If most people living in an area are poor, the conventional response is
to look for ways of getting more money into that community. Does the
area have attractive scenery or good sport fishing? OK, let's start a
tourism promotion campaign. It has forests and minerals? Good, here's a
list of companies we'll invite to come in to exploit them.
Unfortunately, although almost everyone in the world is trying this “development” strategy, it doesn't often work. For example, Westport, the town in Ireland where I live, decided a few years ago that it would advertise golfing holiday packages in Sweden, which is regarded as a rich and therefore lucrative market. But as one golfing holiday is much like another, pretty soon Westport found itself competing with Scottish and Portuguese golf resorts. Everyone's prices came down, lowering the return to the holiday providers and effectively raising the incomes of the Swedes who could now buy the same vacations for less money. In other words, the rich got richer and the (relatively) poor got poorer.
Essentially, the golf holidays had become an international commodity, sold largely on the basis of price. The price of commodities relative to the price of other goods and services has been falling for many years. This fall has particularly affected countries that produce agricultural products, raw materials, and unsophisticated manufactured goods. It is the reason why the gap between the rich and the poor parts of the world has widened rather than narrowed as world trade barriers came down. During the past three decades, the ratio of the income share of the richest 20 percent of the world's population to that of the poorest 20 percent has more than doubled, rising from 30:1 to 78:1.
So, if the conventional approach to poverty is unlikely to work, here's an unconventional one: Instead of trying to bring money in from outside, why not get people in the deprived areas to create their own money? True, this self-produced money is useless for making purchases outside the area where it is issued, but it would allow the people living there to trade amongst themselves without having to earn external currency first. This is a very important consideration, because in most poor areas, the residents have labor and other resources they could use to meet local needs, but they are unable to do so simply because they lack the means of exchange. This was the situation during the Great Depression in the 1930s when factories closed, even though people who needed the goods they produced lived right outside their gates.
In 1997, a common desire to see how effective local currency systems could be in alleviating pockets of poverty led four organizations to make a joint application to the European Commission for funding to carry out action research. One of them was Enterprise Connacht-Ulster, a development organization set up by local people in a particularly poor area of rural Ireland known as the Black Triangle on the borders of counties Mayo and Roscommon.
The landscape in the Black Triangle is one of heather-covered hills, bogs, and small fields surrounded by fences or stone walls. As late as 1970, eggs were very much a currency in the area. Most farms ran free-range hens, feeding them on oats they grew themselves, and exchanging the eggs for clothes, hardware items, and foodstuffs that the farm could not produce. Very little cash was required. The farms also grew potatoes and raised pigs and cows. This near-self-sufficiency is now gone. There is very little industry or tourism in the area, and farming has suffered a massive decline in the last 50 years.
Unlike their partners, the founders of Enterprise Connacht-Ulster (EC-U) had no knowledge of how local currencies worked when they were asked to join the project. This lack of knowledge has proven to be a major advantage because they took nothing for granted, stripping away unnecessary elements from currency systems operating elsewhere to create one of the simplest-to-start, least expensive and therefore most sustainable auxiliary currencies in the world.
It works like this: By the time this article appears, several thousand one-Roma notes will be in use. Roma, the name of the new currency's unit, is derived from ROscommon and MAyo, the counties in which the new money will circulate. A Roma is equal in value to an Irish pound. The notes will reach people's pockets by being sponsored by local businesses and given to voluntary organizations to spend. The businesses guarantee the notes by promising to supply goods and services equal to their value.
If a business decides to give, say, 1,000 Romas to a voluntary organization, it orders them from EC-U, which overprints the quantity of currency required with the name of the sponsoring business and its logo or advertising slogan, plus the name of the good cause to which the notes are being given. The company then presents the notes to the voluntary organization, which spends them on buying the goods and services it needs to continue its work.
Every firm that sponsors notes agrees to honor those issued by other sponsors. When the system is fully operational, it is expected that most businesses and individuals in the area will accept the notes, regardless of whether they are sponsors. They will accept the Roma because they will know that they will be able to spend the notes easily and that, by taking them, they are helping the voluntary organizations to which the notes were originally given.
Firms that agree to support local voluntary organizations by giving them Roma notes gain several advantages. When a firm gives a cash donation, the amount involved comes straight out of its profits for the year. A gift of Romas, on the other hand, comes out of the profits to be made on future business that the new money will help to generate. Moreover, the fact that a firm's name appears on the note in association with a local good cause builds goodwill. Finally, since the notes are treated as discount vouchers when they are used to make a purchase, the amount of the gift is free of sales tax.
As people become increasingly confident that they can spend any Roma notes they receive, they will be prepared to accept larger quantities of them, allowing EC-U to increase the quantity in circulation and thus the level of support the system provides to local organizations. Eventually, the EC-U founders hope to introduce checks written in Romas, as this will enable trade on a much larger scale. Only then will the EC-U currency system resemble that being set up by Rural Forum in Scotland (see sidebar) and really break the link between the amount of national currency coming into the Triangle and the amount of local trading going on.
If firms accept the system, voluntary organizations should get more, and bigger, donations. The system should also be good for the ordinary people of the area because they will be able to open accounts and, by going into debt from time to time, create money for themselves in a form that will be readily acceptable to local businesses. Moreover, those local firms that accept Romas will gain a major advantage over competitors from outside the Triangle who won't be allowed to open accounts and who will therefore have to insist on 100 percent payment in pounds or Euros, which will always be harder to earn. Trading should therefore become more localized.
“Irish pounds are hard to earn and easy to spend,” EC-U is telling business people at presentations. “Romas are easy to earn but a little harder to spend. So you need to earn both types of money to do really well.”
The politics of printing money
One important aspect of local currencies is that they are democratizing money creation. This is important because in the past, currencies produced by one group for use by another have been instruments of exploitation and control. For example, whenever Britain, France, or one of the other colonial powers took over a territory during the “scramble for Africa” towards the end of the last century, one of their first actions was to introduce a tax on every household that had to be paid in a currency that the conquerors had developed for the purpose. The only way the Africans could get the money to pay the tax was to work for their new rulers or supply them with crops. In other words, the tax destroyed local self-reliance, exactly as it was intended to do.
Today, even though the dollars or pounds which we pass around via checks and credit cards only exist as account entries created by a few taps on a bank's computer keyboard, very little has changed. Over 95 percent of the money supply in an industrialized country is created by banks lending it into existence. These banks are usually owned outside our areas, with the result that we have to supply goods and services to outsiders even to earn the account entries we need to trade among ourselves. Our districts' self-reliance has been destroyed just as effectively as it was in Africa, and whatever local economy we've been able to keep going is always at the mercy of events elsewhere, as the current world economic crisis is making
all too clear.
If we want to eradicate areas of poverty and build communities that are less exposed to cut-throat international competition, people will need to meet more of their needs from the resources of their areas. Local currencies have a vital role to play in making that possible, and the experiments being carried out in Scotland and Ireland could have important implications for all our futures.
Richard Douthwaiteis a consultant to the four EC funded currency projects. His book, Short Circuit: Strengthening Local Economies for Security in an Unstable World,
which describes many local currency systems, is distributed in the
North America by Chelsea Green Publishing Co, PO Box 428, Gates-Briggs
Bldg. #205, White River Junction, VT 05001; 800/639-4099; Fax:
800/295-6444; Web: www.chelseagreen.com.
Scotland's New Money
Like many remote communities, those of rural Scotland “leak” their currency to urban areas. Instead of circulating in these rural regions creating jobs and exchanges of goods and services, money tends to flow quickly to the major business centers.
At the beginning of this year, a new currency system began operating throughout Scotland. Its purpose is to support rural communities by providing organizations with additional means for trading goods and services with each other.
The Scottish Organizational Currency System (SOCSystem) is unique for a number of reasons. It is national in scope; the currency has been designed for adoption by rural communities throughout Scotland. Traders within the system include a mix of local governments, rural businesses, voluntary organizations, community groups, schools, and agricultural groups. Many are suffering from financial cuts. The SOCSystem gives them access to a diversity of goods and services by facilitating cooperation among them.
The system will offer opportunities for small businesses to trade in their excess capacity, for voluntary or charitable organizations to exchange such valuable services as accounting and administration, and for larger organizations – such as local governments – to make use of underused resources such as property or computers or printing equipment. These organizations can exchange all sorts of skills and resources with each other, thus widening their capacity and knowledge base.
How does it work?
Each member sends in a list of their “wants” and their “offers” to be compiled into a directory. The first directory will be circulated at the beginning of 1999. The currency is called SOCs, and one SOC is the equivalent of £1 Sterling. It costs 20 SOCs to join.
All SOCs credits are created by trading. Members negotiate a price for a service or goods and make payment using a SOCSystem check. They can negotiate part payment in cash, for example 30 percent SOCs/70 percent cash.
Everyone's account starts at zero, and members can spend straightaway. SOCs are interest-free, so there is no point in hoarding currency. In fact, at any one time, a number of accounts have to be in deficit if the system is to work.
So far, 60 members have joined – 45 percent businesses, 45 percent voluntary organizations/community groups, 10 percent government agencies, agricultural and enterprise groups. Amongst those in the first directory are a LETSystem (Local Exchange Trading System), a whole-food cooperative, an architectural practice, a firm of solicitors, a ski shop, holiday accommodation, and even a dowser.
The system, which was designed to support voluntary organizations, does not serve individuals, who can participate in the flourishing LETSystems. (LETSystems are designed to facilitate individual exchanges much as the SOCSystem operates between organizations. See YES! Spring 1997.)
Some alternative currency systems are regarded as second-rate to the national currency. We hope in Scotland that members will see the SOCSystem as part social movement, part currency, and will choose to use SOCs as their preferred currency.
– Ian Griffith, Ruth Anderson, Ruth Whitfield