The Banco Palmas in the Palmeira precinct of Fortaleza/Brazil is a bank that emits a local currency. The bank offers credits in the local currency (interest-free) and in Brazil’s national currency (interest rate 2%). For a fee of 1%, amounts in local currency can be swapped with the national currency (ratio 2:1). Stemming from a grassroots movement, the Banco Palmas operates a school (Palmatech) that imparts the concept of the bank to the local citizens and offers education and training. The Banco Palmas succeeded in enhancing the circulation of goods in the region, this was further advanced by the creation of a brand (PALMA). The brand guarantees that the products were manufactured locally in an ecologically sustainable and socially acceptable way. In the bank’s environment, the production activities it supports are organised in a way that advances transfer of knowledge and know-how. At a weekly barter fair, local citizens can offer their goods and services. The majority of financial transactions as well as payment of wages take place using the local currency.” – Hans Schumacher
“‘Mummy, do you know you can use Palmas to buy local soap?’ The children of Conjunto Palmeiras tell their parents how they can use the local currency. The kids learn about the currency through songs, a fashion week, theatre, photo stories, on the radio and even in their local history class in school.
Banco Palmas is Brazil’s great community currency success story: it has created over 1,800 jobs, is the exclusive source of currency for many people and has sparked imitations in 66 communities around the world’s fifth largest country; it has the full support of the Brazilian government and Central Bank; it is the world’s best example of a poor community using a local currency to help itself to develop.
Conjunto Palmeiras is a shanty town with a population of 32,000, an artificial settlement created by removing people from the coast in the 1970s. It is 22 kilometres from the city of Fortaleza, a city of 2.5 million people in the north east of the country. For the first decade, the community had to fight a long battle with the authorities to secure access to the most basic amenities.
Carlos de Freitas, from the Palmas Institute in Europe, continues the story.
When they reviewed their achievements in 1997, they saw that they had not created enough permanent jobs in the area and there was no reliable income for desired developments. They heard about micro-credit and other solutions, but there was no infrastructure to introduce such programmes. It was then that they decided to create their own bank to give loans to entrepreneurs.
Banco Palmas launched in January 1998 with a grant of 800 Euros from a French organisation. National tv news reported that a slum was launching its own bank – the ‘Bank of the Favelas’ – and on the second day hundreds of people were queuing for credits. They were told they had to wait: on day two the bank was already bankrupt! The first loans had already been given to five retailers and producers and to 20 families for consumption. In the following months, other international organisations lent money to allow the bank to create more micro-credit loans. Inspired by the rapid growth of local currencies in Argentina in 2001, Banco Palmas later decided to create its own currency with redemption into national currency for businesses only: the Palmas. The district Palmeiras takes its name from palm trees and the currency name ‘Palmas’ suggests palm leaves, the palm that shakes hands and a local expression ‘bater palmas’, which means ‘to applaud’. This local currency only has value in Palmeiras and cannot be spent anywhere else.
Community organiser Joaquim Melo and local businessman Francisco Bezerra both spent two years tirelessly selling the idea to other local businesses: first the larger grocery stores and the gas station; then the smaller businesses – sewing and clothing shops, bakeries etc. As the owner of a large business and head of the retailers’ association, Francisco’s name gave the project great credibility.
Now you see the colourful sign with the green and white palm tree saying ‘We accept Palmas’ over a third of the local shops; 270 businesses offer a range of discounts (2 to 15% depending on the size of the retailer) to encourage people to buy with the local currency. Each business agrees to the principles of the ‘solidarity economy’ – mutuality and reciprocity – and promises to help circulate currency. Francisco promotes local money to help himself, his business and his community. Each ‘Palmas’ keeps on circulating while the Réais (national currency) leave the district to be spent in the local city of Fortaleza, which otherwise sucks in all local wealth. The efforts of the residents’ association and their Banco Palmas have brought the area from ‘most dangerous’ area of the city in 2002 to tenth on the list in 2011.
Once I marked a Palmas banknote in the corner with a pencil. By the end of the day it had returned through my till five times: that means it had passed through five different hands in the community and circulated five times more than the Real, which usually leaks straight out again as soon as it is spent. Today they talk about us in the economic pages of the newspapers, not just when there’s bad news.
Banco Palmas is a unique community bank that is governed and managed entirely by local people, who decide on policy, approve micro-credit loans and manage the local currency. Carlos de Freitas describes the culture.
It has a very different feel from banks in richer areas. There are very open spaces where you can talk to another local person in your own language. You can also pay your bills at the bank and every time you go there, you see posters explaining how everything works, the meaning of the whole process, the benefits of Banco Palmas to the community and to each family.
Staff of the Palmas Institute facilitate weekly meetings at which all subjects are discussed: maybe people think the interest rates are too high or they want to introduce a new project. Meetings always begin and end with the ‘Bater Palmas Music Band’: the clapping it receives – ‘bater palmas’ – is an expression of both solidarity and joy in the local culture. People are deeply committed because they see the benefits of common objectives. You pay back the community for the benefits you receive with your participation.
The bank shares its premises with the residents association and new employees change jobs every six months to get experience with different tasks. There are six fulltime employees with an average age of 25, who get 800 hours of training in management, accounting and retailing. They receive 20% of their wages in local currency. Operating costs of the bank are recovered from fees for opening bank accounts, transaction fees and grants. The local currency is fully integrated into the bank and has no fees. All profits from the bank are ploughed back into its operations.
Individuals get local currency in three different ways: they exchange them with national currency (one Palmas = one Real); they receive them in wages; they get micro-credits for local consumption. People getting micro-credits automatically join the community association that runs the bank, other people receiving currency do not have to join anything. The Palmas trademark is owned by the community association.
‘Community consultants’ are trained by the bank’s youth training programme (Palma Tech) to talk to shop owners and organisations to help them to find ways to earn and spend currency: public bodies and a few companies with offices in the area pay 5 to 20% of employees’ salaries in Palmas. People may also pay part of their utility bills in local currency at the bank. This all helps to accelerate the circulation of the local currency, which circulates five times faster than the national currency in the area, creating more economic benefit for more people. There were 46,000 Palmas (20,000 Euro) in circulation in 2011. People can pay part of their local taxes in local currency directly through the bank.
Micro-credit combined with a local currency is a powerful tool that encourages more diverse local production and consumption. People start up new businesses and create jobs. Poor families can get loans for consumption, which they pay back with their labour. Being able to convert national into local currency and back again gives businesses the flexibility they need to deal with the traditional market outside the community. The national currency creates wealth, the ‘social currency’ redistributes it.
One of the regular questions in the early popular assemblies was ‘Why are we so poor?’ and it became clear that wealth did not stay in the community. Every two years, community consultants trained in action research carry out a scientific mapping exercise of local consumption and production patterns based on food, hygiene and cleaning products. Palmeiras residents spent 5.65 million Réais (2.29 million Euros) each month in 2011, (1.5 million Réais per month in 2002). Sales from local trade have risen by 30% and it has become one of the main trade corridors of the outskirts of Fortaleza. In 1997, 80% of the inhabitants’ purchases were made outside the community; by 2011, 93% were made in the district. Micro-credit combined with a local currency keeps wealth local, reduces transport costs, ‘food miles’ and CO2 footprints. Local money works to protect the local and global environment.
Because of the bank’s success, there is a constant stream of researchers and journalists and the self-esteem of the community has risen with the attention. But this ‘wunderkind’ was nearly strangled at birth. After issuing the first Palmas currency in 2003, local organiser Joaquim Melo was arrested on suspicion of running a money laundering operation in an unregistered bank. The Central Bank started proceedings against him saying the bank was issuing false money. The defendants called on expert witnesses, including the Dutch development organisation Stro (p.XX), to support their case. Finally, the judge agreed that it was the right of people in the constitution to have access to finance and that the Central Bank was doing nothing for the poor areas benefiting from the local currencies. He ruled in their favour.
What happened next shows the power of dialogue. The Central Bank created a reflection group and invited Joaquim to join in a conversation about how to help poor people. Banco Palmas started the Palmas Institute to share their methodology with other communities and in 2005 the government’s secretary for solidarity economy created a partnership with the Institute to finance dissemination. Support for ‘community development banks’ issuing new currency is now state policy.
After a local community invites Palmas Institute staff to work with them, it takes at least one year to set up a bank. The main retailers are invited to the first meeting and staff explain the fundamentals with simple tools like a basket with a hole in it to show the leakage of local wealth. Staff facilitate communities to take over responsibility for running their own bank with up to eight months training. The recommended starting fund for the launch of micro-credit with local currency is less than 15,000 Euro. The whole community is invited to design attractive notes with a significant local name. For instance, the town of Silva Jardim launched the Capavari currency in 2011, featuring the local rodent.
The bank has a big launch with music, theatre and speeches from local leaders explaining the process.
Some communities have wide representation of the whole community, others have narrower representation of businesses and agencies. Some currencies take off fast and others require much longer. One area was so keen that there were 70,000 units in circulation after one year, accepted for local taxes and employees’ wages. The optimum scale for a community bank is 20 to 50,000 people. Above this number the employees do not know people so another community bank is then planted to address the need. Sixty six community banks had been started around Brazil by 2011, including in Rio de Janeiro’s worst slum, Cidade de Deus. The whole community banks network had a circulation of 212,000 Réais equivalent.
In 2008, Banco Palmas received the Millennium Development Goals Award from the United Nations and the General Secretariat of the Presidency of Brazil, one of a long list of national and international prizes, all of which make local people very proud. None of this goes to the head of Joaquim Melo, who has dedicated himself to life in Conjunto Palmeira since 1984. He believes that this innovative social technology remains well below its potential due to insufficient investment by public authorities involved in the partnership.
Carlos de Freitas explains what remains to be done.
There is still no proper legal framework for social currencies. You have to fight for acceptance. It is still seen as exotic. People want access to money, to be treated the same as other citizens, although participants understand better now what money is and how to participate in local development. The bank is like a school for both money and community development.
People have learned that you cannot run an effective local money system in a disorganised community, it needs collective discipline and solidarity. Every step must be owned by the community and you have to sell the benefits to different stakeholders and make sure currency circulates widely to meet the needs of the community.
We are constantly trying to improve our communication tools to bring the story of money alive and stop it becoming abstracted from people. We use music, theatre, media, anything. People understand the idea better after they hear it a few times in different forms.
We have to innovate carefully and pay attention to every change in the community such as consumption patterns, goals etc. The first step is always paper money to embody the identity of the community and create something recognisable. Now we are starting to experiment with mobile phone payments for bills and purchases because cellphone technology is so popular.
Another first for Banco Palmas: the President of the Central Bank apologised for its early negative treatment of Banco Palmas. Support in such high places can work both for and against the embryonic national network of community owned banks. Their future depends on how they use this newly found influence to benefit many more people.”