Complementary
currencies are endorsed by many governments worldwide. The oldest and largest
is the WIR system in Switzerland, an exchange system among 60,000 businesses -- a full 20% of all Swiss
businesses. This currency has been demonstrated to have a counter-cyclical
effect, helping to stabilize the Swiss economy by providing additional
liquidity and lending capacity when conventional credit for small businesses is
scarce.
Brazil is a global
leader in using the complementary currency approach for poverty alleviation.
Interestingly, its experience began in much the same way as Kenya's: Brazil's
most successful community currency, called "Palmas", was nearly strangled at
birth by the Brazilian Central Bank. How it went from criminal suspect to
official state policy is told by Margrit Kennedy and co-authors in People Money:
After issuing the first Palmas currency in 2003,
local organiser Joaquim Melo was arrested on suspicion of running a money
laundering operation in an unregistered bank.
The Central Bank started proceedings against him, saying that the bank
was issuing false money. The defendants
called on expert witnesses, including the Dutch development organisation Stro,
to support their case. Finally, the judge agreed that it was a
constitutional right of people to have access to finance and that the
Central Bank was doing nothing for the poor areas benefiting from the local
currencies. He ruled in favour of Banco
Palmas.
What happens next shows the power of
dialogue. The Central Bank created a
reflection group and invited Joaquim to join in a conversation about how to
help poor people. Banco Palmas started
the Palmas Institute to share its methodology with other communities and, in
2005, the government's secretary for "solidarity economy" created a partnership
with the Institute to finance dissemination.
Support for community development banks issuing new currency is now
state policy.
The Legal Debate: Mutual Credit or
Counterfeiting?
If
the Kenyan court follows the example of Brazil, this could be the beginning of
a promising new approach to poverty reduction in Africa.
The Bangla-Pesa is backed by local resources, and the villagers were very happy
to have it in order to move their products and buy the surplus of others within
their community.
Viewed as a case of counterfeiting, however, there
is historical precedent for harsh punishment.
In the mid-eighteenth
century, when the Bank of England was privately owned and had the exclusive
right to issue the national currency, counterfeiting Bank of England Notes was
made a crime punishable
by death. That was the era of Charles Dickens' Tale of Two Cities and Bleak
House, when supplementing the national currency might have helped relieve
mass poverty; but it was in the interest of the Bank to control the market for
currency and keep it scarce, in order to ensure a steady demand for loans. When there is insufficient money in the system
to cover the needs of exchange, people must borrow from banks at interest, ensuring
the banks a handsome profit.
The converse is also
true: when sufficient money is supplied to cover the needs of exchange, debt
levels and poverty are dramatically reduced.
In this case, the physical Bangla-Pesa voucher looks
nothing like the national currency, as it would need to in order to sustain a
charge of forgery. The intent of complementary currencies, as their name
implies, is not to imitate or compete with the national currency but to
complement it, allowing for increased sales within the local community of
existing goods and services that would otherwise go unsold. Today, the Bank of
England itself acknowledges
this role of complementary currencies.
The Bangla-Pesa experience demonstrates what
policymakers often overlook: gross domestic product is measured in goods and
services sold, not goods and services produced; and for goods to be sold,
purchasers must have the money to buy them. Provide consumers with excess money
to spend, and GDP will go up. (In Kenya,
where nearly half the population lives in poverty and mass unemployment,
increases in GDP reflect extractive practices rather than local conditions.)
The common perception is that increasing the medium
of exchange will merely devalue the currency and increase prices, but the data
show that this does not happen so long as merchandise and services remain
unsold or workers remain unemployed. Adding liquidity in those circumstances drives
up sales, productivity and employment rather than prices.
This
was demonstrated in a larger experiment in Argentina , when the country suffered a major banking crisis in 1995. Lack of confidence in the peso and capital
flight ended in a full-scale run on the banks, which closed their doors. When
the national currency became unavailable, people responded by
creating their own. Community currencies at the local level evolved into the
Global Exchange Network (Red Global de Trueque or RGT), which went on to
become the largest national community currency network in the world. The model spread throughout Central and South
America, growing to seven million members and a circulation valued at millions
of U.S. dollars per year. At the local government level, provinces short of the
national currency also resorted to issuing their own money, paying their
employees with paper receipts called "Debt-Cancelling Bonds" that were in
currency units equivalent to the Argentine Peso.
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