Complementary Currencies:
Hands up for a money revolution

In the last 30 years, the World Bank identified no fewer than 97 banking crashes and 176 monetary failures – even before the 2008 crisis. Isn’t it time, asks ROWAN MORRISON, to think again about our money systems?

The current monetary system has proven repeatedly that it’s unstable,” declares Bernard Lietaer. He should know. A former member of the Belgian Central Bank, he helped to design and implement the convergence mechanism to the single European currency system. More particularly, he’s made a lifetime’s career of shaking up popular beliefs about the role of money in our lives.

Long before the 2008 financial crisis, he says, the 270-plus banking and monetary crashes identified by the World Bank had convinced him of the need for a revolution in our money systems. Each one of those crises, he insists, was attributed to a proximate cause like sub-prime problems or bad management. But that repeatedly “overlooked the systemic elements underlying all of them”.

That’s why he’s such a passionate advocate of so-called complementary currencies. These define ‘money’ as an agreement within a community to use a standardised medium of exchange alongside, typically, a national currency. Such systems are operational all over the world – including, for example, commercial loyalty systems such as Air Miles or Tesco Clubcard points.

More than 5,000 complementary currency systems have emerged in a dozen countries to facilitate social transactions, like the local exchange trading systems (LETS) and Time Banking (trade based on the cost of your time) in the UK. But such systems are designed to remain local and small scale.

“The schemes started as a means of trading without traditional money; like a social barter network,” explains Iain Mowat, Principal Economist at Halcrow Group Ltd in Edinburgh. “Since the early 1990s, their introduction has offered a means of creating credit within the system.”

But there’s increasing interest in larger, business-to-business national schemes – like the WIR Bank in Switzerland. Founded in 1934, following the 1929 stock market crash, WIR began with just 16 members and has grown to 62,000.

It’s the oldest example of its kind. An independent complementary currency system serving SMEs, it exists only as a bookkeeping system, with no actual ‘money’ to facilitate transactions. “The members of the network have an account and use this to trade with other members,” says Mowat. He believes WIR acts as “a significant counter-cyclical factor” which helps to explain the long-standing stability of the Swiss economy.

Another scheme, using insured invoices, is the Commercial Credit Circuit (C3), which is now expanding from Brazil and Uruguay to half a dozen other countries in Latin America. It, too, has generated interest and there’s talk of such systems starting in Holland, France and Spain. Explains Lietaer: “They provide an effective way to provide additional working capital to SMEs, and thereby reduce unemployment. The C3 approach is 100 per cent digital, so makes it more profitable for banks and insurance companies to provide services to the SME sector.”

Part of the theory is that complementary currencies avoid putting too many eggs in one basket. “The urgent message,” says Lietaer, “is that the monoculture of national currencies, justified on the basis of market efficiency, generates structural instability in our global financial system.

“We need to update our societal information systems to the needs of the 21st Century, and that includes information and motivation systems that can operate in parallel with the conventional money system. Their role is not to replace the conventional system, but to provide a wider net for information capturing than the conventional money system now allows.”

Mowat believes there’s scope for Scotland to establish a national complementary currency system, and that such an approach could be particularly attractive to new entrants to the banking market such as Tesco Bank and Virgin Money. “It has the potential to provide a highly innovative and effective means of generating increased market penetration among households and SMEs.

“And from a public policy perspective,” he suggests, “there are also substantial wider benefits in ensuring that there is sufficient liquidity in the economy to counter-balance the substantial contraction in credit being experienced throughout the mainstream banking system.”

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