Thursday, 5 April 2012

Al Jazeera: What's al the fuzz about money?

Debt-free money may well be the solution to restoring a sane monetary system.

The internet played a big role in teaching us a new truth - "money is designed and that design matters" [EPA]

A monetary revolt?
Successful negative interest experiments are by no means confined to ancient times, when they were the norm. A famous "modern" case is the introduction of the
Worgl Shillings in the crisis-ridden economy and hyper-inflation marking Austria in the thirties.

When burgomaster Michael Unterguggenberger created "labour certificates" that depreciated one per cent in value every month, his town became an island of prosperity and dramatically reduced unemployment; it subsequently became the town became a centre of pilgrimage for European and American macro-economists. (The successful experiment was killed by the Austrian National Bank, who feared the loss of control of its national currency monopoly.)

That much is clear. The failings of not just the financial system, but also of its mainstream money mechanism is becoming public knowledge, leading to an unprecedented wave of alternative practices on a local-regional, national and global scale.

People are no longer waiting for financial reform from the top down, but are busily creating a monetary bio-diversity.

Local complementary currencies are already well-known, in the form of LETS and Time Banks, but they are now experiencing a real boom, even in emerging countries such as
Brazil. Fortified by studies that show how local currencies insulate the local economy from boom and bust cycles and from "leakage", many communities are starting new ones since 2008.

In a recent study on their economic effects, Bielorussan researcher Ivan Tsikota concluded that "all complements provide wider employment opportunities, growth of welfare, and richer access to credit facilities. Analysis of interest-free banks suggests that this type of financial institutions can foster more efficient allocation of resources".
New softwares
There are now
several digital and internet packages that facilitate the management of such schemes. A problem, though, is their difficulty in scaling, which is one of the reasons they are now instituted right away on a regional scale, such as the German Regiogeld experiment.

One of the more successful and often cited examples is the WIR, an 80-year-old mutual credit system that unites 90,000 small businesses in Switzerland and has a proven counter-cyclical effect. When the mainstream economy gets tough, its members increase the weight of the WIR-denominated IOU's in their internal dealings, keeping the local Swiss economy moving.

As monetary expert Thomas Greco
writes, "WIR has proven over a long period of time the effectiveness of direct clearing of credits between buyers and sellers as an alternative to conventional bank-created debt-money."

The late Richard Douthwait of FEASTA
concluded in his own study, "Overall, the WIR avoids the two main defects of national currencies: It should never be in short supply, and because no interest is charged for its use it does not create the growth compulsion. In addition, it does not have to be earned or borrowed from outsiders before it can be used."

There is also movement on the national scale, through economic mavericks such as public banking advocate Ellen Brown and the proponents of Modern Monetary Theory, which counts James Galbraith, Steve Keen and Michael Hudson amongst its adherents. Essentially, they argue that public authorities should abandon the debt-based creation of money and spent money into circulation for productive rather than speculative.

There is an
extensive historical record to show that such money creation does not create inflation and that such policies were instrumental in getting countries out of crisis situations (most recently Argentina). The refusal to bailout their banks is also at the root of the revival of the Icelandic economy. If only the Greeks would follow suit!
Debt-free currency
However, the biggest development may in fact be the creation of a workable, socially sovereign, debt-free currency called Bitcoin.

Started on January 4, 2009, it already has developed an impressive ecology of operational support infrastructures and services. At this point, it is already working as a small-scale global reserve currency. Bitcoin draws its value from peer-to-peer network dynamics and mints new currency not through debt but raw computational activity. You can buy many different goods and services with Bitcoin, exchange it with other currencies,
pay salaries, etc.

It works without any difficulty on a global scale and solves the scaling issues that plagued local complementary currencies. Hence, it is symbolic of the shift of our world system to a "post-Westphalian" phase that goes not only beyond the dominance of the nation-states, but also beyond the private global powers that have hijacked global governance, such as the financial system of the 1 per cent.

It is a true p2p monetary system - perhaps even a shadow banking system for civil society - and exists by virtue of its social creation and the social trust of the global hacker community. It protects their elective communities from global financial storms.

If debt-free money is indeed the problem, then we can now embark on the journey to return to a sane monetary system that requires neither infinite growth nor the impoverishment of many, not by waiting for the agreement of the 1 per cent and their institutions, but by creating the conditions for change on the different scales where citizens can act right now.

By Michel Bauwens

Michel Bauwens is a theorist, writer and a founder of the
P2P (Peer-to-Peer) Foundation.

Copyright © Aljazeera Network
To learn more about the global economic crisis, read Debunking Economics: The Naked Emporer Dethroned? by Steve Keen, available from Zed Books.

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