Ivan Tsikota has produced an interesting Master’s Thesis confirming that complementary currency systems (broadly conceived) have positive economic effects, and under which conditions these effects can be stimulated.
* Master’s Thesis: Complements to Economic Systems: Increasing Local Economic Sustainability. Ivan Tsikota. 2011-05-14. EC9901 Master’s Thesis, 30 hp . Department of Economics , Stockholm University
The Abstract summarizes the project undertaken:
“The purpose of this thesis is analysing implementation of complements to economic systems (e.g. Local Exchange Trading Systems, Complementary currencies, Barter Networks etc.) and critically assessing potential thereof in counter-balancing macroeconomic instability, inflation and adverse environmental effects borne by conventional economic system on local level. This paper contributes to understanding the role of local authorities in the field of using complements to economic systems and reveals means by which one can foster effects thereof in the communities. Another contribution of this paper is proposal of the generic taxonomy of complementary economic systems. Results of the research suggest that complements to economic systems clearly have positive micro- and macroeconomic effects, affecting employment and welfare, alleviating poverty, providing wider access to goods and services, and in some cases acting in a counter-cyclical fashion; they also contribute to more efficient allocation of goods and resources from social and environmental perspective.”
“The … paper is structured as follows:
Section II provides an overview of the problem;
in Section III various complements to the economic system with historical and statistical summaries are presented;
in Section IV methodological issues relating to information and lack of classification of the complements are described, and taxonomy of complementary economic systems is suggested;
Section V is dedicated to analysis of the case studies, and Section VI concludes.”
Here are excerpts from the introduction and conclusion:
* Introduction
Ivan Tsikota:
“In the past 25 years, the world has experienced 87 monetary crashes (Lietaer 2007). Literature and anecdotal evidences suggest that municipalities in various corners of the globe, e.g. Greece, Ireland, Spain, Brazil, the United States and other countries, are still suffering consequences of the recent financial crisis. Various ideas emerge with respect to the reasons for economic difficulties. The entry point to analysis in this thesis is the institution of money and such related phenomena as compound interest, debt and scarcity, as they clearly are the cornerstone of the global economy today. It is argued that they lead to adverse macroeconomic (e.g. inflation and instability) and environmental effects (resources depletion).
Researchers, policy-makers and public activists suggest different remedies. In general, they can be classified into top-down and bottom-up approaches. At the same time, little attention is paid to the local level. As municipal institutions are becoming more significant in face of globalization, it is important to see what they can do in order to attain greater economic sustainability. The idea of complements to the conventional economic system was formulated in the first half of the twentieth century. Within the last 30 years, various initiatives like Local Exchange & Trading Systems, Interest-free financial Institutions, time banks, complementary currencies etc. have emerged. Hence, the purpose of this thesis is to analyse examples of their implementation and to critically assess potential thereof in counter-balancing adverse macroeconomic effects borne by conventional money institute.
The method applied is literature survey and analysis of case studies. For this purpose, 33 case studies are analysed, 13 of which relate to interest-free financing, 12 to complementary currencies (4 cases studies on time-banking, and 8 on other types), and 8 to exchange systems (3 cases of barter, and 5 of LETS).
Information available on the subject comes from several sources: academic literature, books, and internet publications. In the case of complementary currencies one regularly published journal is available: the International Journal of Community Currency Research. Many publications are of a theoretical or conceptual nature; articles containing some sort of statistical or econometric evidence are the exception. Data is scarce and in some cases huge discrepancies are apparent. It is discussed in this paper that more empirical research and unified guidelines for data collection and dissemination are required.
One issue is closely related to data availability, namely a somewhat lacking consensus among researchers regarding types and purposes of economic complements, which in turn arises from the absence of general classification thereof. Several attempts have been made with this purpose, e.g. by Lietaer & Hallsmith (2006), Blanc (2011), and Brenes (2011). However, they are mostly concentrated on what can be named as complementary tools, and wider scope is clearly needed. The author attempted to fill this gap. Main contributions of the paper are analysis of advantages and disadvantages of various complements to economic system, proposal on the use of complements by local authorities, and suggestion of the taxonomy for classification of complementary systems in general.
Results of the research suggest that complements to the economic system clearly have positive micro- and macroeconomic effects, affecting employment and welfare, alleviating poverty, providing wider access to goods and services, and in some cases acting in a counter-cyclical manner. Moreover, in the majority of instances they also bring social benefits: inclusion and empowerment of poor people, strengthening the community. Analysis suggests that local authorities can contribute by providing competence, management, financial resources, ensuring consistency of the data, developing a legal framework. Civil society also appears to play an important role.”
Conclusions and discussion
Ivan Tsikota:
“This paper has investigated possibilities for local authorities to enhance economic sustainability by means of complements to the conventional economic system. A case-study approach was used to take different types into account: Barter and Local Exchange Systems, Complementary Currencies, and Time Banks. Analysis suggests that use of such types of complements indeed provide positive effects, both economically and socially, and conclusions derived are consistent with existing literature on the matter. In particular, use of all types of complements studied leads to social benefits: better inclusion of otherwise excluded people, creation of better community feeling etc.
It is possible to conclude that some of the complementary systems, e.g. barter networks are particularly strong in addressing the issues related to conventional money, namely macroeconomic instability and inflation. The effects of other complements on the aforementioned parameters are ambiguous due to the lack of empirical evidence and are subject for further research. At that, one can conclude that all complements provide wider employment opportunities, growth of welfare, and richer access to credit facilities. Analysis of interest-free banks suggests that this type of financial institutions can foster more efficient allocation of resources in terms of addressing socially and environmentally relevant issues. Possibly, this is the way to respond to the need of economic development balanced with preservation of natural resources and providing social equity, which was outlined by United Nations – Department of Economic and Social Affairs (2010)i. The performed research also indicates that most of the complements can provide sustained growth, i.e. the one where transactions performed are backed with real goods and services. Effect of complementary currencies pegged with national money in this context is not clear and requires furhter empirical research.
It may be concluded that participation of local authorities in initiatives relating to the use of complements to economic system is highly needed in the following ways: coordination of efforts between public and civil society organizations, providing necessary legal framework, ensuring its transparency and unanimous enforcement, introducing safe-guards against possible mal-use and/or fraud, and collecting and sharing data. Local authorities can also contribute by raising public awareness and serving as a contact platform for business companies and communities. They may help in addressing the short-comings of voluntary character of many initiatives, namely high drop-out rate and low expertise. -Analysis suggests that there is also a need in the international cooperation, and local authorities are not only a candidate, but also the best candidate for it. In this respect, it is advisable to create an international platform for sharing best practices, developing guidelines for complements use, and standards for data collection and dissemination.
It was concluded that there is a lack of clarity on subject of complements to economic system in the literature: researchers vary in assigning complements to a certain category or use different terms for various complements; existence of ‘mixed’ complements is another aspect of this issue. One of the results of the present research is a proposal of taxonomy for complementary economic systems. The suggested approach is wider in scope than earlier attempts. Its starting point is partly based on the work of Lietaer & Hallsmith (2006), but it bears several distinctive features. First of all, it is aimed at complementary systems in general, and not only at complementary currencies. Secondly, a distinction is made between tools and mechanisms in complementary systems. The taxonomy differs from the one suggested by Blanc (2011) in terms of scope and by more practical orientation.
Particular strengths of the thesis are emphasis on local authorities, which seems to have been overlooked before, suggestion of the taxonomy for complementary economic systems and the amount of case studies analysed. Possible weakness of this paper is, perhaps, the fact that it is too wide in scope, and some issues could have been analysed in more detail.”