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.

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: <span class=”hPay”><span class=”give”>Given</span><span class=”amount”> <span class=”value”>20</span> <span class=”currency” title=””>BH$</span> to <a class=”to fn url” href=””>Blue Elephant restaurant</a></span class=”hPay”> (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: “”, 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.

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:

  1. 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.)
  2. 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.
  3. 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.
  4. 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:

  1. Access SF issues Access SF dollars.we could also call them vouchers or coupons
  2. 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.
  3. 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.

Brazilian community currency helps generate local wealth and jobs

From the Untergunggenberger Intitut Wörgl blog in Germany Austria, here is a video on the Palmas community currency in Nord-east Brazil, launched several years ago, which has enabled this impoverished community to build and retain wealth locally. Just to give an idea of the scale, Banco Palmas has 2100 associates… 60% of which are below the poverty line.

A very detailed description is available. Here are the specific points I noted:

  • Banco Palmas, which was started and is managed by local residents, functions as a local credit union that issues low interest rate loans in the alternative currency, the Palma, and provides also a credit card for payment convenience.
  • Access credit does not require documents, but only requires that local resident voucher for the loan. In other words, instead of relying on high-tech PhD risk analysis algorithm, CDS, securitization, and the likes, credit risk analysis is socialized.
  • The bank funds consumption and production reports to be able to better determine what is needed by the community and provide market research for entrepreneurs.
  • The alternative currency, the Palma, is backed by the national currency, and convertible at a 1% fee.
  • The bank has established partnerships with local businesses, and many are providing discounts when paying in Palmas.

Here are also some amazing numbers from the report:

  • In Ceará, sales in commercial establishments in the community increased by 40% In Ceará, sales in commercial establishment in the community increased by 40%
  • Bankruptcy for local businesses involved with the Bank has never exceeded 3% Bankruptcy for local businesses involved with the bank has never exceeded 3%
  • Crime rates in Ceará, compared to other neighborhoods in the city, are 5-6% lower Crime rates in Ceará, compared to other neighborhoods in the city, are 5-6% lower
  • 900 new jobs were created in the formal and informal sectors since the beginning of the project 900 new jobs were created in the formal and informal sectors since the beginning of the project
  • Of Banco Palmas clients, 82% feel more responsible; 95% consider the Bank an agent in the eradication of hunger and promotion of jobs and income; and 54% feel more solidarity with the community Of Banco Palmas clients, 82% feel more responsible; 95% consider the bank an agent in the eradication of hunger and promotion of jobs and income, and 54% feel more solidarity with the community
  • 11 other municipalities are currently receiving training from Banco Palmas technicians to implant community banks in their cities 11 other municipalities are currently receiving training from Banco Palmas implant technicians to community banks in their cities

BarterCard offers SMS-based POS solution to cashless trade exchange members

From Wikipedia:

Bartercard is the world’s largest barter trading exchange. Bartercard enables member businesses to exchange goods and services with other member businesses without using cash or cash equivalents, or having to engage in the direct two-way swap of goods and/or services. It was established in Australia in 1991 and operates in over 13 countries with a member database of over 55000.

Members earn Bartercard Trade Dollars for the goods and services they sell and this value is recorded electronically in the member’s account database.

In January 2008, BarterCard introduced a SMS-based service that allows merchants to process transactions immediately with funds being transferred into their account at point of sale. The service also supports balance inquiry. The user guide can be found here. I also put some screenshots below from their online demo.

Although the balance inquiry is pretty standard in mobile banking, the SMS-based POS transaction processing is I think really unique.

To process a sale to a BarterCard , the merchant simply types “Pur [Amount] [BarterCard number]”, sends it to the BarterCard phone number (saved as contact) and if the transaction is successful, receives a 10 digit reference number composed of a 4 digit BarterCard SMSPOS reference number and a 6 digit BarterCard Authorization number.

Of course, one might ask the kind of protection provided against fraud and the user guide only mentions:

We do advise you that you retain a proof of sale from the purchaser in the form of a signed receipt of invoice. If the sale is ever contested, you will be required to provide this proof.

The other security feature is that at registration, members can register to be notified whenever they make a purchase that’s processed via the SMSPOS service (as opposed to processing a purchase).

So, what’s interesting here is that a very low-tech solution in terms of fraud prevention. It seems that fraud policing is done by members and resolved by BarterCard employees. It would be interested to hear from BarterCard about their fraud statistics, if any. This would be a great demonstration of how social capital can be used to prevent fraud.

Going back to the functionality of the SMSPOS service, there are two other advanced features:

  • A previous transaction can be retried by typing and sending “Retry [Amount] [BarterCard Number]”
  • A transaction can be reversed (1 hour window) by typing and sending “Rev [Amount] [previously received 4 digit BarterCard SMSPOS reference number], for instance “Rev 40.50 0022″.

Registration part 1

Registration part 2

POS Transaction Processing

Balance Inquiry

Energy independence and currency sustainability

Chris Skinner just posted a new post on “Social Money” in which he writes about the challenges of online currencies or real-life complementary currencies. I commented at length and making a connection between currency independence and money independence.

Money is fundamentally social. Which is why the social Web can be expected to impact banking/payments much more than it has so far operationally. I personally view the monetary system we live in today as a sort of AOL of money where one central organization and its affiliates have effectively a monopole on what is money and how it is created. I think that at the time of AOL, people had a difficult time imagining what an open, decentralized and resilient AOL would be, and how much it would force them to transform. Today, in my opinion, we are in the early days of this new decentralized money. We haven’t figure it’s version of HTTP, HTML, browser, SSL and DNS yet, that’s all.

With regards to runs on communities’ money. I think it makes it very clear that an independent community with an independent currency should seek not just a 0 or positive balance of payments, but a balanced current account. As Paul Volcker (I think) said: “Trade matters”. The strength of a currency in other words depend on the resilience on the local economy to outside events. In the real world, free trade ideology and negligence of deficits has already cost some real countries dearly (Iceland) and many other countries including the US are at risk.

With regards to adoption of community currency, I would argue that it is not just a problem of trust. The success of real-life currency is not because people necessarily trust them. It is primarily because demand for it is created by making it the only to pay for tax debts. One way to create demand for a currency is to have local businesses (i.e. org/people with public reputation) issue it and have community member agrees that the non-profit community service entities get their donations only in this currency.

Community Capitalism: increasing your wealth with community currencies

YouTube screenshotThe 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:

  1. 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.
  2. 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.
  3. 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.

Weighing alternatives to our current monetary system

Bank of England close up

As the financial crisis starts to unfold, there is an increasing intuitive understanding among curious people that the way our money system works is at the heart of our problems. As a result, there is a renewed interest  in the blogosphere in discussing alternative forms of currencies, either local or global. One particular post that caught my attention is from the (found via Mendo Moola blog), whose most interesting part is actually the long discussion thread on the various options for alternative currencies and their respective merit.

There were a lot of good comments and I’ve tried to organize them a little bit.

My high-level conclusions/understanding after reading this discussion are:

  • We should have two separate currencies, one for speculation and investments and one for medium of exchange.
  • A fiat money for the medium-of-exchange money is not a bad idea. Backing it with anything, even clean Kwh or a basket of commodities will make it the best asset to own, which won’t contribute to its circulation
  • The one used as medium of exchange should depreciate by design
  • its issuance may be based on a decentralized measure of creditworthiness rather than on a relatively centralized banks-based creditworthiness
  • [This subject was not really discussed] A Full Reserve Banking system for the investment one might be a good idea, although a Fractional Reserve Banking system is somewhat more fault-tolerant and may encourage more risk-taking (when faults are limited, it is impractical as we know when faults all happen at the same time)

Here are my complete reading notes.

What is money and why we need it

team10tim says:

The fungibility of money is the sole reason that we, as a civilization, prefer it over barter. It reduces complicated situations down to a single common denominator. […] Money isn’t good or evil, it’s soulless.

ets says:

If you think of money as an extension of the barter system, then money actually represents the incomplete portion of a trade.


There are several perspectives on what the essence of money really is, but one is that a unit of money is a claim on a certain percentage of the total goods and services available in the market (a share, if you will). Another common perception is that “time is money”, or rather, vice versa. While the relation is not really that simple, there certainly is a time element to money.


The fundamental problem with money: Namely, that money is too good of an asset compared to nearly any other commodity.

On the benefits of separation and co-habitation of “medium-of-exchange” currencies and “store-of-value”/investment currencies

One recurring point in the comments was the fact that a currency being both a medium of exchange and a store of value is problematic. Both should exist separately and conversion facilities should exist.
Steve from Virginia says:

In the West, the ‘single function’ currency allows non-productive speculative claims to be made against productive parts of economies. This is a serious flaw in the single function regime. […] The dual currency idea is one I’ve had for a long time; one ‘hard money’ convertible ‘Gold Dollars’ that would be useful for saving and productive investment and a second ‘fiat money’ non- convertible (electronic) currency that would be used for financial speculation.

Doom and Gloom Dad:

I don’t think you want to back up a local “medium of exchange” currency directly with a “store of value” currency

ets says:

Currency should be a transport for value. Using currency to store value would be like using a cargo ship as a warehouse. My opinion is that currency should not act as a store of value, there are innumerable commodities that can serve that purpose. Currency, on the other hand, should be designed to do one thing particularly well: circulate. In my mind, I think a paradigm shift regarding money is necessary. It should not be seen as an asset, but rather a shared resource. By holding onto it you are depriving others of its use.

etc says:

It seems to me that it is often overlooked that the two most commonly cited attributes of money are mutually incompatible. Those attributes being: a medium of exchange, and a store of value. That is, when something is being exchanged it is not stored, and when stored cannot be exchanged. So the more money that is stored, the less is available for exchange (a.k.a. commerce). This is, to me at least, a very important point, and is one reason I prefer demurrage based systems.

On the benefits of money whose value depreciates

This discussion only applies to medium-of-exchange moneys, obviously. The basic idea is that if it does not depreciate, then it is kept and hoarded by those citizens that are most productive, until they own all the money, which they can lend and essentially control commerce.

Jokuhl says:

if your money is quickly depreciating, you would use it to get not only essentials, but in a more long-term frame of mind, to use these earnings to invest in Real long-term assets. Durable Products, things that would retain their value. This should have the effect of minimizing the resource usage we see today, where we buy the cheapest stuff, and as it dies quickly, are constantly replacing our belongings, using up resources at this deadly pace.

ets says

As to inflation being equivalent to demurrage; that is only generally correct. I don’t think inflation itself is the problem, but rather the unpredictability of the inflation rate. Also, the inflation effect varies for different segments of an economy, distorting price signals, and making the “inflation tax” not very equitable.

Also, later ets says:

My opinion is that currency should not act as a store of value, there are innumerable commodities that can serve that purpose. Currency, on the other hand, should be designed to do one thing particularly well: circulate.

On interest

etc says:

The idea that money would not be lent without positive interest is based on the perception that money is a reasonably good store of value. If money were to devalue on a relatively short time scale, one might find that the borrower would be considered as providing as much of a service as the lender.

Issues with local currencies and solutions

Doom and Gloom Dad explains that one of the major issues with local currencies is that it is an economic service that is provided for free, and as a result depends on donated time, money and resources and inevitably results in the burn out of the organizers.

Issues related to the backing of money

ets says:

Commodity-based currencies artificially inflate the value of the backing commodities. Additionally, dealing with commodity variety and grades is problematic. An energy unit would surely be my choice for any “single” physical backing. However, I think it would better to back a currency with a basket of all the goods and services produced by mankind in proportion to their marketable quantities. In other words, an arbitrary unit such as “dollar” should suffice. ;-) [In other words] I do not advocate commodity backed currencies, with a basket, or otherwise. My comment was intended as tongue-in-cheek, the basket being comprised of “all goods and services”, clearly an intractable problem.

Gold bugs: gold does not have any significant “intrinsic value”. Its value was declared, essentially by fiat, a long time ago… Its value is determined the same way the value of anything is determined; by what someone will give you for it in trade.

Doom and Gloom Dad says:

The backing commodities tend to be produced for their monetary status rather than their more normal utilities. One cannot really get away from that with a basket of commodities. It may take a bit of analysis to see that. Even a very extensive basket of commodities puts an emphasis on commodities over services.

Issues related to the creation of money

team10tim says:

Whoever controls the money supply will have substantial control over the economy. Whoever receives the newly minted money is going to enjoy primacy. The question is how do we allocate that primacy? How do we enjoy the fungibility of money and retain control over values in the ethical sense?

According to Doom and Gloom Dad, there is no issue of money creation but an issue of creditworthiness of each participant:

Barter credits come into existence when a transaction is performed: One person’s account is augmented by the exact amount by which anothers is diminished. The sum over all accounts is at all times zero. It’s sort of like electrons popping up and leaving oppositely charged holes in a semiconductor.
Thus in a sense, there is no money supply. “How do we create money responsibly?” I believe that this is a responsible way of creating money.

ets replied with a very good point:

how much money is in a LETS system? It is not zero. The net system balance is zero. Simply because positive balances must equal negative balances by design. The money supply is actually the maximum amount of negative balance permitted in the system. If there were no limit to negative balances, the money supply would be infinite.