Written by In Canada, there’s a branch of CIBC that already sells “Toronto Dollars”. I’m going to be in Toronto next month so I’ll see if I can check them out report back. What I’m curious about is the relationship between “conventional” banking and “unconventional” money. Although it’s hard to put a finger on it, there’s clearly an opportunity for the mainstream to take advantage of a number of trends but is it as a distributing and marketing channel or is it at a more fundamental level? There are clearly opportunities for banks to integrate with alternative payment mechanisms, although that’s not to say that the opportunity will come to them automatically.
All these alternative payment methods are showing huge growth, according to Javelin’s consumer surveys, and they present the opportunity to link with specific merchants and generate revenue from business-to-business services, ranging from acquiring to deposits and cash management. But banks must fight harder to make sure these opportunities do not migrate to other companies, and to ensure that the payment alternatives remain bank products.
[From Javelin Strategy and Research » New Opportunities for Banks in Alternative Payment Tools]
What I’m thinking about here, though, is that the Totnes Pound and the Toronto Dollar are not simply an alternative, local payment mechanism that banks (and other businesses, of course) can use as part of broader strategies implemented at local levels. These currencies mean more than that, so banks need more sophisticated strategies to deal with. I’m not a psychologist or ethnographer, but even I can see that alternative currencies have meaning beyond the medium of exchange.
Some of the new forms of alternative currency that are emerging are really quite different from the LETS and Time Banks that are so often seen as being “the” alternative currencies. Take the example food-backed local currency in Willits in California and listen to what the organisers say about it:
Historically in the United States and elsewhere, local currencies are known to stabilize local economies when national currencies are troubled, such as bouts of hyper inflation or deflation and joblessness… Local governments, regional business associations, community banks, and worker cooperatives are examples of the kinds of institutions who tend to successfully issue local currency. They have the social capital to be broadly accepted, and the capacity to manage the task of issuing and redeeming money.
[From The Oil Drum: Campfire | Food-backed Local Money]
No, whether you think these guys are right or wrong in economic or political terms, there’s no doubting that a lot of people think like this. Is there an opportunity for “mainstream” financial services organisations to work with this kind of burgeoning, localised initiative? There must be: why can’t I use M-PESA to send food dollars as well as Kenyan shillings? Wy can’t my PayPal pre-paid Visa card come in a Lewes pound version? If you think this is just nuts, Im pretty sure you are wrong.
Incidentally, there’s a new Community Currency magazine, from Forum friend Mark Herpel at DGC, specifically aimed at this sector. I found the first issue fascinating and the second has just come out, and I’ll be looking at it later on. As William Gibson says, the future is already here, it’s just unevenly distributed.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]
I wrote about how split multi-currency payments could enable new ways to lower customer acquisition/loyalty costs here. http://tr.im/oGAI
Good points Dave – three main points of response.
First, let’s puuleeeeze drop the “alternative” word in this context, now and perhaps forever more. Certainly, nobody of repute in this field ever seeks to imply it’s one versus the other. One can say “additional” or “parallel” or “user” or “community” and there is useful meaning. For a slightly similar struggle for clarity, see Lessig’s recent rant on Kevin Kelly and his use of the “socialism” word.
Secondly, I hope you won’t waste your time in Toronto (it’s such an exciting place to visit) The Toronto$ is just as irrelevant as the “transition town” Totnes and Lewes £, and the Berk$ in the US, none of which make any difference to anything that matters. To substitute a piece of local paper for legal tender, which you keep in reserve to underwrite the local, so that retailers can convert their local receipts back into legal, is merely a temporary diversion. One of my correspondents terms this “eddy currency” – meaning it goes round on the side of the main channel but does nothing else. Myself, I think it’s more like the froth on the surface – superficial and insignificant. But regrettably deceptive, nonetheless, and seemingly most so for ardent protagonists, where noise seems to obscure the lack of signal.
Thirdly, on banks joining the game – we’ve been making the case for that since 1982, probably to more than 100 FI in one way or another, all around the world. It’s as close as you’ll get to a no-brainer, but any institution can quite effortlessly be orders of magnitude more stupid than those who compose it, and banks are confirmed leaders in their conventional wisdom. You yourself will no doubt recall one close encounter of the usual kind with a London retail bank in 2002, who were offered a “how-can-you-lose?” variant of the Irish answer to economic downturn. Your recent post http://tinyurl.com/csje92 in response to mine – http://www.kashklash.net/the-irish-answer – carries the essence of the idea, that local business can underwrite an effective local money by monetising their slack, the idle capacity they face in consequence of the current credit crisis. What’s difficult about this idea?
Unfortunately, that trip to the bank, as before and since, yielded only the usual example of horse & water syndrome.
And another thing. The opportunity for community currencies isn’t based on whether people are “right or wrong in economic or political terms” which are merely rationalizations and justifications, and irrelevant in the circumstances. The key factor is that slack exists, and slack can be monetised, productively and profitably, and for that reason alone will be progressively monetised as that is realised, irrespective of political or economic theories. It does matter, of course, how such money is designed and implemented, but the opportunity is surely beyond doubt, even when badly addressed – as it is in Toronto$, Berkshares and similar.
I don’t (yet) know what it takes to get a bank to think outside its box, but I am sure that early adopters will prosper and late will not, so perhaps for the banks the main mover in the end will be the stick rather than the carrot.
Jct: Yes, cash-based community currencies are inferior to time-based chips but they still exhibit the Sparta Effect. When visiting, your gold was deposited in the city bank for clay tokens used while in town and cashed out upon leaving. Sparta got the interest while trading went on with the clay chips.
For example, if everyone in a nation all bought stamps for cash, the state would get the interest while trading would go on with the stamp tokens. Even the inferior cash-buy-in communicy currency models win the interest in the bank.
Of course, time-based currencies are best because broke people can join. Best of all, when the local currency is pegged to the Time Standard of Money (how many dollars/hour child labor) Hours earned locally can be intertraded with other timebanks globally! In 1999, I paid for 39/40 nights in Europe with an IOU for a night back in Canada worth 5 Hours.
U.N. Millennium Declaration UNILETS Resolution C6 to governments is for a time-based currency to restructure the global financial architecture.
See my banking systems engineering analysis at http://youtube.com/kingofthepaupers
Community currencies (by whatever name) bloom like mushrooms when crisis hits. But this enthusiasm is rapidly spent, most people are extremely “economic” when it comes to trade and soon switch back to conventional patterns when they can see a better deal.
Mainstream financial institutions are to most intents and purposes banned from innovating, so it is difficult to see how they would think out of the box. And, why should they? They make more money working the franchise than disrupting it.
But I think it is a useful thought experiment for banks and regulators alike. Ask each bank to come up with a plan whereby they start up and issue a community currency. Then ask them to critique why they wouldn’t pursue this hypothetical plan. I think the results will be illuminating to regulators, banks, competition authorities, consumers and others interested in efficient money.
mwl’s point that “slack exists” is well taken. But the slack is primarily outside the view of the financial institutions. So you need a player with more of a view.