Economics: Creating A Monetary Ecosystem


Reform of the money system is without question one of the most complex and difficult undertakings facing humanity.  If it were just technically complicated, we could be hopeful that human ingenuity would find a solution.  However, it is also politically difficult (some would say impossible) because of all of the vested interests aligned against meaningful reform.

In the last post I described the approach favoured by James Robertson and others who think like him, namely, for the government to take back the responsibility for control of the money supply, making it illegal for the private banks to do what they now do by creating new money out of thin air and putting it into circulation as debt.  Robertson is hopeful that the winds are blowing in this direction, particularly in the United Kingdom.  In the USA a similar proposal has been presented to Congress by Congressman Dennis Kucinich as the American Monetary Act, an equivalent of the Chicago Plan, mentioned in the last post as a1930s proposal to make the creation of bank-debt money illegal.  I am not aware that Kucinich’s proposal has much traction, but it is an indication of some interest in this topic in the US.

A Different Approach

In this post I come back to a different approach as favoured in the Club of Rome report (discussed in Post #22, “Economics: Seeking Optimal Balance”) because of its identification of lack of resilience or diversity as the key problem that needs to be addressed.  This approach favours the creation of a monetary ecosystem.  “If the objective is to create diversity,” say the authors of the report, “the most logical step is not to get rid of the one large-scale system already in place.  The logical focus should be on innovative, non-financial incentive systems that can function in parallel and complement current financial incentives based on bank-debt money.”

As we go into this discussion, let us not forget that the overriding objective is to bring human activity on Earth into a sustainable relationship with the natural world on which all life depends.  The current relationship is non-sustainable.  It can probably continue for another 40 or 50 years, but things will get progressively worse as economies continue to expand, and as we draw down the Earth’s resources and increase the likelihood that crucial ecosystems will begin to fail, and the effects of climate change overwhelm the potential for human progress.  Sadly, the timeline for this scenario falls within the lifetimes of today’s youngest grandchildren, not to mention those who come after them.

You will recall that the authors of the Club of Rome report identified the money system that drives human affairs as a prime contributor to non-sustainability.  Their chart showing the necessity for an optimal balance between efficiency pulling in one direction and resilience pulling in the opposite direction is repeated below.


Their argument is that the money system is already outside the window of viability in the direction of too much emphasis on efficiency at the expense of resilience, and it needs to be reformed to increase resilience through increased diversity in how we manage financial transactions.  For this reason they propose the widespread development of what they call “innovative, non-financial incentive systems” to operate in parallel with the existing money system based on bank-debt money.

Obviously, the issue of scale immediately comes to mind in considering this approach.  Given the almost total dependence of modern economics on the current monetary system, how could alternatives at the margins have significant impact?  This is precisely James Robertson’s point—they won’t have much impact; hence the need for government to step in and take control of the money supply before everything falls apart.

In defence of their point of view the authors of the Club of Rome report point to “the explosive growth of NGOs that number over a million organizations worldwide. . . More significant than their sheer numbers is the qualitative shift from being simple observers and critics to being actors implementing innovative policies.”  Part of the action that NGOs could take would be to implement alternative ways for people to engage in transactions that don’t require the use of conventional money.

A Monetery Ecosystem

The Club of Rome report notes that there are already thousands of such schemes operating around the world, but they tend to be small scale.  However, the authors give examples of five non-governmental systems that are capable of being scaled up and that can deliver a significant societal benefit.  I will describe three of these examples.

Doraland: Creating a “Learning Country”

Doraland is a system that has been proposed to help Lithuania, the first of three small Baltic States that became independent from the Soviet Union in 1990, to become “A Learning Country” by stimulating grass-roots educational initiatives.  “It would be best implemented,” according to the Club of Rome report, “by NGOs, organized around a new Learning Foundation.” 

The idea is that an individual could earn “Dora currency” by providing teaching activities, in say conversational English or computer skills, and the “Doras” could be exchanged for an educational experience that the individual would choose to pursue—even outside of Lithuania.  The Learning Foundation would create and provide the Doras while other NGOs could get involved in organizing the learning activities.  The Dora could be tracked using mobile phone technology, and another NGO could be set up to independently audit the earning and exchange of the Doras.

“This Dora learning-economy is intended to operate in parallel with the conventional monetary system.  We are, therefore, witnessing the beginning of an exchange media ecosystem. . . Doraland is an example of a complementary system that encourages non-spontaneous but desirable behaviour patterns.”

The process starts with a citizen’s dream project for learning, then Doraland makes a contract with him or her to help realize his or her dream in return for a certain amount of Doras earned through teaching activities.  “Non-profit organizations would play the same role in the Dora economy as corporations do in the conventional currency world: organize, motivate and audit the relevant activities.”

Wellness Tokens: Overcoming Market Failures in the Health Care System

This second example of an alternative currency approach addresses the problem that health care costs are rising while little progress is made on preventing the development of chronic diseases that drive the costs.  A Wellness Token system is proposed to counteract this specific market failure.

“Wellness Tokens would be issued by a Wellness Alliance to induce healthy habits.  The members of the Wellness Alliance would be those organizations that have a financial interest in keeping the population healthy (e.g., insurance companies, local government and local employers).  One of the purposes of the Wellness Tokens would be to generate changes in habits towards health promotion and disease prevention by encouraging healthy behaviours and emphasizing preventive health care.”

The idea is that people would earn Wellness Tokens by engaging in healthy behaviour.  They could then use the Tokens in a number of ways including paying part of their insurance premiums with them or purchasing goods and services related to prevention or health promotion from providers pre-qualified by the Wellness Alliance.  The businesses accepting the Wellness Tokens could use them to start their own wellness program or cash them in for conventional currency through the Wellness Alliance.

This approach ensures that the “cash flow” remains within health-promoting goods and services.  “We believe this is crucial when it comes to introducing diversity,” say the authors of the Club of Rome report: “The Wellness Token system allows a durable preventive health sector to develop in a parallel economy. . . This approach would also allow long-term cost reduction for insurance companies, and for governments subsidizing them.  The Wellness Token program provides positive encouragement—rather than punitive threats—for individuals to acquire healthy habits.”

C3: “Commercial Credit Circuits” for Small and Medium Sized Enterprises

The third example of a non-governmental system using an alternative to conventional money is called “C3: Commercial Credit Circuits.”  This system was developed in the Netherlands by the Social Trade Organization (STRO), a Dutch Research and Development NGO.  The model has been successful in several Latin American countries.

The C3 is a “business-to-business” approach to aid small businesses that might have cash-flow difficulties because of the refusal of conventional banks to offer them credit.  If the small businesses collapse, particularly in times of financial crisis, people are thrown out of work and social tension increases.  This approach provides a way for the businesses to help themselves.

The basic idea is that a small business (A) that has made a sale to a larger enterprise (B) can use the invoice it issued to B to obtain “clearing funds” from a clearing network, with which it can then pay its supplier, another small business (C).  This allows the two small businesses to continue to operate while A is waiting for B to pay its invoice.  When the invoice is paid by B in the national currency, the money is deposited in the clearing network.  Many small businesses can participate in the clearing network, and in this way an alternative local economy begins to operate in parallel with the regular economy. 

There are many benefits from such a system.  The community benefits from maintaining high employment in a successful local economy.  Banks benefit because they can supply services to the clearing network.  If many regional economies like this operate successfully throughout the nation, the national economy benefits from high employment, which ensures a tax flow to provide government services.

Examples of Government Initiatives

Having described several examples of non-governmental systems of alternatives to using conventional money, the Club of Rome report cites four examples of governmental initiatives.  This is the second half of a “solutions menu.”  It is important because “the full potential of a monetary ecosystem will manifest itself only when governments and government bodies throw their weight behind the process.”  I will describe one of the initiatives.

Civics: Funding Social, Cultural or Civic Activities

This example can be applied at the level of a city, region or country.  It provides an alternative approach to implementing a plan to achieve some kind of social benefit, such as to become a green city, or to support cultural activities.  The conventional way for a government to do this is to provide the necessary funds by raising taxes or borrowing the money and incurring debt.

The alternative way is for the government, e.g., a city, to require residents to make an annual “Civics” contribution.  “A civic is an electronic unit issued by the city that is earned by residents through activities that contribute to the city’s publicly agreed upon aim.  The unit of account could be one hour of time, valued at the same rate for everyone.  For example, if the aim of the city is to be more green, the activities could include growing food on terraces or rooftops, or taking responsibility for plants and trees in the neighbourhood and parks, or training people in city-based horticulture, and so on.  Non-profits would play a key role in the Civics economy by organizing the associated activities and verifying the quality and quantity of the work performed.”

The first objective of the Civics program is to fund the labour component of desirable civic projects.  This is often the largest component of the budget.  It also gives opportunities to build a stronger sense of community.

The way the system works is for the city to issue Civics to reward specific measurable civic activities.  Payments could be in the form of paper tokens or of electronic units tracked by mobile phone.  The city would set a fixed exchange rate between the civic and the national currency, e.g., one civic equals one dollar.  Residents could exchange Civics for national currency on free-market principles.  A local online market (like E Bay) could be set up to facilitate such exchanges and assure transferency and trust.

More importantly, however, the Civics would be accepted by the issuing government in lieu of taxes.  If an annual tax of, say, $1000 can be replaced with 10 hours of Civic activity per household, anyone earning less than $100 per hour should be joining the system.  If people wanted to earn more Civics than they need for their annual contribution, they could sell them on the market to buyers who might want to pay for the Civics in the national currency or as an exchange for any good or service acceptable to the other party.

While there are many details to be worked out, the Civics system has substantial benefits.  The government benefits by generating an abundance of civic activities with minimal financial cost.  Non-profits benefit by gaining access to their own valuable currency, and by stimulating volunteer activities through issuing the complementary currency as a reward.  Citizens benefit from enjoying a flourishing community and a better quality of life.

Solving the Money Problem

The authors of the Club of Rome report foresee greater resiliency in the money system if the examples they describe were to become widespread around the world.  They believe if they had been in place before the 2007-2008 financial crisis, people and governments now in serious financial difficulty would be a lot better off,

The approach favoured by the Club of Rome report hinges on the concept of replacing conventional money with credit clearing systems using some kind of token with an established value.  A comprehensive explanation of why this is the best approach to reform is provided by Thomas Greco in The End of Money and the Future of Civilization (2009).  Greco believes that “solving ‘the money problem’ is a fundamental necessity in solving the other critical problems facing civilization.”  The question is, how best to do that?

In addressing that question Greco makes a distinction between those he calls “reformers” and others he calls “transformers.”  The goal of the former is to reform money and banking through political means.  James Robertson from the United Kingdom, whose approach was reviewed in detail in Post #23, “Fixing the Broken System,” and Dennis Kucinich in the USA, who has introduced the American Monetary Act into Congress, would fall into this camp.  Greco does not favour the reform approach because he argues that “the fundamental problem with the present political money system is the monopolization of credit money per se, and not who happens to be the owners of that monopoly.”  He argues that “governments cannot be trusted with the money power,” and that because of the collusion between governments and the elite of the financial world, “the political approach would seem to have little chance of solving anything.”

“What we really need government to do,” says Greco, “is not to take control of the money monopoly, but to end it.” (Emphasis added).  That, essentially, is the goal of “transformers”—those who seek to transcend money by private initiative and the creative application of new technologies and methods.  This is the approach Greco argues for.  It is consistent with the approach recommended by the Club of Rome report, but goes further.  Greco foresees a future where there would seem to be little role for national currencies.

He is realistic enough to note that “while we may not be able to do much in the short-run to change the legal privilege of political currencies or bank-created credit money, we can reduce our dependence upon them.  The way to do that is by taking control of our own credit and organizing independent means for allocating it directly to those individuals and businesses that we trust and wish to support.” (Emphasis added).

Greco asserts that while independent credit-based exchange alternatives are still in the early stages of development, we can compare the situation to the state of development of aviation in the early part of the twentieth century.  Just as manned powered flight was achieved by first understanding the underlying principles, so “we now have adequate understanding of the principles to design exchange mechanisms that are sound, effective and economical—but more importantly that are honest, fair and empowering.  And thanks to the new computerized telecommunications technologies, we now have the tools and the infrastructure that are necessary to easily implement these designs. . . Equitable and efficient exchange mechanisms, free from political manipulation, will become the norm.  These will include both private and public community currencies, business-to-business trade exchanges, and mutual credit clearing circles. . As local credit clearing associations proliferate, they will inevitably be networked together into federations that will span the globe, providing exchange media that are locally controlled yet globally useful.”

Are you beginning to catch Greco’s vision?  What he is talking about is “cashless payment based upon direct credit-clearing among buyers and sellers . . . a revolutionary innovation in reciprocal exchange that might be compared in importance to the invention of the printing press, which empowered masses of people by making literature widely and cheaply available and freeing them from dependence upon scribes and scholars. . . The principles of credit and exchange are now better understood; as they are more effectively applied . . . the tremendous possibilities will become generally apparent, sufficient amounts of resources will be allocated to their further development and implementation, and the world will be forever changed.”

In his book Greco goes into considerable detail about how the mechanism he is describing would work in practice.  He gives examples of systems based on these principles that have been successful, in particular the Swiss WIR Bank and the Argentine “credito” currencies that were issued by the so-called trueque clubs (trading clubs) from the mid-1990s onwards.  He argues that groups and organizations can promote healthy, sustainable local economies by organizing regional mutual credit clearing associations as the centrepiece of a comprehensive program.

“Just as a modern jet aircraft bears little resemblance to the Wright brothers’ first airplane,” says Greco, “so too are the more optimized exchange structures proposed in this book unlike any community currency, LETS [Local Exchange Trading Systems], or commercial ‘barter’ exchange with which people might be familiar.  Based on the principles we have outlined, it is now possible to engineer and build exchange systems to carry heavy economic loads within local bioregions and to operate them according to sound business principles.”

Greco is talking about transforming the entire financial system within a people-powered framework that destroys the monopoly of elites by denying them the power to control our destiny.  Ultimately it derives from a value system that says we are all in this together and we must take personal responsibility to engage in voluntary cooperation and organization using the new communication technologies now available to us.

In Conclusion

In conclusion what might we say about prospects for reform of the money system?  I would agree with all of the writers reviewed over several posts in this blog that without addressing this issue we will have little likelihood of success in achieving the other major changes needed to bring civilization onto a sustainable trajectory.  The current money system is driving humanity to behave in selfish, competitive, consumptive ways that will continue to degrade the planet and limit the prospects for our grandchildren and those who follow them.  I am inclined to think that the best prospects for the future will come if we, the people, push both for institutional reform from government and for creative initiatives at the local level to put new systems in place.  In other words, push on both fronts—the reform plan to get government to take more responsibility, and the transformational plan to put local exchange systems in place.

To turn a dismal scenario around we need to embrace the mindset of one who recognizes a problem and derives life satisfaction  from addressing it and making progress in the company of committed others.  In an earlier work of fiction I called such people “Visioneers”—pioneers of the future.  But we are not engaged in fiction here.  It is the real thing, and we must lift ourselves to the task before us.

I will leave the last word on this topic to David Korten in his Agenda for a New Economy (2009): “We can find hope in the fact that the institutional and cultural transformation required to avert economic, environmental, and social collapse is the same as the transformation required to unleash the positive creative potential of the human consciousness and create the world of which humans have dreamed for millennia.  We are privileged to live at the most exciting moment of creative opportunity in the whole of human experience.  Now is the hour.  We have the power to turn this world around for the sake of ourselves and our children.  We are the ones we have been waiting for.”






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