communitycurrency | Guillaume's blog

Funding public art with community currency?

Last week, Interactive Architecture ran an article about the Singing-Ringing Tree sculpture in Burnley, Lancashire, UK. The video resonated very much with some of my recent thinking on how public art that is part of the commons can be at the heart of community economic development.

First of all, it reminded me of an interview of Douglas Rushkoff about his latest book Life Inc where he tells the story of how Middle Age cathedrals were built:

The Vatican and central Rome did NOT build the cathedrals. The funds came from local currency. They were what we would now call “demurrage” currencies that were earned into existence. Towns ended up creating more value than they knew what to do with! They started investing in their infrastructure and their windmills and their water wheels; and also in their future in the form of cathedrals and other tourist attractions.

The second thought I have had recently is that a currency is a unit of contribution to a common goal, and it is this common goal that gives the value to the currency, because the common goal provides a social incentive for everyone to participate in their own way, some by contributing directly to the common goal and being issued currency, others by contributing indirectly to the goal by accepting it for goods/services. In my view, individuals’ common goals or common individual goals are what initially create community, more than anything else.

A public art piece like the Singin-Ringing Tree is such a common goal. It creates long-term value for local businesses like the cathedrals of the middle-age. It creates identity and pride for the local population. It also create jobs.

One approach to funding art is to seek grants from tax-funded government development agencies, but this approach can be viewed as quite inefficient since it requires tax collection, projects competing for funding with other projects, and a hierarchical and highly centralized decision making process.

Another approach could be to use a community currency dedicated to the particular art project. It would work like this:

The art project would issue acknowledgments for in-kind or monetary donations made to the project. Issuance would be made public.
Businesses could show their support by accepting some of these acknowledgments for partial payment of goods/services they provide.
The notes, if printed in paper, could bear an artist rendering of the public art piece to be built.
After it is built, the public art piece would likely attract tourists to whom the notes could be sold as a “piece” of the art piece, likely for many times the face value in dollar, since originals would be in limited supplies. This would provide a natural way for the currency to disappear from circulation, and be replaced by new ones for new projects.

Alt.transport currency and carbon offsets

I have been researching a bit more the idea of a SF Bay Area rideshare currency, and realized it should be expanded to any alternative transportation method.

Here’s how it would work:

Alt-transportation users would log their shared rides/bicycle rides/walks using a service like RideSpring, which may provide rideshare matching service. From these logs as well as the type of car that would be used otherwise, carbon emission savings would be computed. Certification might involve a mutual process or a device such as the Freiker or the Zap tracking devices for walkers/bicyclists. Users with would be able to withdraw these carbon offset certificates as printed stickers with a barcode.
Non-alt transportation users buy carbon offsets certificates issued in proportion to the carbon emissions saved by the tracked usage of alternative transportation. This certificates would be valid for a year and issued as bumper stickers that buyers can proudly stick on their car.
Businesses would accept payment of their products/services in part with the carbon offset certificate stickers.
In addition, thanks to the recent Commuter Bicycle Benefit bill, bicycling commuters riding at least 3 times a week would be able to get $20 pre-tax income every month from their employers in the form of additional carbon offset dollars (that could only be spent at bicyclist shops).
The overall system would be operating by a non-profit charity with a specific additional mission of lobbying for additional tax breaks, in particular for ride sharers not using vanpools.

I need to do the maths, but in the meantime, would love to hear what you think.

Microformats and decentralized online currencies

Most people are probably aware of the announcement by Google (following Yahoo’s announcement) that they would be supporting microformats.

What is really interesting to me is what this means for online currencies.

If you look at an hReview, what it is fundamentally is a declaration of positive (or negative) experience measured as a number betwen 1.0 and 5.0 about an item, which someone publishes on the Web anywhere he/she wants. An aggregator like Google in turns aggregates it and computes an average of the rating. The reviewer does not need the authorization of the reviewed item to publish the review.

That name typically includes a link (URL), which can be viewed as one of the identifiers of the reviewed items on the Web. It might be their own homepage for a restaurant, or it might be a description of the item on a review Web site such as Yelp (here the Yelp URI of a thai restaurant where I live).

In the payment world, there is already a payment application that allows you to donate/pay money without the other person having registered, it’s Tipjoy. The way it works is that you donate to URLs on the Web. Just like an hReview, the recipient does not have to be registered with TipJoy for others to tip them. If and when they eventually register they can claim their money by inserting a tipjoy tag with their username in the HTML of their Web page. Twollars followed a similar process but with Twitter names instead of Web URLs, but Twitter names are also URLs…

So the general pattern of Twollars, TipJoy and hReview is that you give or review a URL.

This could work for a really open monetary architecture:

People would write somewhere on the Web (typically a Web space they own) an hReview-like statement that they give a number of units of currency to someone else. For instance: Given 20 BH$ to <a class=”to fn url” href=”http://www.yelp.com/biz/blue-elephant-thai-san-francisco”>Blue Elephant restaurant</a> (Note that they could write it manually, but most likely, they will use a form that will generate it for them).
An aggregator would find this statement, either by crawling the Web, or if they are blogged via a RSS ping. The aggregator will typically compute balances (positive and negative). In a mutual credit model, people’s balances would be allowed to be negative, but in a traditional government-issued currency, they would not, they’d have to borrow it at interest.
Receivers may claim some of the URLs through a similar process than the one used by TipJoy.
Users may publish back their balances via a widget on their Web site.

What’s great with this model is that anyone can start playing, even create their own currency, very easily.

More importantly, you can have several accounting services tracking hPay statements and computing balances. You don’t need an account at a bank, your Web site is your bank account. What the accounting service does is simply authenticating that you own the space where you published transactions, and keeping tabs.

There are several issues:

Currency creation: Where do we register new currencies so that accounting services can distinguish different currencies? The ISO 4217 code is too limited to support millions of currencies. We need something like I used above: “us.ca.sf.bh”, which would allow new currencies to be easily created out of existing ones simply through forking.
Currency rules: different currencies have different rules. Some will allow negative balances of any amount, some won’t allow anything below zero, some will allow some negative balances or positive balances with limits (ex. 5,000). These rules must be encoded in a formal language, published to accounting services and participants and associated with the name of the currency. Eric Harris-Braun and Arthur Brock have already explored this topic extensively.
Refusal: how does a recipient refuses a given currency amount? (another currency rule BTW) this assumes that the recipient can be notified that their URL was mentioned. This is essentially a linkback.
Security, in particular:
- Authentication: how do we make sure that statements posted indeed come from the person owning the resource.
- Authorization/Privacy: how to we ensure that not all transactions I make are public, but available only those I transact with and possibly as few as possible trusted reputable intermediaries. OAuth could be useful here if the resources can be easily segmented and tokens can be issued to groups at once.
- Non-repudiation/Tracability: how do we prevent the effect of people deleting hPay statements.
- etc.

Quite a lot to think about. Some of these items will be the topic of future posts.

Evolving community currencies from barn raising

The biggest challenge of community currency adoption is probably education. People don’t understand why they would need a different currency, or they don’t trust the community currency as much as the government-issued currency.

Over at the opensourcecurrency group, Benjamin made a very exciting suggestion based on an adaption of the Amish barn raising.

With Barn Raising, we all get together
in January and break up into groups of 4-6 households. We then
schedule our work days – about one every other month – throughout the
year. When your day comes up, everyone converges on your house and you
put them to work for the day. It’s a great way to get big projects
hammered out in a short amount of time, and it’s way fun! The problem
is that anyone who doesn’t get in during that first meeting has a hard
time joining a group. I see ATEN as a way to facilitate even more of
the BarnRaising spirit without having to do all the organization up-
front. You have a bunch of folks over to your house and then pay them
in hours. Go to someone else’s house and get some of that time back
working for them, etc.

So, the idea is essentially for the community currency, here time-based, to be used as a tool to make the barn-raising more flexible.

What I really like about this idea is that it makes the community in community currency very real in a social sense: you get to meet and accomplish something with other community members.

Hayes Valley Money (report from the field) and Play it Forward Akoha cards

Hayes Valley Money

From wikipedia:

Hayes Valley is a neighborhood in San Francisco, California, between the historical districts of Alamo Square and Civic Center. Victorian, Queen Anne, and Edwardian townhouses rub shoulders with boutiques, restaurants, and public housing complexes.

In November 2008, to fight a worsening recession, Hayes Valley started to print their own money with the Hayes Valley Money rewards program. Here’s how it works:

shop at any participating merchant for a chance to win a Hayes Valley Money card good for $5, $10, or even $20! You can use your reward card in the shop where you got it or at any other participating store. Just look for the “money card participating merchant” signs in store windows or refer to the list below. Hayes Valley Money rewards cards are good for 30 days

This is currently a very low-tech endeavor: to prevent forgery, the money cards are signed by hand by each merchant at the time they are given to customers, together with the expiration date. “We are currently 16 merchants participating in this program and we all know each other, so it would be very hard for someone to forge” explains Russell Pritchard of the Hayes Valley Merchants Associaton.

Russell explained that so far, he has been a bit disappointed by the number of merchants joining the initiative (16 so far), but he has been really encouraged by the reception from customers. So far, out of the 30-40 rewards he has given out, only several came back from other merchants, most likely because people haven’t used them. He may typically give a $10 reward for a $100+ purchase and may a $20 reward for a $200-500 purchase. But he said, and this is interesting, that it happened that he actually gave away some of them to some people he knows shop locally or were considering buying a piece of his store.

From a “backend” standpoint, the rebate collected by merchants are simply counted and returned to the issuing merchant. Rusell acknowledged that the easy-to-setup adoption of a paper/signature-based system has drawbacks in terms of tracking and clearing between merchants, but it’s a start.

Russell hopes that this initiative will be duplicated all over the city with the support of the city of San Francisco. He personally handed a rebate card to mayor Gavin Newsome, who has been personally supporting local shopping during the holiday season, and recently reminded him that he hadn’t used it yet.

My comment

Because the rebate issued is not re-circulated after it has been used once, we cannot strictly talk about a currency (currency comes from current, something that flows). In the current model, merchants are essentially injecting their own money into the neighborhood, creating an incentive for visitors to shop at more than one store in the neighborhood in a short period of time. I suspect this model might lead some of them to think that they might give more than others do.

The next step in my opinion would be to move to a real currency model where received rebates could be used by businesses to trade with one another. In this scenario, the rebates received by a merchant would not be returned to the issuing merchant, but simply used to trade with another merchant. It might not make sense in a community of 16 merchants, but if the community is big enough and involve a wide variety of business types, it will.

Still, there would be something missing in this model: no community value would be created. One way of doing so would be for merchants to donate some of their rebate cards to local community services that would be then use them to fund their activities by using them, or reselling them for hard dollars to local residents willing to make a donation, but without losing purchasing power.

Parallel with Play it foward Akoha cards

A tweet from @akoka picked my attention today. The original idea is for customers to thank each other with rewards cards and propagate good karma, but there is a possible connection between the Hayes Valley Money rebate cards and Akoha cards: stores could easily leverage the Akoha awesome tracking infrastructure to print cards, hand them out to customers, track through which users and which merchants they have been through.

If the merchants themselves play them forward, until the cards they issued are returned to them, as I suggested above, they could effectively measure how many transactions they have incentivized through their rebate cards.

Last, merchants could also easily connect with customers without ever asking them their email or contact information, since Akoha users typically register the card on their Web site to keep a tally of karma points they have accumulated by passing the card along.

What community currency networks we learn from barter networks

Barter networks such as ITEX, BarterCard or IMS are very poorly understood systems. The word “barter” conjures archaic, depression- or war- era visions of people swapping food for medical supplies.

In reality, these systems are membership-only closed networks or clubs where small to medium business (typically less than 50 employees) trade their surplus capacity using a currency that is proprietary to each network (most businesses do not operate at full capacity, for instance, many hotels operate at 60% occupancy rate). These small businesses could include a florist, Web site designer or lawyer.

Instead of trading with, say, U.S. dollars and having to sell their products/services at huge discounts (in buying power) in the open marketplace, they trade with ITEX credits or BarterCard credits, which can only be earned by selling to another business or the network, and can only be redeemed for goods/services from another merchant in the network. The result for participating businesses is that they keep their buying power, but from a limited set of businesses: same buying power with less choice.

These networks work almost conversely to the national money-based marketplace we are all familiar with. In our marketplace, money is relatively more scarce than the people who accept it. In a barter network, people who accept the club-only money are relatively more scarce than the money, which gives essentially artificial demand (compared to the actual demand on the open marketplace) for their unsold products/services. For instance, some members drive 100 miles to buy wine from another member, simply because they have credits they earned and that member accepts their credits.

The functions of the operators of these networks are interesting:

supply/demand monitoring and balancing: when a business applies for membership, their business is reviewed for relevance. Obviously, you don’t want to have too many businesses providing the same goods/services, since it would defeat the advantage of a membership-only marketplace.
credit allocation. Depending on the network’s rules, the member may have to earn credits before it can spend them, or it may be able to get a certain quantity of credits just based on the relevance of their business to the network, i.e. expected demand for their goods/services. So, a business with very relevant offering gets credit, while one whose business is already overrepresented may not or may get a smaller credit. In some networks, the actual creditworthiness of the business as measured by credit bureaus might be a factor as well.
debt collection. If a member leaves, debts may be seeked using standard legal debt collection procedures (in national currency this time).
risk management. In some cases, a member goes out of business with a negative balance. To compensate for these losses, the trade network will typically tax all members a small fee on a regular basis, in the propriety currency, not national currency.
banking. The network needs to keep track of accounts, credit extended, as well as provide various ways for members to use their balance (check, online, mobile, etc.). The network also generates tax filing reports (barter transactions are taxable in the US via form 1099-B). There is typically no foreign exchange service provided (exchange of trade dollars for national money) and no interest earned/charged on positive/negative balances.

I’m not saying that barter networks are the panacea. I think they serve the need of their members, but most importantly or their shareholders. In contracts, community currencies server the purpose of their community: neighborhood, social network, etc. Yet, there are several things that community currency systems can learn from these barter networks:

Self-sustainability. A closed community with a proprietary monetary system can sustain only if the system is self-sufficient. The system has to be thought as a self-sustaining ecosystem, and great care must be placed on the participants encouraged to join so that not a single category is over-represented, and so the currency circulates. (Similarly, an open community with its own monetary system that would offer convertibility to other currencies must have balanced flows of goods/services (trade balance) with other communities using other currencies, or will risk a run on its currency: trade matters.)
Fault-tolerant credit system. A credit bureau and a loss pool is probably necessary if the network is quite large. The credit bureau is a pre-emptive tool, and the loss pool is just a practical answer to the reality of business cycles.
Strong debt fulfillment incentives. Debt collection is a problem in a community currency, and IMO this can only be solved by making membership something valuable enough to the member that it would do anything possible to not default on its debt. This can be achieved by making membership socially desirable to members i.e. something they can use to advance their status within their society. The stronger the incentives, and the lower the debt default risk, the stronger the currency.
Reliable and secure operational infrastructure.

Using CommunityWay to save a local community service in San Francisco

Like many community services, Access SF, San Francisco public access station might close its doors because of a $500K budget cut.

I think Community Way might be a good model for them to raise these $500K. Here is how it would work:

Access SF issues Access SF dollars.we could also call them vouchers or coupons
Access SF negotiates with local businesses to get Access SF dollars accepted as payment for part of what is owned by customers. For instance: a local restaurant would accept 10% payment of the bill in Access SF dollars. Access SF explains that they will advertise Access SF dollars benefit on their channel and Web site, which will attract new business.
Access SF sells Access SF dollars to SF residents on their Web site and at their office. These US dollars are used to fund the $500K.

Local businesses get advertising. Local residents get to support a community service without losing purchasing power. The community service gets its real dollars.

If Access SF sells $50 worth of Access SF dollars on average to 10,000 local residents, they’d get their $500K.

Farmers markets and community currencies

Crescent City wood token

Yesterday, I found myself explaining the concept of local community currency to someone who had never heard about them before. Because we were next to a farmers’ market, I picked that context to support my stories about the benefits of local community currencies.

I built upon the story of the Taft Farms local currency, in which a farmer issued his own money to raise funds for the winter, and I explained that a farmers market could create a bank that would issue paper money redeemable only at the farmers market the following year, possibly at a discount (ex. $9 for $10 face value) and use the cash raised to provide credit to farmers in need during the winter season.

Additionally, the farmers market bank could promote itself by donating some of this paper money to non-profit organizations of its choice in exchange for ads for the farmers market in promotional materials issued by the non-profit organizations. Non-profits could follow the Community Way and sell this paper money at auctions to raise funds in real cash.

Last, I explained that the farmers market currency might be denominated in a different unit than the US dollar, say a “basket”, which composition would be defined by the farmer’s market every year. You could buy today baskets and use them as an inflationary hedge if you are a regular customer of the market and are worrying about your fiat national currency losing purchasing power over time.

Today, I found that some of my examples are not that far-fetched from reality.

The Farmers Market in Venice, CA has a program, which is very similar to Community Way: it offers certified market money subsidized by vendors to the organizations of their choice in exchange for mention of the donation in the printed materials of the events organized by organizations receiving donations. Organizations can use this market money to purchase good or auction them off to raise funds for the organization.

I also found two cases of farmers market tokens used as cash alternative: Crescent City Farmers market and Portland Farmers Market both provide a way to buy at one time batches of wood tokens that can be used as cash on the market. This is actually provided as a payment facility for those who want to shop with their credit card at merchants on the market not accepting the, but it could be easily extended to support the scenarios presented above.

Chris Cook on asset-based finance to the rescue of the housing crisis

Chris Cook of OpenCapital.net put together a very insightful presentation on how to stop the real estate crisis by switching from our secured debt-based housing financing to a new form of equity-based housing partnerships. If I understood his comment correctly, his point is that 70% of our money is secured on assets and this is the big problem right now (we can deal with the unsecured debt later used in our economy, which could be replaced by a community currency).

His solution, as I understood is, is to break the vicious circle of owners/developers having to sell properties at fire sale prices because they can’t pay back their debt. It consists in:

placing the house(s) in a pool
renting them at a low price to occupier(s), based on a highly-reputable rental index
having them managed by a manager paid as a % of the rentals

Then the magic happens as follows:

New investors interested in steady highly predictable revenues (ex. pension funds) buy shares in the pool
the proceeds are used to pay bank distressed owners/developers, who can pay back distressed banks
occupiers can pay more than their rent and automatically become investors
as they become occupier-investors, they have incentive to invest sweat equity in maintaining homes
they may end up paying their own rent from the rental they get as shareholders, thus breaking the slavery of debt

This equity model is different from a corporation since there is no debt/leverage that would maximize temporarily the management fees by increasing and underestimated risk, which ends up in bankruptcy when default happens. It is similar to a Royalty Trust used for oil production.

Here is the complete presentation:

Equity Shares – A Solution to the Credit Crash

View SlideShare presentation or Upload your own. (tags: credit> capital><peak)

Community Capitalism: increasing your wealth with community currencies

The idea that our money system is wrong is becoming more visible every day, but creating money systems designed for grassroots adoption (without government involvement) is quite a challenge.

At the unMoney convergence event last spring, Michael Linton, a pioneer of alternative community currencies, gave a presentation of a money system that I found very convincing (Part 1, Part 2, Part 3, Part 4).

The basic premise is that an alternative money system designed for grassroots adoption should not require long, philosophical explanations, but should simply make economic sense for all participants.

Michael identifies three kinds of participants:

businesses
non-profits
people like you and me

The system works as follows:

businesses issues promises in their “own currency”, i.e. in the goods/services their business provides. Could be movie tickets for a movie theater or bread coupons for a baker. They issue them to the non-profits of their choice, for instance a church or school or hospital. Note that this does not cost them anything as long as they don’t issue more than their business can deliver. For practical purposes these promises are issued in the same unit as the legal tender currency, say the US dollar.
non-profits take theses local currency notes and sell them to people like you and me for real cash, which they can use to pay for their operating expenses. Again, here, people like you can me buy them from the non-profits of their choice.
people like you and me work for hard cash at businesses and volunteer/work at non-profits. We earn both real cash and local currency notes. Local currency notes can be spent at local businesses who accept them according to their policy. For instance a restaurant might accept to be paid 50% in real cash and 50% in local currency, while a grocery store might accept to be paid 90% in real cash and 10% in local currency. This will depends essentially on how much real cash they need to support expenses that can’t be covered with local currency.

As the quantity of local currency increases, both in terms of absolute quantity issued and velocity, the benefits for each participants is that real wealth is created (better education, better service for old people, better roads, better health, etc.) but unlike real cash, it cannot be extracted from one community and spent in another one. In other words, the wealth of neighbors is captive and no one but the neighbors capitalize on it.

So, wealth increases, but it’s also shared:

businesses get more revenue in local currency that they can use to hire more people they pay in local currency, buy from other businesses in local currency, etc.
people like you and me get more real wealth via the non-profits and get more money in terms of things that are truly valued: local businesses and local free services.

My comment

This model follows some of my own ideas that promises from businesses are probably a better backing mechanism to a local currency then thin air or hours of people like you and me, or a commodity, especially if these promises are in their own currency, i.e. what they produce. I think borrowing in your own currency is a privilege everyone should have (not just the US government) to the extent that they can deliver on their promises.

This model is a sort of Scrip 2.0, which is great since it builds on an existing well established practice of using coupons issued by merchants to non-profit for fundraising (with the major disctinction that in Michael’s model case, there is no impact on the profit margin of the business: $1 of local currency is $1 of real cash vs. $1 of local currency is issued at say $0.9 real cash and sold at face value – $1 – to you and me in the case of scrip).

I think one issue might be that the distinction between businesses and non-profit is pretty vague in the current description I’ve watched (but I’ve probably missed some content). An improvement in that direction would simply be to say that may not discriminate who they provide their services/goods, in particular on the basis of who gave and who didn’t buy local currency from them. I think a local “shaming” or abuse reporting system might be enough for a local currency.

I think it’s important that the notes issued carry the brand of the business who issued it (either in paper or electronically). This would prevent businesses to print too much local currency which may ruin the system via inflation, which is essentially paper wealth or fictitious wealth):

Businesses could easily be forbidden to use local currency they’ve issued for paying other businesses or their employees: business would have to recycle money they’ve issued and got back via the non-profits.
People/Non-profits would quickly notice if the business has a hard time redeeming the local currency they’ve issued. Again here a local shaming/reputation system would put pressure on the business to limit their issuance.

I think Michael’s model is very exciting and I am planning to talk about it with people in my neighborhood. Feel free to comment here on the pitfalls/improvements you see. What I’d like to do as a next step is a more detailed analysis of the model with hard numbers.