The Disraeli Room

The Disraeli Room

Blog Post

Empowering communities via complementary currencies

10th April 2014

Behrooz Tavassolian discusses innovative ways to empower communities

The current economic situation is often identified as the most cataclysmic financial predicament since the Great Depression of the 1930s. Most analysts strongly agree that traditional banking is no longer sufficient for the general public, and an ethical model for banking is required that can empower the more vulnerable elements within our society. Complementary currencies can perform some of this role.
A complementary currency is a form of exchange that operates alongside a national currency. It empowers the community by allowing those who earn credits to sell or trade them with a willing buyer, therefore, the city could create an opportunity for people who need to earn money but can’t find a job in the current market. This could prove to be a lifeline for homeless people who have limited access to money for their daily needs.

The significant difference between complementary currencies and conventional money systems is that the amount of money is generally confined to a particular location or institution. Therefore, a shortage of money will never be a problem as it does not have to be created outside the spiral of buyers and sellers by a third party (ie: banks or government).

One of the most interesting developments in the UK complementary currency movement has been the emergence of local currency schemes in “Transition Towns”. Following Totnes in 2007, the towns of Lewes, Stroud and Brixton in South London have all successfully launched local “pounds”, which are confined to independent businesses in their respective areas. The feedback from both the media and these communities has been positive. The Director of Brixton Town Centre, for example, said of the Brixton Pound that it had “done more for Brixton’s reputation than anything since the lighting of Electric Avenue in 1900”.

Due to varying socioeconomics it’s not easy to prove the effectiveness of complementary currencies with regards to the effect it can have in minimizing poverty levels. A primary example exists in an African slum where little of the national currency is available. The case revolves around Will Ruddick, an American physicist, economist and former Peace Corps volunteer, who introduced a complementary currency (Bangla-Pesa) into a Kenyan slum called Bangladesh. The project was launched on May 11, 2013, and this process resulted in an increase in sales of 22% as incomes and purchasing power increased by 22%. This increase occurred because the residents were connected to their own resources and were able to make the necessary acquisitions, thus motivating the economy to move in a more progressive direction. Without this new currency these goods would have been wasted, not because they weren’t financially viable, but because potential customers did not have the money to buy them.

This model earned plaudits from the UN, The Hague and the International Reciprocal Trade Association. The plan was to expand it to other villages in a democratic grassroots fashion so that it could provide a local medium of exchange for people throughout the continent. This would be achieved via mobile phones with a system provided by Community Forge, an organization based in Geneva that supports the development of community currencies worldwide. However, that plan was interrupted on May 29th, when Ruddick and five other project participants were arrested by Kenyan police and thrown in jail. After several months of postponed trials, and thousands of dollars in lawyer’s fees, a petition from the Hague and an intervention by Kenya’s attorney general, the charges were finally dropped.

Despite this success, constraints exist regarding complementary currencies. The complementary currencies that exist today usually involve only a small number of people and businesses. According to experts at Seoul National University, this means that they play a limited role in providing local goods and services to the market, while scholars at The University of Bristol has said that there is limited evidence of complementary currencies making a real change in terms of employment and cheap community care. High transaction costs and a lack of resources and support can result in a slow take-off for complementary currencies, as can too much dependence on voluntary work, subsidies, or bad financial management.

Despite these challenges sanguinity remains about the future of these mechanisms. That being said, there are many different areas in order for them to improve pertaining to integrating financially excluded individuals. For example, the creation of electronic payment trading systems would vastly expand complementary currencies so the transactions would not be limited just to purely cash. A number of positive attributes can be identified as mobile phones could be utilised to store credits. This would prove to be a real benefit for those who cannot access a bank account or to the financially disenfranchised in general. Other ways to go about resolving this problem would be to implement savings and investment institutions which would provide local finance to the financially excluded as well as to sustainable businesses.

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