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Alternative Currencies and Financial Practices

The current financial system is addicted to growth, through such things as the debt-based creation of money, the charging of interest upon debts, and the growth assumptions embedded in the valuation of shares and other financial assets. If a lack of future growth was generally accepted the majority of what is called wealth would evaporate as debts with interest became un-payable and the price/earnings multiples of share prices were greatly reduced. Without a fundamental reorientation of the financial system it will act as a serious impediment to any move to a steady state economy, given that the resultant financial crash would crash the economy and severely compromise the ability to coordinate economic activity. For example, the creation of a wind turbine requires a myriad of independent companies to work together. If some of these companies have been bankrupted, or are unable to access working capital, due to the financial crash then it will take a significant amount of time to restart wind turbine production. Throughout recent history a number of ways of reorienting the financial system have been proposed, such as alternative non-debt based currencies and the provision of loans without interest charges. Successes are rare, and highly dependent upon the socio-political and institutional base within which they have attempted to develop. In addition, small scale local ventures which do not threaten the status quo tend to be allowed, while more successful attempts which grow to threaten the status quo attract vigorous reactions. The current popularity of the Bitcoin alternative currency will provide an interesting example of whether an alternative currency will be allowed to flourish to a point where it does truly threaten the hegemony of state-controlled currencies. Among all of the publicity and popularity of Bitcoin we must remember that its total outstanding circulation is currently about 12 million1, which at a price of US$750 per Bitcoin amounts to US$9 billion. This amount is dwarfed by even just the over US$1 trillion worth of physical US$ notes and coins, which represent a relatively small percentage of the overall U.S. money supply, in circulation2.

During the severe economic and financial crises of the 1930’s Great Depression, successful alternative currencies, such as the Woergl in Austria and the Wara in Germany3, and a farmland backed currency in Denmark4, were established but were then shut down by the state when their success threatened the official currency. After the failure of many banks in the 1930’s, alternative currencies, such as scrip and local money, also proliferated in the United States but were limited by the state and tended to subside as the official financial system was rescued and restarted through state intervention5, 6. The WIR (the Swiss Wirtschaftsring-Genossenschft complementary currency) stands out as a survivor of this period. What were the conditions which supported its continued existence while so many others failed? Political power within Switzerland is highly decentralized, is open to a high degree of direct democracy through such things as referendums to accept new laws, and the political system has been referred to as the most democratic in the world7. This model was established through a violent revolution in 1798, and later decades of political strife culminating in a short civil war in 18478. There was also a substantial base of support for the Free Money Movement in Switzerland which provided theoretical and social support, and its founders were supporters of the free money theory of Silvio Gesell9, 10. The economic conditions of the 1930’s provided the need for a new financial model, but the form that the WIR took and its continued survival was greatly dependent upon the above factors. Even in such an environment, though the state still provided resistance to local currencies, where “applications by municipal authorities such as the cities of Biel and Brienz for permission to launch experiments similar to Wörgl’s were turned down, based on the assertion of the Swiss National Bank’s monopoly on the issuance of bank notes”11. The WIR’s implementation as a cashless payment media rather than a physical currency may therefore have been a significant reason for its survival. Heidi Defila, a former Vice President of the WIR organization, describes the many external challenges that the WIR faced including press and ideological attacks. Her viewpoint is that the creative entrepreneurial management displayed by the WIR was a crucial element in its ability to overcome repeated challenges9. It is important to not underestimate the internal dynamics and strengths of alternative organizations as major determinants of their success, as just as with any other type of organization, there will be successes and failures within the same general environment. The nature of the environment may override such factors if it is highly unsupportive and even actively resistant to certain types of organizational entities. Although the WIR is touted as a success story, a realistic assessment must see it as a successful niche currency. Outstanding WIR balances equal less than 0.5% of the Swiss M1 money supply (coins, currency, and demand deposits)10.

A recent development has been a new wave of what Weber & Remer refer to as “Ethical & Alternative”, banks such as Triodos in Holland, GLS-Bank in Germany, Merkur in Denmark, BCL in Switzerland, Cultura in Norway, and Ekobanken in Sweden12. They tend to have cooperative structures, apart from Triodos which has a private shareholder structure. The general stance of such organizations is to see banking as a vehicle for positive social change, providing funds on the basis of both economic viability and social utility12, 13. There have been a large number of such banks established, but the fastest growing and largest has been Triodos, with assets of EUR 4.8 billion, funds under management of EUR 7.3 billion, and 395,000 customers through branches in Holland, Belgium, the UK, Spain, and Germany14. The growth of this sector was facilitated by the lack of traditional financial institution coverage, although some traditional institutions have started to enter this space through the provision of such things as ethical investment funds. The ethical banks offer a positive alternative to traditional banks, but do very much operate within the current economic and social structures. Triodos is an extreme example of this with its shareholders including large banks, insurance companies, and pension funds. It has also been awarded the Sustainable Bank of the Year Award by the Financial Times13, a very capitalist status-quo institution. Co-option is always a danger for such institutions, including the utilization of foundation financing from such bodies as the Rockefeller Foundation. Weber & Remer note that BCL is the one that has stayed most “faithful to its origins”12 and the anthroposophist values. It had assets of approx US$3 billion in 201115.

If the objective that we are looking for is more than just organizational diversity within the financial system, and is instead long term economic and ecological sustainability, then greater levels of change are required. With such greater levels of change come greater levels of challenge to current belief systems, wealth and power relations. These go to the core of how the modern financial system works, such as the charging of interest on loans, the assumption of continuous growth as the base of asset valuations, and the creation of debt-money through private financial intermediaries. The Islamic Shari’ah-based Banking industry, which has grown significantly in recent decades, appears to be a useful ally given the directives against usury and for joint risk taking and socially responsible lending in the Shari’ah texts. Globally, Islamic banking assets total approximately US$1 trillion16, with the vast majority in institutions located in the Middle East and North Africa. Unfortunately, “The practice of Islamic finance significantly departs from its theory … merely meeting the criteria of legality”17. As noted in many of the examples above, a fundamentally different financial system requires fundamentally different societal belief systems and supporting institutions, a fact which Siddiqi captures well with respect to Islamic finance, “If Muslims have the same orientation and motivation in finance as everybody else, they will end up having the system that has resulted from other people’s choices, the one we call conventional financial system. A genuinely distinctive system can emerge only out of a genuinely distinct orientation and motivation, a different set of norms”17. This has resulted in the Islamic banking sector simply becoming a vehicle “to replicate in Islamic forms the substantive functions of contemporary financial instruments”18. Such instruments are simply repackaged to produce technical compliance with Shari’ah directives, placing “excessive emphasis on contract forms, thus becoming a primary target of rent-seeking legal arbitrageurs”18. El-Gamal18 covers in detail the modern institutions, practices and products of current-day Islamic banking and how it has so significantly strayed from the Shari’ah financial theories.

A financial institution that does not charge interest is that of the Swedish co-operative JAK Bank which has 38,000 members and US$163 million in assets19. With 20% of deposited funds placed on reserve and restrictions around the withdrawal of “post-savings” (savings made as a requirement of a loan), but with no restrictions on “pre-savings” (other savings) the JAK bank does utilize fractional reserve banking, but in a very limited fashion20. This is very different to most other cooperative banks which do charge interest and utilize fractional reserve banking to a much larger degree, with the only major differences to conventional banks being the ownership structure and generally more localized operations. Also JAK bank plans its revenues, from membership and loan fees, to only cover its costs rather than to create a surplus distributable to members. This model provides the institutional diversity and democratic ownership model of a cooperative together with being much more adaptable to a steady-state economic environment, being based upon an ideology that sees the charging of interest as exploitation of the ordinary citizen by the wealthy, and not congruent with a sustainable economy21. In many ways JAK Bank is also a throwback to a period of “slow money” which fosters conservative personal financial management through encouragement to “pre-save” before gaining a loan and to continue to build savings whilst paying down a loan. The right to a given size of interest free loan is through a points system awarded through pre-saving, or contracted savings committed to during the life of the loan. As Conaty & Lewis state “The JAK co-operative bank operates inversely to virtually all conventional financial institutions” and thus “Transition to such a system is not a simple matter. The redefinition of the purpose of banking is counter-cultural. Attitudes grounded in a view of money as a ‘store of value’ coupled with the temptation to maximize profit by making money out of money are not going to magically disappear. Indeed, current indications are that returning to business as usual in the financial world is a major preoccupation of most conventional bankers”21. They also note that credit unions may represent the most obvious place to implement the JAK practices in other areas, and there is evidence that some credit unions have investigated this possibility. For example a report on the JAK Bank was produced for the Chairman of the Van City credit union in Vancouver in 200422, but up to the current time no other institution seems to have replicated the interest free products and processes. The report very clearly states some of the challenges to transplanting such practices “Yet, educating people that paying interest on loans is not necessary, except for recovering the actual operation costs of the bank, will be a challenge. Let’s face it, most of us are habituated and comfortable with paying interest on loans, pre-approved mortgages, credit card balances and other forms of credit. To suggest a system that does not require interest payments is somewhat of a revolution in our understanding of banking and the role they play”22. An important aspect of the JAK bank is that most members utilize conventional banks for services that it does not provide, such as checking accounts, and also for interest paying deposits and interest bearing loans. Thus, the JAK model cannot be seen as being a complete replacement for the current banking model, as it is limited to savings and loans20. As a JAK Bank Manager states “We can’t just live in our own bubble, we live in a system driven by interest, can’t just block it out. But we can show another way and spread the ideas”20.

Fractional reserve banking started in the 13th century with the practices that Goldsmiths had of issuing depository receipts for more gold (or other precious coins) than was in their possession, allowing them to increase their income by lending out money (as the depository receipts were accepted as a means of exchange) not fully backed by their reserves. Modern banks came into existence in the 17th century at the same time as nation states when, for the commitment to lend money to the state whenever needed, banks secured the right to create legal tender (the currency accepted by the government in payment of taxes)3. At the same time a legal decision was made that stated that money deposited in banks becomes the property of the bank, with the depositor becoming a creditor20. This allows the bank full flexibility in the utilization of such deposits, as they are the bank’s property. A number of authors have raised serious issues with the resultant privatization of the money supply, as this allows the private banking sector to charge the state and the citizenry interest for access to what is rightfully the property of the state (and the citizenry in a democracy). This is an invisible and enormous subsidy, and source of power, to the banking system and the richer members of society5. A number of different proposals have been raised to return this power to the state and/or populace such as (i) full or partial nationalization/cooperatization of the banking sector23; (ii) 100% reserve banking24, 25; (iii) the creation of none debt-based money through the state spending money into existence26.

In the market-based economies, the option of nationalization has been repeatedly used to facilitate the rescue and rehabilitation of financial institutions, but the final objective has always been their return to the private sector. Such is the case with the current partial nationalization of banks in the United States and United Kingdom. At no time during the recent crisis has even the possibility of full nationalization been officially discussed, or the conversion of these entities into cooperative institutions. In many cases central banks have been nationalized, but their purpose is very different to that of commercial banks and their role tends to be oriented to the service of the banking sector and creditors. Permanent nationalization of commercial banks has been restricted to very few cases outside the communist countries. There are some cases of state-owned financial institutions in North America being put in place, such as the Bank of North Dakota27, 28 (the only state, as opposed to federal, owned bank in the United States), the Alberta Treasury Board in Alberta29, and the afore mentioned Caisse du Depot in Quebec. In these three cases, social movements were critical to the establishment of the banks, with a populist agrarian movement27, 28, the Social Credit movement30, and Quebec nationalism respectively. There are also the cases of Fannie Mae in 1938 (Federal National Mortgage Association) and Freddie Mac in 1970 (Federal Home Loan Mortgage Corporation) as U.S. federally sponsored enterprises, but both of these can be seen as supporting the private commercial banks rather than being an alternative to them. In Europe and Japan, which have more widespread socialist and/or communitarian belief systems, and support for government intervention, many more state institutions have been established. Examples are the extensive postal savings institutions of many countries, together with targeted development banks. Post-war periods of rebuilding in Europe have also provided opportune openings to create state financial institutions such as the Caisse des Dépôts et Consignations in France (1816, after defeat of Napolean), the Kreditanstalt für Wiederaufbau in Germany (1948, part of the Marshall Plan), and the Cassa Depositi e Prestiti in Italy (1850, after Italian unification).

The utilization of public non-debt based money has been used very successfully on a number of occasions, but the history of such cases is glaringly absent from modern financial discourses and proposed solutions to the current financial crisis. One of the policies of the Social Credit movement of the 1930’s (based upon the writings of Clifford Hugh Douglas) in Canada was to provide debt-free money directly to the populace, referred to as “social credit”, but attempts were resisted by the financial establishment and it was limited to issuing a form of depreciating scrip known as “Prosperity Certificates”31. The government of Canada did utilize debt-free money after the nationalization of the Bank of Canada in the 1930’s, through the funding of government programs via money created directly by the central bank and provided to the government (technically this was debt money that paid interest, but all the profits of the Bank of Canada are paid to the government), through to the mid 1970’s32, 33. As Hellyer points out, the financing of government deficits through the private bond market provides a huge subsidy to the commercial banks and bond investors (who can invest their wealth at interest), and the majority of current Canadian government debt is due to interest payments34. The Canadian Center for Policy Alternatives has proposed the utilization of the Bank of Canada for this purpose, but has also noted the lack of any such proposal in any of the Canadian political party platforms35. Probably the most successful use of government created money (although it did pay interest) was in the rebuilding of Germany by the Nazi’s after the ruinous hyper-inflation of the 1920’s36. This followed along the lines proposed by Jacob Coxey and the Greenbackers in the 1890’s in the United States to fund public works through government created money. Unlike Coxey and the Greenbackers, a dictator such as Hitler had the power to implement the required policies, and they facilitated the rapid recovery and growth of the German economy in the pre-WW2 years. As Henry Liu notes “The Nazis came to power in Germany in 1933 at a time when its economy was in total collapse, with ruinous war-reparation obligations and zero prospects for foreign investment or credit. Yet through an independent monetary policy of sovereign credit and a full-employment public-works program, the Third Reich was able to turn a bankrupt Germany, stripped of overseas colonies it could exploit, into the strongest economy in Europe within four years, even before armament spending began.36” Brown also notes that the rapid development of China during the last few decades has relied upon a government-issued currency and a system of national banks that are majority state owned36. With respect to proposals for 100% reserve banking , there does not seem to have been any implementation of such proposals. Fisher thought that 100% reserve banking would be seen as positive by the banking industry as it would greatly reduce the possibility of financial crashes, but this overlooked the fact that the banks seem to be able to socialize losses through public sector rescues, while keeping the profits from the good years to themselves37.

One of the overriding messages from the above text is that proposed financial system changes cannot be separated from the social, political, and institutional environment within which they will operate. The linkage of such proposals to social movements is critical given the ongoing support required to both facilitate success, including the overcoming of local social, political and bureaucratic impediments, and to resist possible attacks as such initiatives gain success and have meso and macro-level impacts. What amplifies this is the role of finance within the advanced capitalist economies, as the “complex nervous system” which facilitates effective functioning of the capitalist system and a source of power and income for the hegemonic elites. As Panitch and Konings38 have detailed, the financial system has been a crucial and central element in the restructuring and disciplining of individual capitalists and labour over the past decades to allow capitalist economies to overcome significant issues. They see financial and industrial capital as acting in an integrated and synergistic fashion rather than in the opposing fashion seen by other authors. For example Duncan39 states that the restoration of corporate profit rates was realized mainly through the simultaneous disciplining of labour (driven by the “Volcker shock” of 1979 onwards and enhanced by extensive leveraged buyout and M&A activity) and the creation of extensive household debt-financing through such instruments as mass credit cards. Given the central importance of capitalist finance it would be expected that the state would strive to rescue it (through liquidity support, margin enhancement, and loss socialization etc.) during crises. The latest crisis is no exception as seen by the over US$29 trillion of support provided to both US and foreign financial institutions by the Federal Reserve alone40 (the U.K., Canadian, European and other central banks also provided extensive additional support). Changes will require “a new kind of politics from below as the central precondition for a progressive outcome of the current turmoil”38, with the integration of heterogeneous social movements to provide a viable support structure.


1. Kharif, Olga (2013), Bitcoin rallies to record high as digital currency gains validity among U.S. regulators, Financial Post. Accessed at

2. n/a (2013), How much U.S. currency is in circulation?, U.S. Federal Reserve. Accessed at

3. Greco, Thomas (2009), The End of Money and the Future of Civilization, Chelsea Green Publishing

4. Williams, Bob (2004), The JAK Members Bank Sweden: An Assessment of Sweden’s No-Interest Bank, Anielski Management Incorporated. Accessed September 12th, 2012, at

5. Lietaer, Bernard & Belgin, Stephen (2012), New Money For A New World, Qiterra Press

6. Gatch, Loren (2006), Local Scrip in the USA During the 1930s: Lessons for Today?, Presented at the Conference on Monetary Regionalisation: Local Currencies as Catalysts for Endogenous Regional Development Bauhaus-University Weimar, Germany, September 28-29, 2006. Accessed September 10th, 2012, at

7. History of Switzerland web site. Accessed September 10th, 2012 at

8. N/A (N/A), Switzerland’s Political System Direct Democracy, Democracy Building. Accessed September 10th, 2012, at

9. Delfia, Heidi (1994),60 Years WIR Business Circle Cooperative – Origins and Ideology, WIR Magazin September 1994. Translated by Frederika Almstedt with assistance from Thomas Greco. Accessed September 10th, 2012, at

10. Studer, Tobias (1998), WIR and the Swiss National Economy, WIR Bank. Translated by Professor Philip Beard. Accessed September 11th, 2012, at;jsessionid=51297B8DBF7B0C962FD3BD355B05B7B1

11. Wuthrich, W. (2004), Alternatives to Globalization: Cooperative Principle and Complementary Currency, Zeit-Fragen. Translated by Professor Philip Beard. Accessed September 11th, 2012, at

12. Weber, Olaf & Remer, Sven (2011), Social banks and the Future of Sustainable Finance, Routledge

13. Kaufer, Katrin (2011), Banking as if Society Mattered: The Case of Triodos Bank, Community Innovators Lab (CoLab) Massachusetts Institute of Technology. Accessed September 12th, 2012, at

14. Triodos corporate web site. Accessed September 12th, 2012, at

15. Global Alliance for Banking on Values web site. Accessed September 12th, 2012, at

16. Various (2011), The World Islamic Banking Competitiveness Report 2011-2012 ‘A Brave New World of Sustainable Growth Report’, Ernst & Young for the World Islamic Banking Conference. Accessed September 14, 2012, at$FILE/IBCRReport2011%28LR%29%20Final.pdf

Siddiqi, Mohammed (2006), ISLAMIC BANKING AND FINANCE IN THEORY AND PRACTICE: A SURVEY OF STATE OF THE ART, Islamic Economic Studies Volume 13, No. 2, February 2006. Accessed September 14, 2012, at…pdf

18. El-Gamal, Mahmound (2006), Islamic Finance: Law, Economics, and Practice, Cambridge University Press

19. Fregidou-Malama, Maria & Hyder, Akmal JAK MEMBERS BANK: A SUSTAINABLE FINANCIAL ALTERNATIVE?, University of Gavle. Accessed September 13th, 2012, at

20. Burton, Mark (2008), Unravelling Debt The Economy, Banking and the Case of JAK (MSc Dissertation in Holistic Science at Schumacher College & University of Plymouth), JAK Bank. Accessed September 17th, 2012, at

21. Conaty, Pat & Lewis, Mike (2010) Sweden’s JAK Bank Liberating community finance from the ball & chain of compound interest, Making Waves Volume 20, Number 3

22. Williams, Bob (2004), The JAK Members Bank Sweden: An Assessment of Sweden’s No-Interest Bank, Anielski Management Incorporated. Accessed September 12th, 2012, at

23. Rothschild, Matthew (2009), Nationalize the Banks, The Progressive March 2009. Accessed September 17th, 2012, at

24. Fisher, Irving (2011), 100% Money – Designed to keep checking banks 100% liquid; to prevent inflation and deflation; largely to cure or prevent depression; and to wipe out much of the National Debt, Thai Sunset Publications (Digital Edition of 1935 original)

25. Daly, Herman (2012), Nationalize Money, Not Banks, Positive Money. Accessed September 17th, 2012, at

26. Robertson, James (2012), Future Money: Breakdown or Breakthrough?, Green Books

27. Harkinson, Josh (2009), How the Nation’s Only State-Owned Bank Became the Envy of Wall Street, Mother Jones. Accessed September 17th, 2012, at

28. Bank of North Dakota documentary. Accessed September 17th, 2012, at

29. Koch, George (2008), The ATB Advantage, Alberta Venture. Accessed September 17th, 2012, at

30. Hannant, Larry (1985), The Calgary Working Class and the Social Credit Movement in Alberta, 1932-35, Journal of Canadian Labour Studies Volume 16 (Fall 1985). Accessed September 17th, 2012, at

31. Klinck, Wally et al. (2008), Synopsis of Social Credit, Social Credit. Accessed September 17th, 2012, at

32. Krehm, William (1993), Power Unto Itself the Bank of Canada the Threat to Our Nations Economy, Stoddart Pub

33. Hellyer, Paul (1999), Stop: Think, Hushion House

34. NA (2010), Sovereignty and monetary reform are needed to make a better Canada for our children, Canadian Action Party web site. Accessed September 17th, 2012, at

35. Priestman, Richard (2009), Borrowing Trouble, Why not use the Bank of Canada to carry government debt?, Canadian Centre for Policy Alternatives. Accessed September 17th, 2012, at

36. Brown, Ellen (2012), Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free, Third Millenium Press

37. Citadel Maple Syrup Producers Cooperative web site. Accessed September 10th, 2012 at—1950.aspx

38. Panitch, Leo & Konings, Martijn (2008), American Empire and the Political Economy of Global Finance, Palgrave MacMillan

39. Duncan, Richard (2003), The Dollar Crisis: Causes, Consequences, and Cures, Wiley

40. Felkerson, James (2011), Working Paper No. 698: $29,000,000,000,000: A Detailed Look at the Fed’s Bailout by Funding Facility and Recipient, Levy Economics Institute. Accessed September 19th, 2012, at

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