one answer and this answer is

the total!

Creating a complementary currency which represents the total. Let us name this currency ANNA and let us give the never changing value or never changing money supply of ONE to it, leads it to the following statement...

picture 6) global approach - the idea

.. one ANNA is equal to one common world

If we transform this idea to the abstract world of money and numbers

leads it to the equation

one ANNA is an equivalent to the total of world money supply

picture 7) global approach - monetary scaling

... where World Money Supply represents the sum of all conventional currencies and behaves like a conventional currency. It means, coming from the particular going to the total needs addition, f. e. 1000€ = 1000 * 1€.

ANNA behaves contrary, because ANNA does not allow additional money supply due to the never changing values of ONE. Coming from the total going to the particular needs division. This is not very practicable for daily use of money. But there are two points connecting these two monetary systems together.

I have already mentioned the first one. It is the total. One ANNA is equal to WMS.

The second one is the particular. One unit of a currency is equal to One divided by WMS expressed in this currency

This can be used for monetary scaling

And monetary scaling can be used for currency exchange

It would lead to a Currency exchange system for central banks based on the global reference currency ANNA²⁾

It would transform our current system into a sustainable system with the benefits of

·         Self-determined economic and monetary policy for all nations

·         would keep speculative trading of the money markets more harmless

·         let disappear trading imbalances

·         is a solution for public debts

picture 8) neutralization of small size monetary systems

This theory is in principle nothing else than a simple rule of three calculation

A rule of three calculation needs two units which are known, in this case 

·         the valuable unit on the left side

·         the amount of money on the right side

·         which allows to determine the exchange rate

Can we use this basic idea also for a local approach?

Let us first try to determine some terms.

picture 9) outside and inside

We have the outside and inside market

Outside is the profit oriented market where the transactions for goods and services must be done with official money

Inside is a non-profit oriented community of solidarity where transactions can be done by alternative money, social currencies. Community of solidarity means to support and develop the skills of a community respectively to fight against unemployment in the way to create activities of business and work.

The usual reason for low or declining local business activities is the missing money. Establishing a stable money circuit of alternative money can create, reactivate and develop business activities. But we should not set the focus only on business, we might think more in solidarity to bring people in work from which they can live and where they simultaneous support the community.

Let us play with one statement: If the trading between outside and inside would be zero, inside would be a completely closed and autarchic economy. Inside monetary policy could be completely independent.

But trading with Outside is the rule not the exception, because outside goods and services usually are needed to keep inside business running

picture 10) how can we find the value of inside currency

Outside money markets are blind for alternative money as long as their own business is not effected. Therefore they are only able to record transactions in official money. This is the valuable part of business for them.

Could it make sense to use the business between inside and outside to describe the value of inside market for the outside markets? If we assume this, the balance of trading could be seen as the equivalent for the value of the inside currency for the outside  participants.
 

It does not mean that it reflects the inside business itself. Else if the inside economy would be strong, but without any outside trading, would it keep worthless for the outside markets. An Exchange rate is only necessary for exchange of goods and services with the outside system, it is the communication with the outside system and must not necessarily matter for inside trading.

If participants accept two units

·         cumulative balance of trading

·         the amount of inside money

 would it allow to determine an exchange rate

Using a flexible instead of a fixed exchange rate allows independent inside money supply and leads therefore to the possibility to establish an independent inside demand oriented economic policy and maybe also independent inside prices. We would be able to neutralize the outside system.

picture 11) preffered border transactions

Outside trading is a rule not an exception. As long as a transaction will be paid with official money keeps it outside and is not supporting the inside system.

Only if official money runs through the inside system is it possible to measure the cumulative balance of trading. Target is to measure and to increase the transaction of official money through the inside system to create “foreign exchange” for the community.

Increasing foreign exchange starts to make the inside currency more valuable. The exchange rate of inside currency increases and allow to buy more outside goods and services with inside money. Prices of outside goods and services paid with inside money decreases. Prices of independent inside goods and services keep untouched.

But it must have a benefit for the participants to do outside transactions inside. Otherwise it will not happen. It must be cheaper or better in quality to do the transaction over inside, f. e. it is maybe useful to run a purchasing association for the participants

picture 12) creation of inside money

The best way to improve solidarity and the skills of a community is to create solidarity work for and in the community. Money creation by work allows to pay this work without means from outside. The work can be found very easy in local needs. But we have to be careful. There is a strong risk of misuse to avoid wages payed in official money

Additional money creates additional demand. But additional demand should meet corresponding supply

·         might initially satisfied by using the benefits of social work f. e. health care, education, all kind of care and attention etc.

·         But inside money will never reach credibility, if wages cannot be used for the needs of daily life.

It needs a second type of money to support free entrepreneurship, which allows to create property. Not property in the way of money, but property in the way of own business and self-determined life and work. Entrepreneurship can produce the supply for the demand coming from the creation of inside money. It needs a money which works like a mean of payment and a medium of exchange and which will be created by credits like official money.

The challenge for social currency systems is to offer a proper supply for the created money. If we succeed we have a well running business cycle which creates wealth for the community.

The inside money should also disappear again to avoid the effect of inflation and to keep the system stable. Therefore is it most reasonable to use a combination of time accounts and demurrage money. Money supply must be controlled.

picture 13) stable money circuit

Flexible exchange rates allow to use a money design of time accounts and demurrage money. This design is probably the best approach for economy in solidarity. I call this design a stable money circuit SMC.

Time account embodies a social insurance system and store of solidarity value. It reflects the picture to take care of each other, to spend time and efforts for others, for the community. It reflects solidarity in the best sense. To create money by work using time accounts enables the community to manage and promote solidarity. Society can start to pay solidarity:

·         Starting with the fight against unemployment and establishing a basic income

·         Going over to health care and educational projects

·         Up to the idea of an unconditional basic income.

The use of time accounts should change them into demurrage money.

Demurrage money embodies free trade. It is the system where we are familiar with, except the demurrage. It is a mean of payment and a medium of exchange. This money will be created by credits and exchange of time accounts. It allows members of the community to create their own business and entrepreneurship to gain properties by trading. This money should satisfy the aspiration of self-determined life.

The demurrage is important to keep the money supply stable, to keep the system in balance. It keeps the money in circulation and prevents the hording of money to understand goods and services as the property and not the money. This is neutralization in the best sense.

picture 14) management of inside system

Let us sketch briefly the organization for inside infrastructure

The organization must act like a purchasing association, to record the balance of trading and to support inside demand with all kind of goods and services which are not available but necessary for the inside market, so far as the means of foreign exchange allows it.

The organization must act like or with local administration and Initiatives to support the demand of work and social infrastructure like health care, geriatric care, any kind of welfare work, environmental protection, waste management, public traffic etc.

By the way, as soon as a local authority would except and use alternative money f. e. for tax payments and social payments, the use of this money would accelerate dramatically. Because profit oriented business would try to keep the “good money”(=official money) as long as possible to spend the “bad money” (=alternative money) as much as possible. 

The organization must act like or with an employment office to support the demand for paid work

The organization must act like a bank

o   to manage the money accounts

o   to give credits for entrepreneurs

o   to control money supply

The organization must act like a foundation for teaching, marketing and to collect official money from donation, sponsoring, governmental support etc.

The organization must be democratically controlled by the community because there is a high risk of misuse for all of these functions

picture 15) exchange rate determination

Exchange rate is the communication between inside and outside currency. Exchange rate refers to that what the outside market beliefs as valuable. It is the input of official money into the inside system, described as cumulative balance of trading

As long as the amount of alternative money is less or equal to the cumulative balance of trading the alternative money is equal to the official money. It is the input of official money into the system.

As soon as the amount of alternative money is higher than the cumulative balance of trading the exchange rate for alternative money decreases.

The exchange rate for alternative money can never be higher than for official money.

picture 16) influence of exchange rate

If the amount of inside money starts to be higher as the cumulative balance of trading the exchange rate for inside money decreases. The inside produced goods and services will get cheaper compared to the equivalent of outside goods and services. This effect can be seen as a kind of custom tax or trade barrier for outside goods and services, but it is a critical point

There are two possibilities to react on the declining exchange rate:

•      fast speed declining - participants will escape into outside business. Inside business cycles break down

•      low speed declining - participants will start to buy more goods and services inside. Inside business cycles increases.

With the increase of inside business, the community increases the outside business again and the line for BOT >= AMS shift to the right. Custom tax or trade barrier will disappear again. The game starts again.

Flexible exchange rates allow independent inside prices, which might make inside products and services for the outside markets attractive.

picture 17) neutralization of monetary systems for economies of all size

I tried to show that the neutralization of our monetary systems is possible for economies of all sizes.

It would be desirable to have a global solution but it must keep fiction as long as our global system keep stable.

The claim for smaller size is less pretentious therefore more down-to-earth. It is more convenient and negotiations rather bilateral than multilateral. It is much more feasible.

Also the neutralization of a small size economy or business allows to implement a stable monetary circuit SMC based on time accounts and demurrage money and can support the approach of social currencies, which needs to be proved.

This idea can be seen more as a complete business approach than only a approach of a complementary currency. But be aware that this approach includes a high risk of misuse.

Thank you for your attention!

Appendix

1. essay with the title “financial crisis explained by the theory of Freigeld“
   available at
   http://de.slideshare.net/SehrGlobal
   http://sehrglobal.blogspot.de/2012/05/financial-crisis-explained-by-theory-of.html
   
   
2. availability of the essay “model of a neutralised currency and exchange system for central banks - part I introduction “ at
   http://de.slideshare.net/SehrGlobal
   http://sehrglobal.blogspot.de/2012/05/model-of-neutralised-currency-and.html  
   
   
3. availability of the essay “model of a protected currency area for developing countries - part II application“ at
   http://de.slideshare.net/SehrGlobal
   http://sehrglobal.blogspot.de/2012/05/model-of-protected-currency-area-for.html
   
   
4. availability of the essay “complementary currencies and deflationary crisis“
   at
   http://de.slideshare.net/SehrGlobal
   http://sehrglobal.blogspot.de/2013/01/complementary-currencies-and.html