The Next Money: As the Big Economies Falter, Micro-Currencies Rise

More consumers are walking away from fiat currencies to drive commerce -- and society -- with new ways of buying.

eg may16 p.jpg
German merchant Joseph Stoeckl shows off the Bavarian "Chiemgauer" micro-currency at his store in Chiemsee. (AP)

People everywhere are fed up with the status quo of the economy. With the passion our official institutions show for this tepid "recovery," many are concluding that progress will come not from the current system, which is after all what got us here in the first place, but from their own ingenuity and inventiveness. In pockets around the world, folks are declaring economic independence by starting small, local, but potentially revolutionary alternative currencies that could change not only how we buy goods and services -- but how we relate to one other in society. If these micro-currencies catch on, we could be witnessing the replacement of our monocultural monetary system, which emphasizes a certain sort of free market capitalism above all else, with a variety of currencies that will represent more diverse sets of values belonging to the groups that hold them.

Local Currencies, Local Economies

The next time you're in the southside of London, you might find yourself standing next to a man purchasing his chicken tikka with pounds sterling that feature, rather than the Queen of England, David Bowie in his Ziggy Stardust era. The man isn't a counterfeiter with a love of 70s glam rock, but a resident of Brixton proudly using the Brixton Pound, a "complementary currency" meant to revitalize the famously tough London borough by encouraging people to spend their money as close to home as possible. Started in September 2009, the Brixton pound can now be used at 200 local businesses, some of which offer special deals to those who use the currency instead of plain-old pounds sterling. Not that normal British currency is useless: the Brixton pound is pegged directly to its national cousin, and all the notes in circulation are backed by sterling located at a local bank. The scheme is small in scope and totally transparent. And while the paper money is gorgeous and meaningful, it will soon be expanded to allow people to spend their Brixton pounds by text message.

Brixton is one of four "Transition Towns" in the United Kingdom -- the others are Totnes, Lewes, and Stroud -- currently using local currencies. The effort to energize local merchants and inspire local consumers to incorporate their values into their commerce may also be inspiring others.

The Germans are also hip to the local currency concept. Sure, in Frankfurt, where the European Central Bank is headquartered, the elites of the European economic system are furiously trying to stitch together Paris, Athens, Rome, and Madrid in some kind of fiscal Frankenstein. But not every German is keen on the euro. Sometimes to register their protest of this larger system, sometimes to put their economic energy into the prosperity of their lands close to home, and sometimes to express the kind of localized identity that Brixtoners are celebrating with Bowie-emblazed notes, several regional currency schemes are popping up around the country. One, the Chiemgauer, serves the region Prien am Chiemsee, where it was started by high school teacher Christian Gelleri. The currency is tied to the value of the euro with some interesting exceptional policies, all aimed at increasing employment in the area, supporting local culture, and making the local food supply more resilient.

In Bavaria, the heart of Germany, many people who once embraced the solidarity of the European system are now turning inward, enthusiastically using the local currency as a protest. The locals are buying a refreshing stein of Hefeweizen, paying in Chiemgauer, complaining about the profligacy of the Greeks, and feeling a profound sense of local pride. Area residents can purchase Chiemgauer notes with their euros, but there are rules for how much it costs and what you can do with it. To maintain an individual bill's validity, the local banks that run the Chiemgauer charge a 2% fee every three months, a way to encourage spending and discourage hoarding or speculation, also known as "demurrage". Non-profits can purchase 100 Chiemgauer at 97€, allowing them to spend 3% of their purchases on their core activities. Businesses that accept Chiemgauer are subject to 5% commission fee should they want to change the local currency back into euros, encouraging them to work within and thus grow the Chiemgauer micro-economy by, for example, getting local suppliers into the system.

Similar currencies have popped up around the world, such as Berkshares in Western Massachusetts, Butte Bucks in Montana, or Calgary Dollars in Alberta, Canada. Like Brixton Pounds, these regional, complementary currencies are tied directly to the national tender, and thus to the health of the overall economy. But this growing trend is also a way for people to buttress local resiliency against the volatility of the global system.

The Ancient Ways Make a Comeback

The good old barter system is another hyperlocal medium of exchange to regain ground. While bankers and finance ministers fret about the tangled, abstract mess of the fiscal situation in Athens, the Greek people are living real lives of greater hardship. Unemployment is up, lines of credit are strangled, invoices go unpaid, and retirements are at risk. Yet, the Greek people themselves are still ready to exploit their creativity and hard work for the common good. In the months since the real difficulty set in, some Greeks have begun to meet in the local agora to exchange goods and services directly, an echo of the culture that flourished millennia ago in the very same cities and towns. Since the currency they use is dominated by dysfunction at the highest levels, people are buying and selling through barter. They're trading carpentry for tango lessons, home cooked meals for baby-sitting. The barter network in the city of Volos is one of many that allow local Greeks to achieve a measure of prosperity using their ingenuity and hard work, side-stepping the currency system that is so tied up in unbearable complexities and unsolvable problems at the international level.

The time bank, a slightly more sophisticated version of barter, is appearing in spots around the globe. A central repository keeps track of who offers what services, of how many hours they've contributed to the time bank, and how many hours they're owed. The "hours" accumulate at different rates depending on the skill level required to provide the service. For example, fine carpentry earns more hours than yard work, hours spent doing accounting accumulate at a higher rate than babysitting, etc. Once an individual has earned the hours by working for someone within the network, they can then spend them on the services they choose, with the number of hours remaining being coordinated by a central "time" bank. These systems are in use all over the world, from Chicago to Paris to Moscow, though the organizers are careful to make sure that the time is never given a specific value in a hard currency, which would open the door to taxation from governments.

A group in Northern New England has developed a specialized time bank system that helps people pay for healthcare through their earned hours. TrueNorth, a non-profit health clinic in coastal Maine, has a deal with Hour Exchange Portland by which physicians accept as payment "time dollars" that their patients accrue through service to their neighbors. The system works well at increasing community engagement and improving doctor-patient relationships, though organizers admit that younger doctors, who often bear hundreds of thousands of U.S. dollars in medical school debt, are less likely to participate.

In some ways, these "new" systems say a lot about the old one.. The whole point of currency is to facilitate the barter of goods and services in a marketplace, after all, so it's telling that the buyers and sellers in, for example, Volos felt their government-issue currency required replacement. It's also telling that people would adopt a time bank designed to extract different types of labor from others after contributing their own specialized labor to the economy, compensated through a medium of exchange -- isn't that what money is for? And, typically, our labor is supposed to become currency, which becomes insurance premiums, which becomes health care, so why develop a time-dollars-for-medical-care system that seems so similar? Could it be that the old systems are not functioning quite how they're supposed to?

Techno-Money, Online Economies

Traditionally, money is tied to a locality, printed by a nation-state, and handled either as physical cash or by for-profit financial institutions -- banks -- but that is no longer the hard and fast rule. In the age of the Internet, all you need to "print" a currency is a number of computers tied to the same network and a group of people who want to buy and sell goods and services using an agreed-upon means of exchange. Enter Bitcoin, a currency that is backed by peer-to-peer computing, which engages a network to make sure that the total number and location of "Bitcoins" are managed not by a central clearinghouse, but through a parallel network. BitCoin promises security without monopoly.

The best way to understand BitCoin is to think of it as something like a gold standard. Unless you decorate state capitol domes for a living, nobody really needs gold -- but it is tangible and limited, though you can mine more if you happen to be really motivated. BitCoin is like that, without the rare metal aspect. There are a limited number of "BitCoins" -- fewer than nine million at press time. Like precious metals, each BitCoin can be exchanged directly for goods and services, if you find someone who will take the trade, but it also trades to the U.S. dollar (around $5) and other world currencies.

Why go to the trouble of making a currency backed by peer-to-peer computing? To hear BitCoin Consultancy co-founders Amir Taaki and Donald Norman tell the story, they wanted a monetary system that was secure yet free from the corruption that comes when a few financial institutions have the power to set the prices for transactions. "We were walking around Amsterdam a few years back, and we got a call from a friend in the U.K. who needed a wire transfer quickly for an emergency," Taaki told me over Skype. "We needed to send him 1000 pounds or so, but there were only two ways to send the money, Western Union or Money Gram, both of whom take 20 to 25% out of the transfer in fees, currency spread and what not. We were incensed by the usurious cost of the transaction, but also that there were only two institutions to handle a simple transfer of information -- there was no free market competition at all. We then decided that the hacker community should step up and help this societal problem."

BitCoin is rapidly gaining adoption, now accepted by a variety of companies selling everything from socks to web server space,  and is inspiring several startups to trade the currency and consult on how to incorporate it into your business plan. On the dark side, some critics of BitCoin say that the system can be gamed by speculators, or used for such nefarious purposes as drugs or sexual services because the currency is difficult for national governments to track or account for -- though it should be noted that the same is often true for a stack of 20 dollar bills...

An Alternative System

None of these systems has become a standard method of buying and selling to replace the existing monetary system. Yet many are finding larger and larger audiences as the crisis that began in 2008 deepens and evolves, allowing more people to do more business outside the "normal" economy.

Heather Schlegel, an organizational futurist for SWIFT, the group that coordinates international transaction standards on behalf of the world's top banks in the world, believes that all of this innovation at the level of local communities is completely logical, and will likely increase in the years to come.

"Obviously, in the wake of 2008, there are flaws to the international monetary system which must be corrected by innovation," Schlegel explained to me. "You have this flawed dichotomy that either the whole system is working great, or the whole system collapses suddenly. In reality, complex systems evolve over time, and new players and behaviors emerge. That's what we're seeing all over the place now."

One facet of the global economic system especially prone to disruption, according to Schlegel, is the somewhat monochromatic set of values we imbue in our currency. "All money transmits the values of the people using it, along with considerable amounts of ancillary information. The U.S. dollar, the yen, and the euro all are 'values' currencies. It's just that the values are primarily in globalization, shallow relationships, high velocity, and free markets. That has a lot of benefits to it, as we saw during the explosive economic growth of the 20th century. It's just that such a currency has a lot of drawbacks, and those are being addressed by these innovations."

Consumers, she suspects, are looking for a way to express more control over their local economies, rather than having the one massive, global economy expressing control over them. "People want fast, free, secure transactions, and the dollar and euro are great at that," she conceded. "But what about supporting local communities or encouraging certain types of agriculture? You need innovation if you want those. That is why we are seeing so many examples of people trying new methods of payment."

Thanks largely to information technology, these systems of payment can be decentralized and democratic rather than tied to big, central institutions. Some innovations are truly spontaneous, based around the needs of communities more than policy makers or investors. Said Schlegel, "The one thing you see with BitCoin or local currencies is that people rarely ask permission from the central organizations. They just start behaving in new ways, and they do so by expressing their values through money."

These micro-currencies aren't meant to knock down the globalized economy, but rather to exist along side it. "This isn't going to be about BitCoin taking the place of dollars or something, or even becoming the standard for digital currencies. As communities begin to realize the possibility of expressing themselves through money, I expect you'll see hundreds of BitCoins, or something similar -- or something we haven't even thought of yet," she said. But unless the world's big economies turn some corner and suddenly becomes quite stable, more of these smaller systems are likely to continue appearing, to meet the needs of communities.

With all this innovation going on, one big question remains: what does this mean for paying the tax man, who wants a single currency to represent all of the activity so he can measure it and take his bite? The national revenue services of the world may need to start innovating themselves if they want to come up with the answer.