In this post I address the subject of effectiveness of a currency, considering their purpose and design. The creation of a currency, be it a crypto-currency, a barter currency, or community currency is always for a purpose – form follows function. I explain that the traditional ‘build it-sell it’ business model is broken and show how a well-designed currency should invert this process. It neutralises the purpose-driven currencies but gives the people what they want.
A participant in an online forum specialising in Alternative Currencies shone a light onto the subject of the purpose of establishing a Community Currency. He also observed that most community currencies don’t have any major contribution to the national economy. A large percentage of Community Currencies (many were established in the 1980’s and 1990’s) failed to survive, and those that did were not entirely a rip-roaring success.
Wouldn’t it be true that when you have to buy into a CC [Community Currency], or earn a few “Hours” in your spare time, then it is an honourable “hobby”, like trying to be a “green conscious” person, recycling, separate waste or turn off extra lights. It might promote friendship or community action, but not change the economy in a measurable way.
He’s picked up here on the fact that some users of Alternative Currencies [ACs] use them for philosophical reasons. Indeed a high proportion of AC users are passionate and strongly believe that they are helping make the world a better place. There is another aspect to this though – the primary motivation for the vast bulk of the world is self-interest. People generally use a particularly currency because it suits THEM to use it – personal profit or gain; ease of use; ignorance of alternatives are all valid reasons outside of the ‘feel-good-factor’.
To really make a difference a CC has to put people to work who have no other option. It has to be spent into the economy by hiring new people who are unemployed, and not just by paying CC bonuses to existing government employees. This could be difficult in societies where unions, or minimum wage laws don’t smile upon hiring for scrip. It might be looked at as further gouging the worker.
Now I respect the words of the writer – he simply wants to make a point and raise questions, so I don’t want to attack him but he shows his bias in regards to his purpose. His worldview is that a desirable currency should affect EMPLOYMENT positively, and a few secondary issues as well. A true currency does not have a social purpose. Of course it can be designed in ways that can help encourage employment but so too can Legal Tender currencies as well as other non-monetary factors such as global consciousness changes; natural or political events and more.
This would seem to mean that southern Europe and Greece would have a high need and adaptability to utilise a CC to really make a difference. But also when you look into a country with low unemployment you find that just like wealth that concentrates, poverty concentrate. Therefore there probably are US inner city areas with above 40% non-working. Can CC systems make a difference in these situations?
He asks a good question, for if a Community Currency (CC) does encourage greater employment this is clearly a good thing and CCs should surely be promoted to the hilt.
I agree with his observation that “poverty concentrate[s]”. I’ve mentioned this many times and while it is well accepted that the rich get richer and the poor poorer, many do not realise that it is compounding interest that enslaves. Usury (the charging of interest on money) is the tool that the elite use to enslave.
Most CCs are not interest-bearing currencies and thus have the potential to level the playing field and to help us escape the clutches of interest-based currencies but there’s a real problem with the CC business model. I’ll come to this and the solution shortly.
Our ‘friend’ continues with some observations:
My reflection is that in countries where there are no active community markets, people are not used to tak[ing] small steps to find some minimum commercial activity. There people are more proficient in adapting a profile to receive government assistance. Would they be able to take advantage of mutual credits to build something for themselves? Are there any people in such a community that would build an enterprise on the back of mutual credit loans?
Right . . . so he’s saying that bludgers on the system abound and he wonders whether they’d bother getting of their big fat a*** and avail themselves of an interest-free loan to take responsibility for themselves and contribute to society. Sure, he used less direct words than that but that’s the essence of his question.
My answer, sure, maybe a few might. But I’ll tell you what, that few will be a LOT when or if the government fails to spit out the readies on demand and they’re hungry and worried!
Form Follows Function
It’s not commonly realised but currencies are always consciously designed and their design relates back to their purpose.
In architecture and industrial design we say that Form Follows Function, in other words if we want a device to transport goods on the road, it will probably have wheels, a motor and a tray or box for putting stuff in. If we want to transfer food from a plate to our mouth the form [design] will probably make it small enough to fit in our mouth and not made of asbestos! Likewise with a currency, if we want to build community with our currency we will probably make our currency attractive to locals, not foreigners or multi-national businesses who tend to suck value OUT of a community. If we want to profit from the currency we will probably include some form of remuneration mechanism within the currency. The banks do this nicely by charging interest – at both the Central banking issuance level AND the retail lending level. There are other ways as well but charging interest is the most efficient way of profiting from a currency.
Those with social objectives (our friend above desired increased employment) will seek currencies that have a social benefit. Those with ecological interests will tend towards green projects and technologies. Those of a religious persuasion (The Islamic faith amongst others have an aversion to usury/interest) will structure their currencies in certain ways to comply with their rules/beliefs. Crypto-currencies also have specific design characteristics – while not Mutual Credit currencies, their claim to fame is that they are designed to be secure from Big Brother interception and safe from manipulation at a structural level because they are built on strong algorithms. There are now a wide variety of alternatives in this space and each of them too have their own designers, focusing on their own objectives.
The bottom line is that Form (the design, in this case of a currency) Follows (it is designed according to) the Function (the purposes for which the owner/founders established it). All currencies without exception are consciously designed (and of course tweaked, managed, changed and redesigned too), by someone, somewhere at some point in time.
An interesting thing occurs when you put Alternative Currencies alongside of each other . . . most agree in a common enemy (the Central Bankers, the Illuminati, the system or whatever) but you’ll never get agreement on what the goal is nor how to get there! This is a RED FLAG for truthseekers and thinkers [like me] and alerts us to dig deeper on the subject.
Inverting the Alternative Currency Model
In my book Mistakes of the Monetary Reformers I identify some twenty common errors this industry makes. I’ll focus here on only some of these, looking at what I consider to be a faulty design from a sales and marketing perspective. Summarised it is that the selling of a product (in this case we’re talking about a [new] currency) requires a sales and marketing effort. The harder the ‘sell’ required is then the poorer the design, or the salesmanship, or the marketing message, or the timing of the presentation is. The more that customers ‘buy’ though, then the less sales effort required for something to gain traction.
All Community Currencies require an enormous PUSH in order to gain traction and to be perfectly frank, most in the business know and realise that it’s a ‘hard sell’ – in fact a VERY hard sell indeed. Something then must be terribly wrong for this to be the case, and that is one of the reasons why I wrote the book.
Now a true currency is socially neutral; it has no agenda, nor any purpose other than to record the transactions that its users want it to. Many community currencies push the community aspect of their currency, which is fine, but sports groups or churches or business groups can all achieve those same objectives with the existing currencies. They’ve obviously gotta do better, but how?
I have the answers.
Now the key to understanding this sell/buy dynamic is to ask yourself what’s the first question that a potential user of a new currency will ask . . . it doesn’t matter if it is at the time of implementing the Euro; or in relation to Bitcoin; or a commercial Barter Exchange; or the local TimeBank, Community Currency or Green Dollar co-operative . . . the first question is always, “Where can I spend it?” Putting this another way, “What can I get if I use it?” This is logical, and perfectly natural but we don’t have that question with cash, or Legal Tender, for we have total confidence that it can be used in due course for getting what we want.
Alternative Currencies are not so lucky though. All models that I am aware of work the same as each other . . . somebody creates a currency and then attempts to build a community of users to use it – this builds up the credibility of their currency. They HAVE to, for their currency will never be effective unless they do this. In a recent post from Kenya where a young alternative currency is apparently doing well, this subject is addressed indirectly. The writer talks a lot about the ways that the members can spend the currency, even testing the future suppliers whether they are genuine in the network:
… some of her costumers, non members have expressed their desire to join the network. “They come and ask if they can pay in Kangemi Pesa to test me and to see if the network is serious before they join”.
This is the build it-sell it model. Perfectly valid, but hard work:
the network is still in its stabilizing stage and some of the members don’t know where are located the others . . . but the committee is busy working on solutions to these issues . . . A business directory is currently being created and will be given to each member, allowing him/her to know where are located the others and what they are selling.
There is another way to structure a currency, and that is to invert the business model, so that it is the user of the currency who promotes the currency, NOT the system owners, designers or managers. To do this requires an inversion of the business model. Instead of its purpose being external to the currency (like making the world a better place), if the purpose is intrinsic (people WANT to use it because the currency is actually what they WANT) then guess what, the users will use it!
Putting it crudely, if it’s in their interest to use it, then they will.
Getting it right
How then to get it right?
The solution is multifaceted as I have explained previously in my description of a Perfect Traders’ Currency, but in a marketing sense the first thing to do is to give people a better reason to use the new currency than the old one. Self-interest is the strongest motivator for most people – we ALL do what we think is best for ourselves.
The way to structure a currency to capture self-interest is to pay commissions on usage of it. Visa, Paypal and others all charge fees to us when we their services. Governments charge consumption or value -added sales tax. Banks and most lenders charge interest and it is considered normal to pay people for services rendered.
The idea that individuals (as well as the aforementioned examples) can also profit from the use of a currency (or a payment method) requires a mindset change, but so too did changing from taking a piece of gold, in our pocket to handling paper notes, to writing cheques, zapping a plastic card, to popping onto the Internet to ‘make a payment’, to tapping into our smart-phones, to waving our RFID chip embedded hand at a scanner.
Each of these technologies at the time had costs associated with them – double pockets to ward off pick-pockets from our gold, seigniorage, cheque or credit card fees and so on.
Paying commissions (or royalties) is a standard accepted business practice. Paying the fees back to the person who introduced the business to the system is simply a choice of the owner of the currency. Paypal, eBay, Commercial trade exchanges could easily share their fees with others if they so chose. Some currencies do this by way of referral or reward systems of various sorts.
The mindset change
Alternative Currency designers haven’t yet connected the dots in this area.
The banking community, the politicians and the vast majority of businesses all want the status-quo. Purists want free money, but this is a pipe-dream. Bitcoin is speculative – you have to mine the coins or buy them to be able to trade and most will use them to speculate. Crypto-currencies are a totally different beast.
Some commercial barter organisations do share profits and operate in a co-operative ownership model, which is moving in the direction I mention here but the mindset change from inverting the traditional fee structure to paying commissions for the use of a currency, has yet to occur at a design level*.
The new currency must overcome doubt, inertia, the power of precedence (habits) and also any defensive acts that TPTB may exercise. When people realise that they can profit from their trading partners’ use of a certain currency though, a paradigm shift happens and the problems that Alternative Currencies have in their sales and marketing dissolve.
In a practical sense with an inverted system we now have people actively promoting their preferred currency and helping their trading partners to spend and introduce others to the new, preferred currency. If I profit from my customers’ trading with others, then I will of course do everything I can to help them find and trade with others using the preferred currency. This is just human nature.
A direct consequence of this inversion is that many of the various roles have moved onto the traders themselves. We have essentially empowered people to do what they have always done, traded with those that they want to trade with, it’s just that we’re paying them to use our currency. There’s no need for trade co-ordinators for the users of the currency will find the people that they want to trade with and will trade with the new currency. A closed membership system with a list of members who will accept the currency (like the Kenyan example above) is no longer required because anyone, anywhere who wants to benefit from the new currency can trade with it- if someone introduces them and wants to trade with them.
So if the inversion is done right (there’s a lot more than just paying commissions BTW) and it HAS to be 100% right in the design to gain traction, then the challenges for an Alternative Currency owner/designer change from area of sales and marketing into those of fulfillment, and that’s a LOT easier to deal with** than sales & marketing!
A word of warning: Legal Tender money has the approach ‘build it – then get the government to enforce widespread usage’ but no other currencies have this privilege. Attempting to take on the current financial system is almost futile, for it has the power and motivation (legal, financial and social) to enforce its monopoly position. I do not believe that Alternative Currencies (even the inverted model I have just described) will ever make a meaningful impact upon the status quo UNTIL it implodes. At that point the widespread trust that it has will be destroyed. Many (including me) believe that this implosion will happen. I think it’s a lot further away than the doomsdayers fear, but it will happen for sure. At THAT point there will be a sea of buyers looking for alternatives, and may the best man ‘win’!
The Purpose – Revisited
There are a dozen factors or more that go into designing a perfect currency – ownership issues, technology, credit issuance and management, strategic issues and of course it’s purpose.
The comments from our friend above implied that a currency should have a social impact i.e. a purpose. I don’t believe that this is what the people want. A perfect currency for a trader will be something that they trust, be simple enough to trade with, and as I have suggested here, return a benefit to the trader.
This though, is a trade-off between a well-designed currency and a purpose, because most of the time, traders in Zimbabwe have no interest in the community benefit of a currency to Chile, New York or a community in rural Samoa. They MAY do of course but this is where the gain to a currencies flexibility and attractiveness is a loss to those with an agenda.
I posit that it is far better to have a currency that’s sole purpose is to be a perfect currency for traders, than it is to achieve any social, political ecological or ANY other purpose.
I’d like to thank the writer of these comments for triggering this post. I trust that you’ve enjoyed thinking this all through with me. I’ve enjoyed it and there’s a lot more on this subject too!