[people] are willing to pay for the potential convenience or security given by this power of disposal … , we shall call its liquidity-premium. (Keynes 1936, p. 226)
According to Keynes’s definition, not only money but all assets have a power of disposal, a certain degree of liquidity: ‘capital equipments will differ from one another [ … ] in the rapidity with which the wealth embodied in them can become “liquid”, in the sense of producing output, the proceeds of which can be re-embodied if desired in quite a different form’ (Keynes 1936, p. 240). In the light of this passage, as Fantacci (2010, pp. 85-86) writes “what distinguishes money is its having the highest degree of liquidity, compared to all other assets and commodities, since it can be transformed immediately into any form of wealth, whereas other assets need first to be ‘liquidated’ and, in the process of being liquidated, may result in a loss for their holders.”
Liquidity, even before to be a specific monetary function, is a concept that arises from the need to rapidly exchange securities in which people have invested their savings. As Orléan (1999, pp. 31-32) affirms:
The objective is to transform what amounts to a personal wager on future dividends into immediate wealth here and now. To this end, it is necessary to transform individual, subjective evaluations into a price everyone can accept. Put another way, liquidity requires the production of reference value that tells all financiers the price at which the security can be exchanged. The social structure which permits the attainment of such results is the market: the financial market organizes the confrontation between personal opinions of investors in such a way as to produce a collective judgement that has the status of a reference value. The figure that emerges in this manner has the nature of a consensus that crystallizes the agreement of the financial community. Announced publicly, it has the value of a norm: it is the price at which the market agrees to sell and buy the security in question, at a certain moment. That is how the security is made liquid. The financial market, because it institutes collective opinion as the reference norm, produces an evaluation of the security unanimously recognized by the financial community.
In the history of capitalism deep financial crises give rise to a situation in which money is not spent and debts are not paid. When uncertainty prevails, money is sought after and withheld to the preference of all else. It is not merely a change in the behaviour of economic agents, it depends rather on a peculiar form of monetary institutions: in capitalism money is established as a store of value. Economic historians teach that unlike the other two functions of money (unit of account and means of payment), the store of value is not a permanent and general feature of all monetary systems, but a distinctive feature of capitalism (Keynes 1923; Boyer-Xambeaum Deleplace and Gillard 1994; Ingham 2004; Amato and Fantacci 2012) In this perspective, it is of the utmost importance to try to evaluate the scope and impact of financial reforms intended to strip from money the character of liquidity, and hence from finance the character of a market, rebuilding finance on the basis of an alternative economic principle. The name of this alternative principle is clearing. Alternative monetary and financial institutions can be conceived to ensure that money is systematically spent and that debts are systematically paid. The clearing principle has to do with the establishment of a measure for the exchanges and for the payment of debts which is not in its turn an object of exchange, and with the restoration of a balanced relationship between debtor and creditor. The model of Clearing Union proposed by Keynes to design a new international monetary system for the postwar world, remains the main reference for any institutional arrangement aim at facilitating a balanced trade. Keynes conceives a system where there is no means of payment at all, and money is a pure unit of account. To settle international transactions, each country holds an account with the Clearing Union. Such an institution would be an international bank whose goal would be the clearance of trade between states. The accounts are denominated in an international currency, the bancor, i.e. a pure bank money, existing only in the accounts of the Clearing Union. However, there is a feature that differentiates the bancor from bank money: the former is not redeemable in any form of legal tender. Each state has an initial balance of zero bancor. The Clearing Union provides overdraft facilities to each country in proportion to the volume of its foreign trade. In exchange for its foods and services, the exporting country receives a credit in bancor that it can spend in any other country. Symmetrically, a deficit country can repay its debt by exporting to any other country. The bancor account may be seen as an entitlement to commodities and services; instead it cannot be intended as an entitlement to money. For this reason – as Fantacci (2013) stressed – the bancor may qualify as a non-capitalist money. Another distinctive feature of Keynes’plan is important: the Clearing Union imposes charges not only on negative, but also on positive balances:
a country finding itself in a creditor position against the rest of the world as a whole should enter into an obligation to dispose of this credit balance and not to allow it meanwhile to exercise a contractionist pressure against the world economy and, by repercussion, against the economy of the creditor country itself. This would give us, and all others, the great assistance of multilateral clearing. (Keynes 1941, p. 47)
There is no merit in being creditor within Clearing Union. A sort of interest rate is paid not only by debtors, but also by creditors. Hoarding is discouraged. The possibility of having a positive bancor balance allows a creditor state to sell more than it could otherwise be able. Symmetrically, the possibility of having a negative bancor balance, allows a debtor country to buy more that it could otherwise obtain. The symmetric distribution of charges between creditors and debtors helps all countries’balances to converge towards zero. In this situation, that may be considered an equilibrium, all debts are paid and all money is spent.
Clearing systems have been adopted not only for international, but also for local trade. In this case, the local currency acts as a pure unit of account used to denominate and to compensate debts and credits within businesses. Not all local currencies are based on the principle of clearing. A part of them take the form of fiat money.
In the following paragraphs we will analyse different complementary value and currency systems implemented at local level, by testing if and how they are based on the principle of clearing.
2 Attempts to propose a taxonomy of complementary currencies. A review.
It is notable that there are now new monetary innovations working in over 5,000 communities around the world to face a diverse array of economic and social issues: among others credit crunch, education, elderly care, unemployment (Lietaer and Dunne 2013).
Local clearing systems are based on the use of a local currency. Before the establishment of the metal standard, in Europe and elsewhere, ‘there were in common use large quantities of private metal tokens against which the governments made constant war with little success’ (Innes 1913). Recent research has produced further evidence of the fact that monetary systems prior to the gold standard were characterized by the coexistence of multiple currencies, public and “private” (Fantacci, 2005; Kuroda 2008; Amato and Fantacci 2013). Different exchange circuits were served by different currencies built on different principles (see Blanc 2000). “Unofficial” currencies are called in many ways: complementary, parallel, targeted, local, social, mutual help and cooperative or community currencies. They are all significant qualifications that may describe different features of these social institutions. They are complementary (and parallel) because they do not substitute official money, but they circulate besides it, responding to specific purposes (in this sense they may called targeted). They may called local, as they usually circulate in a delimitated territory and they respond to the peculiar needs of a given community. Hence they satisfy certain social needs, by providing the purchasing power which is necessary to engage in productive activities, to create employment, and to buy goods and services. They are also called mutual help currencies, since they may be used to finance non-profit organizations. They may called cooperative (or community), because they may represent the labour and the social cooperation of the members of the community.
The 2010-2012 research project led by Gill Seyfang at UEA and funded by the Leverhulme Trust investigated grassroots innovations for sustainability, with a specific focus on complementary currencies . The project compared local community-led exchange systems, that exist alongside mainstream money and the community currencies, that are designed to counterweight scarcity by promoting exchanges founded on cooperation or collaboration. In the first set scholars put the following experiences (Seyfang and Longhurst 2012):
1. German Regio regional money aims to boost local economic development;
2. the UK and US Time Banks strengthening social networks and community cohesion by promoting reciprocal volunteering;
3. a new wave of ‘Transition Currencies’ to promote local resilience;
4. the Dutch NU-Spaarpas incentivises sustainable consumption patterns through a green ‘loyalty card’.
Despite their intrinsic benefits and potential, the research group led by Gill Seyfang considered the above cases of complementary currencies “small and marginal” and affirmed that “little is known about the processes and contexts necessary for mainstreaming them.” It is relevant that other researchers stressed the importance of “the emergence of new information and communication technologies” to promote the local projects that use “open source money” or “collaborative money”. Local currencies are seen as a “community-building tool”. This means that “communities may range from solidarity economies in slums and vulnerable social areas, to game players, to collectors or charity donors; spread throughout the entire world as digital networks promote new forms of community life” .
An ideal types of currency schemes is proposed by research group on Complementary Currency Systems at the Erasmus University of Rotterdam (2013). The Rotterdam group describes the result of several currencies using the following categories (Boonstra et alii 2013):
1. Currencies with social objectives;
2. Currencies with economic objectives;
3. Digital money systems.
Money systems with social objectives (e.g. Time Bank) aim to intensify underlying relations within a community, increase sense of self-esteem, offer a perspective and development reciprocity within a community. They work in domains where the regular currency can’t be found and try to encourage participating in the informal economy.
Monetary systems with economic objectives (LETS – Barter networks – C3 – Regional currencies) aim to stimulate the local economy, strength the position of medium sized companies relative to large multinationals, support local regions in absorbing global or national shocks, diminish leakages from poor to richer by realising extra liquidity in underprivileged regions and increase economic diversity.
Digital money systems (electronic & virtual money: SMS money systems – Online payment platforms – Peer-to-peer money systems – Conditioned money) have their own logic; they mainly support economic goals .
A recent State of the Art on complementary currencies may be read in the Special Issue edited by Noel Longhurst and Gill Seyfang (2011) of the International Journal of Community Currency Research. Here Blanc (2011) proposed a distinction between three sorts of projects that he considered to constitute the very root of currency systems of any kind:
1. a territorial project, primarily centred on a geopolitical space;
2. a community project, primarily centred on a pre-existing or an ad hoc community;
3. an economic project, primarily centred on production and market exchange activities.
Following this approach three ideal types of currency schemes may be define: (1) local currencies (territorial projects), (2) community currencies (community projects) and (3) complementary currencies (economic projects). Blanc stated that “the ideal types of community, complementary and local currencies let the possibility of combinations able to analyze concrete forms of non-national and not-for-profit currencies”. He also stressed the fact that for-profit currencies are of another nature than community currencies. The taxonomy he proposed draws up an ideal-type built around a democratic participation principle organized around non-profit organizations, grassroots organizations or informal groupings of persons.
Again, we find the idea that complementary currencies cannot be considered as a static tool, but they must be considered as specific institutions that should evolve, by preserving inclusive democracy.
Libra has been expressly designed to meet the needs of:
1. communities seeking adequate means of payments, tailored to their specific economic and social needs
2. businesses interested in an innovative instrument for their strategies of Corporate Social Responsibility
3. public administrations aiming at decentralizing their social policies, by involving non-profit organizations in the provision of public goods and by promoting the free contribution of the citizens in financing them.
The system, above represented in its distinctive characteristics, allows the continuous circulation of credits. Potential stagnation, and consequent depression, is not offset by arbitrarily correcting the direction of financial flows but by physiologically contrasting the accumulation of financial funds. Demurrage mechanism tends to bring credits in the hands of those who are more needy and hence more inclined to spend them. Purchasing power flows to meet social demand, transforming it into economic demand. A sound means of payment gives a base for structural and stable relations between different categories of economic actors, leaving each of them free to choose according to their proper nature, and making them more aware of their specific economic role within the exchange community as a whole.
3. Field research on complementary currencies.
3.1 Setting the theoretical premises for a comparative analysis across cases
The case studies here presented are relevant for different reasons. Notably the WIR experience is the most known and lasting complementary currency based on a Local Clearing Union. After the recent crisis WIR Bank has been able to confirm its resilience. Both the Sardex (in Sardinia, Italy) and Sonantes (in the city of Nantes, France) cases have been inspired by WIR Bank. Both Sardex and Sonantes cases, as well as WIR, were born as attempts to respond to the credit crunch that hit businesses. As you will see the Sardex circuit is considerably increased from 2006 to nowadays. Sardex is a business to business model, but it is experiencing the necessity to enlarge the circuit by including workers. At the moment it appears not significant the involvement of non-profit organizations, grassroots organizations or informal groupings of persons. Contrary, the Sonantes experience has been designed starting from the Libra complementary circuit. Consequently it formally appears as a very inclusive and social needs oriented complementary monetary circuit. Unfortunately the Sonantes experience has been characterized by very long and hierarchical decision-making processes, which delayed the start of social experimentation. Finally the Sol-Violette (in the city of Touluse, France) case study is not built as a clearing union. It is not inspired by the WIR Bank. Nevertheless it seems based on inclusive decision-making processes actually able to monitor the social needs in a dynamic way.
3.2 Case studies
WIR is both an abbreviation of Wirtschaftsring and the word for “we” in German, reminding participants that the economic circle is also a community. It was founded in 1934 by businessmen Werner Zimmermann and Paul Enz as a result of currency shortages and global financial instability
Thanks to the free money movement’s broad appeal, expectations ran high when in October 1934 the WIR Economic Circle Cooperative was brought to life by 16 founding members operating with startup capital of SFr 42,000. By early 1935 there were already 1700 participants, by the end of the year 3,000. Operating within the framework of a solidarity-oriented self-help organization, members were expected to draw as much as possible on other members to cover their goods-and-services needs, in order to trigger additional turnover within the Circle.
These exchanges were mediated by means of interest-free clearing deposits initially created by cash payment [1 SFr for 1 WIR franc] or sale of goods, but before long by the issuance of WIR loans as well. Therewith began within the Circle a cash-free economic circulatory system that supplemented other business activities. The WIR account functioned as a kind of entry ticket into the solidarity activities of WIR users. Many small-to-medium businesses, but also public servants, farmers, and even a few large enterprises spontaneously bought WIR deposits for cash in order to participate in the WIR economic circuit. For them, obviously, a WIR deposit of one franc was worth more than a cash franc. (Studer 1998, p. 10)
In 1936 the Swiss Central Bank intervened to transform the WIR Circle in a bank.
For over 75 years the WIR cooperative bank has offered customers the possibility to hold current accounts denominated in a unit of account, distinct from the Swiss franc. The WIR currency is purely abstract bank money. The WIR credits may only be used to make payments to other bank accounts, according to the principle of multilateral clearing. WIR can be compared to a small Clearing Union, not between countries but between 60,000 small businesses, mostly concentrated in German-speaking Switzerland. WIR credits do not pay an interest but they earn it. The fact of not having to borrow money from outside is sufficient to allow the bank to offer mortgage loans at very low interest rates and independent of the credit conditions in international markets.
The restriction of the circulation of the WIR currency is not perceived, especially by smaller customers, as overly limiting the possibility of spending, but as a form of support to local exchanges through an increase in the circuit velocity of money: “There are some businesses that put in circulation up to 7 million WIR per year ” (interview with Yves Wellauer, Regional Director for the Region Canton Ticino, WIR Bank )
Sardex Network in Sardinia, Italy
The crisis that exploded in 2007 pushed the young founders of the Sardex to look for a feasible solution to the problem of money availability. In fact, since the very beginning and without having an economic background, they were drawn to focus their attention toward money and its social and cultural implications, thereby immediately rejecting those economic theories that label money as “neutral”.
Starting from the case study of the WIR in Switzerland, the Sardex people got to study the thesis of Proudhon and Gesell about the role of money and credit, finding new inspirations and hints for a novel implementation of a practical instrument, that reflected this theoretical framework. In fact, “depending on how the monetary system is organized, it goes to the advantage of one or the other group”.
The project of Sardex was based on the example of the WIR. Later on, an effort has been put in place to adapt it to the specific social-economic environment in which it was supposed to be implemented and a long phase of preliminary meetings with the local firms, especially in the Cagliari area, in order to generate significant grass-root support.
The goals of the Sardex network are the following:
-empower local communities;
-enhance local prosperity;
-stimulate expenditures within the community.
The people who subscribed to the circuit do not need to use money for their outlays: the compensation happens within members of the circuit thanks to the Sardex credits (SRD). One SRD counts for one unit of the official currency. With the subscription, an account is opened. with a line of credit at zero interest, and with a card for internal expenditures.
The online portal allows to all subscribers to create a profile that allows to communicate all the information on their activity, explain their products, look up for other firms and set up and complete the transactions.
This portal has a section devoted to banking for transactions, credits and debits, that works as an accounting system, and a section for e-commerce. However, it appears that the most relevant contacts are made offline: only the 3% of the transactions on a total of 6000 occurred on the portal. This evidence tells a lot about the desire of Sardinian firms to network and about the type of relations they tend to build.
Every firm is provided with a broker that gives advice and manages transactions. The broker also supervisions the payments in Sardex, to guarantee an immediate payment, finds potential business opportunities comparing data on the supply and the demand.
“The role of brokers is quite crucial, since it is based essentially on confidence, let us say that the brokers are like a sort of conductor: if confidence is an electric impulse, the broker is the copper WIRe, connecting people”. (Carlo Mancosu, interview of January 3th, 2012)
The Sardex network currently counts seven brokers, each one is a specialist of a specific sector: this has caused a boost of bookings and all sectors have grown precisely because the firms had access to these competent advisers. In addition to creating business opportunities, brokers refer to the Cda and guarantee that the growth in the number of transactions goes along with the maintenance of a stable level of credit in the circuit, that is preventing disproportionate growth of the monetary basis. The monetary basis per capita needs to be stable: there is an equilibrium level of transactions and thus of credit for both the system and the individual.
The Sardex currency is therefore a local complementary currency. It is an internal accounting unit and an instrument through which it is possible to sell and buy among subscribers. Its capacity to generate additional income, allowing otherwise impossible exchanges of goods and services render it a currency in all and for all, at least if by that we simply mean a tool that simplifies transactions.
The system offers the liquidity of the means of payment by offering offer a basket of goods and services that is larger than the monetary basis. Firms join, accepting on a voluntary basis the payments in Sardex, by subscibing a two-party agreement on the percentage of the compensation to be covered in Sardex. For the transactions below or equal to 1000 euro, the members agree to always accept the full amount in Sardex.
The credit lines are opened on the basis of collaterals that are a set of goods and services put by the firms, so that the credit is always a proportion of those collaterals.
The introduction in the Sardex circuit of the Business to Employee is a pilot project, launched in June 2012, that involved around 100 employees of the firms of the Cagliari area.
The idea is to pay part of the salary in Sardex credits: there were preliminary meetings with the unions to understand the legal feasibility of this operation. The employees were able to join the circuit Sardex.net on a voluntary basis: they were able to create their individual account on which receive part of the wage, bonuses, wage anticipations or other reimbursements. If, for instance, one employee needs an anticipation of wage to cover an unexpected expenditure, he/she can use this account and avoid to use his/her own savings or go to some credit company and pay high interests. The convenience is twofold: the worker does not have to consume his/her own savings and pay interests, the employer who anticipates the wage in Sardex credit form will save money in the following periods, thanks to the lower wage that remains to pay after reimbursing the anticipation quota.
Moreover, the employer saves in at least two ways: the Sardex credits cost less than the credits in euro, considering that the euro credits may be not immediately available or their anticipation may require an early disinvestment. This advantage is even more evident if we think that the employer, when pays only a fraction of the total wage in the following periods he basically obtains liquidity at a lower cost than from a bank.
Because this projects takes off, the real capacity of credits to be spendable needs to be guaranteed. Therefore it needs an involvement always greater of the firms potentially adherent to the circuit. The act of spending of the consumers inside the circuit is awarded grants in the form of credits to be spent inside the circuit: something like the fidelity points at a grocery store, that gives a concrete incentive to remain inside the circuit.
This could substitute the mechanism of discounts, that guarantees savings that “do not leave”.
Nantes’ currency, SoNantes, inspired by the WIR system is promoted by the city of Nantes and the intercommunal structure of Nantes Métropole, and is being implemented by the Crédit Municipal de Nantes across the entire area of Greater Nantes.
The SoNantes currency is basically a system of exchange of goods and services between businesses (B2B), which also includes individuals