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The kind of money system we have chosen determines social and ecological outcomes.

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RichardMiller's picture
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I had been reading about the world monetary system, and I had asked a few of the participants at a conference on Rethinking Development Studies at Chiang Mai University last weekend what they thought the effect of money was on development theory. No one, it seems, has considered it in depth.  They either did not understand me, or they thought that all currencies would be about the same. I am beginning to realise that development without currency and interest payment policy cannot have maximum effectiveness.

1. Academic circles in sociology have scarcely researched or tested attempts to investigate alternatives to the present monitory system. The kind of system that organises a society determines to a very large degree the measure of freedom and development, and mutual human relationships. The most prevalent reason for not thinking about the money system is the conviction that it cannot be changed.  A money system has consequences that rise to the surface in human values. A system where greed and exploitation are built in, ends up destroying itself.  It promotes the negative side of human beings with all its consequences rather than the positive side.

With a typical local development program, funds flow from the donor to the local NGO, to the stores to buy the goods from non-local sources or to the labourers who work on the project and who then spend their money at non-locally owned businesses. Eventually all of the funds drain out of the community and the local NGO goes away, looking for a new program in order to receive further funding. The local money supply diminishes to its previous level, and the local economy is suffering again since there is no medium of exchange to facilitate the interchange of even locally-produced goods and services.

Instead of focusing on community assets and how they can be mobilised to solve local problems, communities focus on what they are lacking and describe their community in negative terms in order to attract the attention of external aid organisations, leading to a “donor mentality” and a lack of social cooperation in defining community goals and carrying out the task of achieving them.  It is the same dynamic with individuals in national social welfare schemes.

2. In addition to this, we see two vicious cycles, one economic and one social that hamper local socio-economic development. The economic vicious cycle is that because there is an insufficient supply of money at the local level, the risks to investors and lenders are high and they are reluctant to invest or lend. Without access to credit, however, people can’t work and communities can’t develop and therefore the local money supply remains insufficient and people can’t afford to buy what they need. 

The social vicious cycle spins off from the economic: since economic interaction is low, socio-economic dynamics are weak, making it harder for the community to cooperate on local development projects. For example, you can build a school but you can’t buy books, build a clinic but can’t pay for a nurse or medicine. Too many local buildings sit idle once they have been constructed and the funds spent on construction have been drained out of the community.

When there is unemployment in a poor country it means that there is something wrong with society itself and with the money system. Otherwise, local manpower would be occupied fixing local shortcomings while making use of local possibilities. When poverty goes hand in hand with unemployment; it is not because of a development problem but because of an organisational problem.  In practice there is an insufficient circulation of money since the rich are hoarding it, or it has left the country or the region.

3. Current development theory in a sense requires a sense of altruism, because it poses moral questions about the importance of sustainability.  It is like asking if everybody could please turn off the lights, then we could save energy.  It is impossible to mobilise societies behind just these ideas, so there is little or no effectiveness.  Sustainability arguments are obvious to all, but how can they be activated within a monetary system that absolutely requires the opposite? IT CAN’T HAPPEN.  

If we try to create justice and development through the redistribution of wealth, (tax and spend) we eventually create wars.  If it is not war between the classes then it is an external war as a diversion tactic to breed fear and compliance. With a more free availability of capital, local communities would create their own wealth.

4. The IMF directives offer loans of interest bearing currency to those willing to pay back double or triple that amount. Yoked to these rigorous payback schedules, it forces debt-laden countries to compete with each other for markets. With mathematical certainty it can be predicted that as long as the consumer demand in the rich countries does not keep on growing at a fast pace, the competition for export will result in continuing lower prices. Thus the export strategy resulted in “fire sale prices” for natural resources in the Third World.  Competition with each other and with the rich countries has begun after cutbacks, a massive sell-off of natural resources, and further lowering of wages. It is a system that depends for survival on the formation of a chronic poor class of people. This strategy ignores the failing money system. Therefore it is not surprising that it does not work. 

The US balance of payment deficit is reaching astronomical proportions while many countries are suffering under the burden of unpayable debt, and currency volatility has led to monetary crisis in many countries during the past 30 years. On such an unstable global economic footing, something will have to give way.

5. Complimentary Local Currency has to be the answer to give needed liquidity to communities of all types.  Notice the name “complimentary”.  To fix any kind of world social or economic system that is broken, you can’t just turn one system off and turn the alternative one on.  They have to work successfully side by side for decades, so that those people with advantages in the old system will have time to adapt to the new.  Furthermore, a single type of currency (interest bearing) may be efficient at establishing price points, but it has no resilience (sustainability requires diversity).  There should be 100’s of currency systems employed by communities all over the world. This writing is not a comment on all the good that interest bearng currency has done for the world. There is no need to turn off interest bearing fiat currency.  Just use it where it works best, perhaps in the center, and use something else where it isn't working, in the periphery.

The Trueque movement in Argentina has, for example, over 6 million members and has facilitated billions of US dollars worth of commerce without any institutional support and no national currency, using only locally-printed interest-free coupons as a means of exchange. There are now 20 countries in the third world where complementary currency programs are active, and in thousands of communities.

I had been reading on-line about the world money system.  Lately I found another book when browsing on Lingnan University, Hong Kong on some pages called Digital Knowledge Commons. 

Much of the Lingnan work seems to ignore the money system but this one book from Holland is downloadable. Most of the above paragraphs are direct quotes from this book.

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angryidiot's picture
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social and ecological

social and ecological prorities or lack of them also determine the money system we have.
in our world where 10percent own 80percent of money..nulls out your 100s of complimentary money.

over the years most surveys have pointed out what the poor need the most is credit rather than liquidity..for they dont actually have anything in the first india do you know that there are families where children eat bricks.?

credit linkage seems to be a more successful thing to combat money exploitation.

complimentary money would only be successful if the community is also well knit in related economic and other activities

i can see how it can be successful in between a weaver comnunity or farmers or merchants etc but between weavers farmers and merchants inside a single area ...dont know.

what stops any one from printing more currency if not the interest rate or inflation actually?

how will one community do business with the other.?? could be some related issues

may be the best money system would be the one which prohibits all savings. ..except when these savings right now are functioning as someones credit.

can it be done?


RichardMiller's picture
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Joined: 09/20/2009

Thanks for your comments. A couple of years ago I started to write a book and there was a chapter on world finance.  I hit many of the concerns right, although I wrote only from an intuition.  I am no expert, but until last month I really didn’t grasp the mechanism of money, (or grasp how much I don’t grasp the situation).

Money is not wealth, or not even a thing, but an agreement and just one of possible information (accounting) systems.  All banks have fractional reserve requirements, usually from 10% to 3%, depending on the nation.  What this means is that they don't “have” the money that they loan out. They merely write a paper that “you owe me" $100,000 plus this agreed upon interest.  Only $10,000 belongs to the depositors (maybe only $3,000).  It's just nothing, and besides, they are not loaning out the reserves.

Let’s say that both you and I don’t have full time jobs.  We get some consultancies, but they come slowly, and our payments are always very late.  Yet you know many things and are capable of what I need done for me.  I don’t have money, so I don’t hire you.  But wait, I also do stuff that others in the town could use. In fact there are a lot of us here that can serve each other well, but the banks have a fear that because there is no money here, we couldn’t pay them back.  Or they get a higher return in the capital city, so they have abandoned us. So since we live in a small town in the periphery, we all starve together.

If we just had some easy way to account for our internal trading of services, we could all be busy, serving and being served.

1.  So answer one, we don’t need the 80% of money to have 100’s of complimentary currencies.  We just make them out of our own agreement, like that national currency is made.  (This is not a free for all where everybody prints as much money as they want.  It has to be regulated, and it has to be based on trust.  So wise monetary choices have to be maintained.)

2.  This system does offer credit.  That is the strong basis of it.  But it is better than credit, because credit builds infrastructure, or stocks my shop.  But who will have money to buy my goods?  Credit doesn’t think about this other half of wellbeing, but the complimentary currency does.

3.  I read where studies confirmed that communities and families are held together by the “glue” of gift giving.  Like when all farmers are working together to harvest each field of rice, or all are pitching in to build a barn for one family.  The moment you have to pay your son to cut the grass or do family chores, you are breaking down family values.  They also discovered that community currencies build solidarity.  It is happening all over South America.

4. Right, a surplus of currency causes inflation.  Yes, it has to be managed and limited to the actual need.  There are many ways to do it and, many successful systems.

5.  Most systems have some way to be convertible to national currency.  And the system expands to other communities and even regions.  Industrial and commercial no-interest trading systems are even international, and they trade $ billions of  dollars. The communities don’t need to be just rural private people.  Big companies do it too.

6.  Some systems actually have negative interest.  It is usually a 1% tax stamp that has to be glued onto the bill every month to keep its value.  This discourages hoarding, and these systems can circulate even 400 times a year.  It pumps life into the economy.

It can be done, it is being done.  Much can be learned from the book download above, about 80 some pages.  Let's tell all our network that this can be experimented with.  Let's join a local system to get first hand knowledge.


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