Digital Money Forum

Camp community

[Dave Birch] There was another thought-provoking BarCampBank in London last month. Many thanks indeed to Frederic and the gang for pulling it together and a special mention for Sun's super hospitality. As well as catching up with friends and meeting new people, I got to sit in on a series of fascinating discussions. Some of the ideas being kicked around were fairly mainstream, but some were really out of the box (I particularly liked the lunar phase model for hedge fund investment). All I ask from such an event is to go away with more ideas than I came in with, and once again the format and the audience delivered. But what I've been reflecting on since the event is one specific thread: community. During the day there were some excellent discussions about community banking, community currencies and community enterprise. Now, obviously, I tend to look at these through a very narrow prism -- which is: how can my customers make money from this? -- but I'm also aware and in many cases enthusiastic about the link between the business case and the social case.

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.

Michael Linton, Open Money

[Dave Birch] Michael Linton has been active in community currency development since 1982 when he designed and began the first LETSystem in the Comox Valley, in western Canada. Previously, and briefly, he was a physicist, chemical engineer, computer programmer, business school graduate (MBA), research psychologist, truck-driver, ski instructor, school teacher, builder, fisherman, logger and retailer. He is now a systems designer, working primarily on systems for open society. For his most recent work, and links to earlier publications see www.openmoney.org. In this podcast he explains what community currencies are and why they are revitalised in the age of the mobile phone.

Listen here in either [Podcast MPEG4] or [Sound-only MP3] format.

Separation, not divorce

[Dave Birch] The European Commission has, admirably in my opinion, been trying to introduce competition into the payments world, hoping that competition can deliver a better payment system. The Electronic Money Directive and the Payment Services Directive have opened up new regulatory categories for non-banks and while these have yet to make much of an impact, recent events may well have persuaded the public that money issued by, let's say, Vodafone or Virgin is worth a try when compared to the money pouring out of government printing presses to bail out the bankers! Current issues aside, though, anyone looking at long term business trends must be wondering to what extent the payments industry will remain part of the banking industry.

A single currency? Illogical, Captain!

[Dave Birch] In science fiction, the subject of money is rarely handled well. I've just looked up, something about this but couldn't find what I was looking for. I have a vague memory, which may well be wrong, that the author Brian Aldiss is his Billion Year Spree, a history of science fiction that I can't find online to search, said that it's because science fiction and heroic fantasy are written for teenage boys and the one commodity that certainly do not have is money. This may well be part of the explanation, but it seems to me just a likely that it's because many people don't really understand what money is or how it works, so speculating on where it might go is just too far outside their envelope. I'm the other way round: I find it hard to imagine time travel (if it does get invented in the future, where are they?) but easy to imagine Google issuing its own currency.

I've been jotting down some notes on this for a couple of reasons: first of all because of my talk at the London Futures Symposium (and I've been invited to talk OpenTech in London in July on a similar topic) and second of all because when I was pottering around the World Bank bookshop in Washington I came across The Future of Money by Benjamin Cohen of University of California, Santa Barbara. I've been reading through it over the last few days and reflecting on some of the key issues around currency areas that he sets out very clearly. One of the key questions that the book addresses is whether the dynamic of monetary evolution is a tendency to one currency (the galactic credit beloved of science fiction authors) because the minimisation of global transaction costs is driving factor or an explosion of currencies because new technology minimises transaction costs in other ways? He concludes that "the power of scale economies notwithstanding, monetary geography is set to become more, not less, complex" and he compares the future to the "heterogenous, multiform mosaic that existed prior to the era of territorial money". Setting to one side the fact that he knows fantastically more about the topic than I do, I disagree slightly with his conclusion here. As a technologist, I suspect that there will be more different kinds of money, not just more currencies, than ever before. At the end of the transition to e-money, the marginal cost of introducing another currency will be approximately zero. So we will be in the "let a thousand flowers bloom" mode and might reasonably expect a rash of experimentation. At the end of this period, who knows whether dollar bills or Bill's dollars (an old joke, beloved of us e-cash types) will be more successful?

There are a couple of other things I disagree with him about. One is the issue of anonymity: Cohen says that one of factors that may make it difficult for e-money to substitute for physical notes and coins ("p-money") is that e-money cannot reproduce the anonymity of p-money. I think I'll set that aside for a future post, but suffice to say that I think that technology can offer more than he thinks in that area. The other is geography, which I'll go into below.

Freebanking and free banking

[Dave Birch] Foreign readers may be unaware that banks in Scotland and Northern Ireland issue their own banknotes. In the England and Wales (and everywhere else in the entire world), banknotes are issued by the central bank. As The Economist points out, feelings run deep. Sir Walter Scott is commemorated on banknotes in Scotland precisely because he fought off the Bank of England's 1826 attempt to stop Scottish banks from issuing their own notes.
There are nearly £3 billion-worth of Scottish banknotes in circulation (and half as much in Northern Irish banknotes). For odd historical reasons, the issuing banks have to back their note issue with a deposit of 95% the value of notes outstanding, but only at the weekends! Seriously. So during the week they can lend the money out and earn seigniorage. The Scottish banks currently earn good money this way so the change

would lose Scottish banks some of the £65m they now earn in interest and “seigniorage” (income from selling their notes to other banks).

[From Scottish banknotes | Under threat | Economist.com]

The Treasury, presumably still wondering what to do about Northern Rock, wants to spoil the party and force Scottish and Northern Irish note-issuing banks to keep the deposit backing the note issue at the Bank of England all the time, just in case (eg) RBS goes bankrupt but not on Saturday or Sunday. In the England and Wales there is a different system: the Bank of England, the most profitable nationalised industry in British history, backs its notes not with deposits of euros or gold bars but with fixed-interest instruments bought from the British government and remits the interest earned to the Treasury.

I don't imagine that I might agree with Alex Salmond, leader of the Scottish National Party, on much beyond the issue of independence for Scotland, but I do agree with him on his defence of the Scottish note issue: he said that there's no need for the Treasury to take this action because Scottish banks are among the most stable in the world. The SNP's defence is robust...

The changes suggested will cost Scotland's financial sector £80 million a year. This is daylight robbery by the UK Treasury and will provide Scotland's financial sector no advantage whatsoever.

[From MP Warns Treasury - 'Hands Off Scottish Bank Notes' — SNP - Scottish National Party]

As it happens, I have a particular interest in the history of Scottish banks because of the lessons of that period of "free banking". This does not, as you might think, mean that Scottish banks were once operated as charities but that they were free to compete in note issue. And the result, as most historians would confirm, was a period of incredible innovation when the more tightly regulated London and country banks failed more often than the less tightly regulated Scottish banks did (I know this is an appalling precis of a complicated and interesting period, but I'm trying to make a bigger point).

Margrit Kennedy, Moneta

[Dave Birch] Looking a the future of payments is just a matter of looking at the technology of payments, it's also about looking at what value is being transferred. We tend to think in terms of fiat currency and central bank balances, but that may not be the whole of the future. Time for some thinking out of the box, as our friends in bank strategy teams often say. Margit Kennedy is a a consultant in complementary currencies, and recently helped in the preparation for creating a sustainable money system for the planned international city of Aurovillle, India as well as for Cali in Columbia and for regions in Argentina, Germany and New Zealand. In this week's podcast she talks about complementary currencies with particular reference to the current projects in Germany that she kindly wrote about for us earlier in the year.

Technorati Tags: e-purse, green, money, podcast, social networking

Local money for local people

[Margrit Kennedy] In Germany and Austria, a new type of voucher is in use since 2003. Instead of aiming at customer loyalty for commercial enterprises, these vouchers aim at creating customer, producer and trade loyalty for a region. The “Regional Currency Complements” for which the term "Regio" is being used by about 50 initiatives, which belong to the Regiogeld Verband (Regional Money Federation) have a number of common features. They include:

• The Regio is not legal tender or an "official" means of payment, which means that its acceptance is entirely voluntary. Therefore, it will only function as long as people consider it to be useful, i.e. as long as it can be spent for regional products that people need.
• Its use is limited by geography, and in each region the currency bears a different name.
• Exchanging Regios for other regional currencies or the national currency usually imposes an exchange fee.
• Regios usually do not earn interest, but carry a circulation incentive–i.e. a fee–if not passed on.

The “Regio” is, so to speak, a quality label, which guarantees a certain quality standard and performance:

• It allows a partial de-coupling of the regional economy from the global economy and acts like a semi-permeable membrane around the region, allowing that percentage of economic exchanges which is regional to be carried out in the region’s own currency.
• It keeps the added value of regionally exchanged goods within the regional economy and thus helps to reduce unemployment in its region.
• Its creation is transparent and, therefore, can be democratically controlled.
• It encourages ecological projects and production and thus promotes the shortest efficient transportation route.
• It enhances regional identity, cooperation and responsibility among participants and creates new relationships between consumers and producers.

The initiators of Regional Currency Complements believe that they can strengthen the region with its specific interests and potentials by its own means of exchange. In contrast to programmes that attempt to create more social justice through the transfer of wealth, currency complements offer a new way to increase social equality. They can be seen as innovative means for supporting individual and group initiatives, strengthening their self-worth and generating added social value through collective action.

The development of regional currency complements aims at enabling the inhabitants of a region to preferentially purchase regional goods and services - and to help small and medium-size enterprises who are responsible for creating most of the jobs and profits resulting from production rather than financial investments. Usually the cost of creating workplaces for regional production is a fraction of the cost of workplaces that serve international markets.

Technorati Tags: community, currencies, loyalty, payments

Digital money tribes

[Dave Birch] Different groups of people are interested in digital money for different reasons.  Personally, I fall into the techno-determinist tribe: digital money is going to happen simply because it can be done, hence you may as well try to influence the evolution.  But there are other, more idealist tribes who look to the advent of an electronic alternative to notes and coins as a means to change the money system in some way.  I might (very) broadly categories them as the euroleft and the ameright.  The euroleft want digital money to become a vehicle for social or community currencies, whereas the ameright want digital money to become a vehicle for commodity currencies.  But in both cases, they want to use digital money technology to carry something other than fiat currency.

Technorati Tags: community, forum, currencies