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Currency resilience and Transition

I attended the recent Transition Networks one day conversation in London on ‘Peak Money and Economic Resilience’. These are my thoughts, prompted by the event. Follow up at http://www.facebook.com/groups/designercurrencies or on this site.

If the Transition Network is about planning and acting to improve the resilience of localities to the adverse effects of oncoming convergent crises, there is an open question as to what role, if any, local currencies play in this plan. The prospect of exploring this issue was what drew me to the event.

It was an enjoyable and interesting day, but the discussions around currency started from the Transition Currency status quo (i.e. the various ‘Pounds’) rather than revisiting and reviewing the objectives of having a Transition Currency at all, and the elements of currency design that might impact resilience.

When Feasta hosted early discussions on its Liquidity Network currency, one serious criticism laid on the design was that as it was purely electronic it wouldn’t work if there was no electricity! We pretty quickly decided that the currency was not designed to work in such an extreme ‘powerdown’ scenario, but the question made us realise that resilience is a relative concept – resilience to what?

At the TN ‘conversation’ Tony Greenham from NEF made the important point that it was vital to understand the nature of local economic circuits including the patterns of B2B trade within a locality. A root issue here is that if certain goods and services are not available at all from local sources, then no matter what currency you are trading with, local substitution is not possible. The Feasta Currency Group’s approach to currency design incorporates the development of tools and processes to surface and detail these limitations (using network models and data visualisation techniques for example). In this way local currency activists can create collateral to inform plans for local authorities and other economic development channels which in too many cases concentrate heavily on attracting multinationals.

Virtually all local currencies feature a directory (now typically online) which acts as a new marketing channel for supporting businesses. It’s a given. It’s done because it’s a convenient sales message to the businesses and there is a semi-plausible argument that an entry in such a directory might generate more business. There’s no debate that this can alert local buyers to local sources that they were previously unaware of, but the real added value of such a listing is generally un-quantifiable.

In one of the World Cafe breakout sessions at the event – looking at how businesses can support and share skills with Transition Groups – an example was quoted of the Transition group identifying underused local producers and proactively brokering relationships for them with retailers. This type of outgoing activity is an excellent form of local economic development. If local authorities are reluctant to undertake such initiatives, then currency activists can certainly gain stakeholder credibility by doing so.

Actively encouraging the development of existing local businesses also helps make the case for inward investment. The businesses have a vested interest in collaborating – an empty high street is no use to anyone – and existing B2B networks are often uninspiring, so the currency can be a focal point.

Perhaps the most fundamental objective of a local exchange currency (one focussed primarily on facilitating trade) is to increase liquidity. There are two aspects to this : increasing the amount of currency in circulation and increasing the frequency at which it is spent. Both of these possible objectives are challenging to Transition Currencies as they are currently deployed. The first is not possible while currency is sterling backed (issued by being bought with sterling and exchangeable back to sterling); the second is unprovable with anonymous paper transactions. The extent to which Transition Currencies can react to these two difficulties remains to be seen. Any move away from sterling may be problematic now it is enshrined in the currencies. A careful and well thought through transition may be possible, but the currencies may not yet have enough momentum to carry the change.

The second aspect points up one of the most important plus points of an electronic currency – as identified by the Brixton pound group – the audit trail. This carries many advantages, not least the ability to measure velocity of exchange.

Established exchange currencies don’t need backing – they have developed a trust that there are sufficient interesting and reliable ways of spending them that users are confident to hold them. But backing is a factor in getting the currency established in the first case. Richard Douthwaite, Feasta’s late co-founder and author of The Ecology of Money likened this effect to the training wheels on a bike. For Transition Currencies this function is provided via sterling backing, but as we have discussed, while this helps get started it may be a long term liability.

Feasta’s Liquidity Network is developing a number of alternative currency-issuance strategies and these are described elsewhere. The key point is that the currency can be designed. Mainstream economists may tell you that currency is neutral – it’s just a means to the end of exchange. But I am afraid mainstream economics is a busted pseudo-science. Debt-based currency issuance means that fiat currencies are far from neutral in their effects. In the Feasta Currency Group’s opinion, no currency is neutral.

Once we realise that currency can be designed, then we are set free to design in ways that support our core values. The Transition Network event was perhaps a little disappointing in this regard, but understandably so. And there is yet time.

Featured image: Euro. Author: Vera Reis. Source: http://www.sxc.hu/photo/1361706

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