Money and Unmoney
This is the 2nd part of the series The Grassroots Reinvention of Money. You can read the 1st part here.
The advent of digital cash, which we discussed in Part 1, means that anyone can now issue a currency. This week, we’ll look at some of the new forms of money that digital cash allows.
Digital cash enables us to create currencies for addressing specific needs.
Currencies for Business
Large businesses offer cash back or other incentive programs, which are basically special-issue currencies. Cryptocurrencies let any seller issue a digital currency that is branded to their business. This digital cash incentivizes customer loyalty. Examples of this include airline miles, Amazon’s coin, and more.
As cryptocurrencies mature, we’ll see industries using specialized money through their entire supply chains. Business-specific currencies are rapidly becoming big business.
Currencies that Solve Social Problems
Most economic theories say that money is value neutral. The theory goes that, all things being equal, the features of money itself do not affect spending habits. This is false.
Money can influence people’s purchasing decisions. So it is possible to use new forms of money to solve otherwise intractable social problems. These complementary currencies, as they are called, enable anyone to match excess supply with unmet demand in a way that has social benefits. By simply rethinking money, we can create more humane economies and communities without increasing taxes, redistributing wealth, or going into debt.
Another new form of money that digital cash makes viable is local currencies. For instance, if a local government wants to revive its area’s ailing economy, it can issue a bond as the backing for a local currency. The currency contains digital certificates of bond ownership. So a £20 bill in the digital currency would actually give the holder ownership of a £20 bond certificate. At maturity, the bond could be redeemed for physical cash. In the meantime, it can be spent at local businesses and used as payment for local taxes. This keeps money and value in local communities.
By the way, this same method can be used to issue money backed by gold, silver, or other commodities. The digital cash for a commodity-backed currency would simply contain certificates of ownership for that particular commodity.
While none of these new forms of money are legal tender, they are all legal currencies in most countries. There are a few things that people need to know in order to put local currencies on par with legal tender. But it’s perfectly possible to do business with sound local money rather than inflating national money.
It’s actually possible to buy, sell, and do business with no money at all. Instead, you use certified digital IOUs that are designed to give the “look and feel” of cash.
Credit Clearing Cooperatives
Credit clearing cooperatives let you issue digital IUOs, called credits, to buy products from the economy instead of using money. You redeem them by selling goods and services in exchange for other people’s credits. You form cooperatives and networks of affiliated cooperatives to build the system into an entire economy. Your credits are a cryptocurrency issued through your co-op, which you can then spend anywhere in your co-op’s network.
In the co-op system, banks don’t create money. Because you’re using credits (IOUs), your “money” is created when you spend it and redeemed when you put value into the system. No debt is needed to create money. The supply of “money” always matches the demand. There’s never a shortage.
Credit clearing co-ops networks are a free market of competing businesses that profit from providing you with economic infrastructure and new investment opportunities. Competition pushes the networks to create the most stable, usable, and valuable system possible.
An excellent introduction to credit clearing is Thomas Greco’s book, The End of Money and the Future of Civilization.
Commercial Credit Circuits
Credit clearing can be specialized for business needs into a commercial credit circuit (C3). C3s enable business to issue insured IOUs (credits) as payment for goods and services instead of obtaining bridge loans.
For example, a housing contractor gets paid when she completes a house. But she must buy materials and pay for labor during construction. A C3 lets her issue insured credits that are guaranteed to be redeemable for actual cash when her customer pays her. If the customer doesn’t pay, the insurance does.
The contractor’s suppliers and workers have the option of cashing in the credits right away (and paying an early withdrawal penalty), spending the credits, or hanging onto them until they mature. If they spend their credits, then those recipients have the same choices.
In the end, everyone in a C3 is guaranteed to be paid in cash. But there are no loans needed and the capital costs are much lower because the insurance is cheaper than an interest-bearing loan. With C3s, businesses can vastly reduce the amount of money they pay to banks as interest.
We’ve seen that cryptocurrencies provide us with many paths to sound money and lower capital costs. Next week, we’ll look at an example of how we can build more humane, fair, and profitable financial systems.