For many currencies to coexist there needs to be an exchange rate between each currency and each other currency, which means either they are literally convertible into a different unit as miles are convertible to kilometers, or that there is a market enabling all currencies to be bought and sold for each other.

It always seemed to me that the whole point of a currency was that it was a shared reference point with a stable value in relation to goods and services, and that a personal currencies would be neither shared nor stable. Furthermore it would be very hard for the market to assess the value of each person’s promises.

There is plenty of monetary theory and historical experience around having multiple issuers of say, dollars. Many cryptocurrency advocates see themselves as implementing Hayek’s proposal for competing currencies. He believed that the most trusted currency provider would beat the competition and the least trustworthy would go out of business, and thus that the free market would give the users of money the highest quality money. I think a regime of personal currencies is an order of magnitude more complex than each bank issuing its own notes.

The Distributed ledger version of Ripple indicated how this might be done by granting every user the possibility to guarantee their friends’ IOUs. Everyone member’s promise was its own asset class or currency, and it provided an automated market for every possible pair of currencies. But the system would never work because any liquidity there might be for my promises of dollars would be spread thinly across many markets.

This was the problem the Bancor Protocol solved albeit with a token-based approach rather than using IOUs. Any user could issue any number of tokens and ‘connect’ them to other tokens in a pool with a common reserve token. The first currency could then be traded with, meaning exchanged for and priced against, the other tokens in the same pool, and therefore for tokens in other pools connected to that pool. Pools would be recursively connected until every token could be traded with every other across a tree structure just as I described in the credit commons white paper. The total number of markets was only the number of pools rather than one for each possible currency pair. Each pool could use its reserve to buy or sell tokens instead of needing a counterparty, meaning all the tokens could be liquid. This was an engineering achievement, and it forces us back to the question of why we thought everyone should issue their own token. It seems to work as a medium of exchange if you have an app connected to a blockchain, but what about other monetary functions? Its not standard of value because all token values are shifting with supply and demand, and its poor a store of value, having no intrinsic worth and only one guarantor.

So beyond those I have three major criticisms of massively multiplayer tokenomics.

The first is that doesn’t nothing to address the balance of trade problem which naturally occurs in any economy where different regions produce and consume different amounts. A money system needs to be explicit about how trade imbalances are handled. Receiving reserve tokens is like being given a interest-free credit which has to be repaid; it enables you to buy stuff from the wider markets, but you still have to sell stuff back to those markets. Economics has been contorting itself to get around the problem that some areas are more (economically) productive than others, and areas do not naturally import as much as they export. Rather what usually happens (see the Eurozone and the globalised dollar) is that the surplus countries start lending their surplus currency to the deficit countries at interest, and a trade imbalance eventually becomes an unmanageable debt leading to poverty and loss of sovereignty. If we are interested in social justice, we have to solve the problem of trade imbalances. There are basically 3 ways:

1. Political arrangements, investment from surplus areas to increase production in deficit areas, also maybe curbing or diverting consumption in surplus areas.
2. Debt forgiveness / grants from surplus areas to deficit areas
3. Block all trade when the trade becomes too imbalanced.

A multicurrency economy may have benefits regarding the issuance of currency and choice of which currency to use, but it obscures this balance of trade problem, especially when money is represented as variable value tokens. The Bancor approach uses a solid theory called the price-specie flow mechanism. The theory says that surplus areas’ currencies become stronger and deficit areas’ weaker, and therefore as trade becomes imbalances, prices change and surplus areas are encouraged to import and deficit areas export – essentially that with a free market in currencies, prices will automatically adjust to affect supply and demand to balance the trade. Unfortunately while the theory is solid, many economists say that in the real world there are many other factors affecting trade and this mechanism has little effect. Also it was never supposed to work for tokens but for a gold standard. So massively multiplayer tokenomics will be no more socially just than other money systems on this score.

My second criticism is that the distribution of risk/reward is very unclear. From time to time token issuers will go bust and the value of their tokens fall to nothing. Others will increase in value. Instead of holding money the purpose of which is to retain a known amount spending power, each user would hold a portfolio of assets whose value would be constantly changing. Every transaction would involve a choice and a negotiation of which tokens to transfer. This can be done automatically, or the user can use their own knowledge of the token issuers and their own assessment of what each token is worth or will be worth. In Bancor where demand is artificial, token values might not reflect any reality. The risk and reward is essentially randomly distributed except insofar as people know each others’ business and take the time to acquire and dump tokens they know about.This table shows who takes the risk in different monetary systems.

My third criticism is usability. I can’t imagine a massively multiplayer token system working with cash; an app would be needed to price everything. The total amount in your wallet would need to be re-calculated hour by hour, and if you wanted to decide for yourself which tokens to spend and which to save, you would either have to configure your wallet or fiddle a lot just as you would if your pocket was full of coins from different countries. What you gain in usability, you would lose in knowledge and control over what was really going on in your wallet.

I’m also concerned that massively multiplayer token systems might not behave as their designers suppose.

Imagine you issued some tokens, but the more you spend them, the lower their price/purchasing power. You would much rather hold other people’s tokens than spend your own. It is very like borrowing money at interest Without mortgage tax relief distorting the picture, anyone would spend their savings before borrowing money because it is cheaper.

That means the only currencies circulating will be those issued by players currently in deficit. Meaning half the players’ token issuances are unnecessary. I see a lot of parallels with the fiat money system:

• the medium of exchange will consist entirely of the credit of the deficit traders, and currencies belonging to surplus traders will be not be needed.
• surplus traders have more spending power than deficit traders, equivalent to interest earned on fiat savings
• deficit traders have less spending power than par, equivalent to interest paid on fiat debt
• a trader who spends all his tokens without earning them back, effectively defaults on his debt, to his guarantors – in this case his neighbours

But unlike the fiat money system

• Our credit is determined by agreement with our neighbours not by the bank but
• We now have many currencies in our wallets
• Currencies purchasing power is constantly changing – we need to consult and app every time we want to know the price of something

My final concern is about competition between currencies. Hayek was keen that different institutions like banks should compete to provide exchange media and store-of-value services to the market. But most complementary currencies are designed by communities for their own use. If they were to compete against each other they might make a more ‘efficient’ economy, if anyone cares to unpack that assertion, but at the expense of exacerbating trade imbalances, and eroding each other’s sovereignty.

Adding these few thoughts up, it seems to me that a system of personal currencies isn’t fundamentally different to what we have now, though it could be much worse since manipulation would be much easier and injustices would all be obscured by unreliable exchange rates. It would democratise credit but there are much simpler and more accountable ways to do this.

A balance needs to be struck somewhere between one world currency a global monetary policy and near-zero risk, and personal currencies which require artificial liquidity and have no fixed value at all. It is as if anyone had the right to crown themselves king, and be sovereign over themselves. Great but somebody still has to clean the toilet every week. More currencies doesn’t mean more sovereignty, more credit, or more wealth, but it does mean more complexity and less liquidity.

After all, isn’t the whole point of a medium of exchange, like a sovereign realm, that it is something shared and agreed and standardised by a community?

Photo by Thomas Hawk

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“Bruno Chies: Let me go back to complementary and alternative currencies. Do you mean they are a way to empower people directly on a local level?

Matthew Slater: If they would work, they would empower people. But they don’t work when people don’t use them. If they were to be used, it would mean that communities are acting in solidarity with each other are empowering each other. The reality is that most people don’t seem to feel very much solidarity others and they certainly don’t express that by using a complementary currency. So, the tool is there but we lack the consciousness, awareness or will to use it. We the people, need to start working together, taking on responsibility, taking on leadership roles, and not relying on authority figures and governments to do it. This is difficult because we’re also paying taxes. There’s not a lot left over these days. We tend to chase the money and we do what the people with the money tell us to do. Which leads to the need to compete with each other and the wasting of resources in the process. If we want to be sovereign, we have to either find sources of money that don’t come with a value obligations, that are already aligned with what we want to do, or we’ll have to do without money.

Talking about real utopias, you envision an economy in which complementary currencies play a role but economy is not fully monetized. There are spaces in the economy for gift, barter and exchange with complementary currencies.

In this utopia what people would do would be a much closer expression of what they value, because they don’t have this top-down monetary system, expressing the values of either the tax recipient, the philanthropists, or the trillionaires. You wouldn’t need everything to be monetized. Everything is monetized now because the economy is huge and it still has to grow. More things have to be monetized so that a greater proportion of our activities can be taxed and more money has to be borrowed. If that wasn’t the case, then there would be much less need for money. It’s by no means an impossible utopia, there already are tiny societies working like that. It seems that when our societies grow bigger they become dysfunctional. We need to bring the self-determination level down to the local, small groups, because the system is less easily corrupted this way.

That makes sense, and I think this is a very good bridge to your Credit Commons project. Is this a way to connect local economies operating with complementary currencies and create more solidarity?

Yes, I think that’s exactly it. The tag line is ‘money for the solidarity economy’. Some people would argue that it’s not money, it’s merely a system of exchange. But that is a function of money, so it depends on what your definition of money is. It seems to me that what’s needed is a global protocol to help us exchange with one another. Credit Commons could be used locally or intercontinentally; it’s only a protocol.

How does it differ from other platforms, like Community Forge or Community Exchange System (CES)?

Because it’s a protocol, it is not a platform. CES is a platform with hundreds of groups in it that trade with each other and have nominal balance limits that are not harshly enforced and there isn’t really any governance about what the credit limits or the exchange rates should be. The Credit Commons seeks to formalize that arrangement as well as open it up to groups outside that platform. The only requirement becomes running software that implements the protocol. I’m also likening it to a cryptocurrency. It’s not a currency but it is a distributed ledger and that means we can all agree on what the ledger says.

Is it based on blockchain?

I haven’t gone so far as to specify the blockchain. It would be a consensus algorithm. For example, Ripple… It’s called a permission blockchain, which means you don’t need the mining. The clients trust each other, so they don’t have to fight or compete. They trust each other and the ledger stays intact, as long as they’re all good. That means an outsider cannot come in. The thing about Bitcoin is that anybody can implement the protocol and participate, but they have to do the mining to make sure it’s good. In the permission blockchains you just do it with your friends and the people you trust.

So you really build trust, not through code, but through people.

It’s trust at two levels: 1) if I give you credit, I trust that you’re going to pay it back, and 2) we’re both participating in a trust group, with protocols, and I trust that you’re not gonna hack the ledger. However, I’m not an expert in the software’s architecture, so I’m leaving that open at the moment. The aim of the Credit Commons white paper is to create discussion.

How does that apply to the issue of convenience when using money? A problem with complementary currencies is that they’re very limited in scope and are not very convenient. Do you think that the Credit Commons could change this?

Yes, it should, but not directly. At the moment each complementary currency is working pretty much with its own software or with a family of softwares, but there is no grand interoperability plan, there are no protocols that everyone agrees on. If the platforms are joined together through the Credit Commons but every group is still using their own software, those issues are still exactly the same. It becomes possible for credit to move between platforms when they use a common protocol, a backbone to the system. A platform would have a payment form that facilitates paying somebody in a different platform. But that still doesn’t help you pay for the groceries in the shop.

It might give you access to other markets…

Yes. That’s one reason why we also need to work on the advertisers’ API, in order to see what’s in other markets. There isn’t any way to do this yet.

Are you seeking software developers to this project?

I’d love to involve some developers in this, but it’s hard. We’re talking about hundreds of existing communities that are expressing a real need to go forward in radical reforms and cooperations. I thought this would be very appealing to developers, to have a chance to write some software that will be used in this way. Many activist developers are imagining what’s needed and they think ‘if we write this, we’ll save the world’, and then it doesn’t happen.

Perhaps your advice to activist developers who want to make a difference in the world is to re-learn how to cooperate and collaborate…

And to adopt an attitude of service. You can collaborate and still build something that nobody needs. Be sure that you’re serving people whose values you agree with. That might not be the way to write an app that goes viral, but it is the way to do something that really is useful. Otherwise you’re taking an all or nothing risk.

The term commons usually takes me back to the work of Elinor Ostrom and the question of governance: how can people find ways to govern these commons? How does that work in terms of money and credit in your proposal?

There’s no credit without governance. In Debt the first 5000 Years, David Graeber drew a sweeping portrait of history in which there are times of stability, which is to say times of governance and trust in systems, when we used credit money, and times of instability, when there is a lot of conflict between nations and governance wasn’t something that could be relied upon, which are times of commodity money. Governance is even more important than money. What we need is systems of governance that help us organize ourselves. Money and credit arrangements will follow. There are many people involved in monetary reform, and for many it’s a very compelling subject, but ultimately you cannot really get anywhere with money. The solutions have to be situated at a deeper level. The issue about creating a commons and governing it, is what I’d like to bring attention to with the Credit Commons. We need to think in terms of forming groups of solidarity and have those groups form groups. The Credit Commons presents this sort of nested structure of groups of trust.

Basically it’s an architecture for scaling up trust and solidarity.

Yes, I believe we could do the whole global economy that way.”

Photo by sociotard

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Biography

Matthew Slater is a software developer and has been involved with complementary currencies for at least 8 years, since the crash of 2008. He is the co-founder and main developer of Community Forge, a platform for complementary currencies that runs more than 150 LETS and Time Banks. Together with professor Jem Bendell, he has also designed and is a tutor of the free massive open online course (MOOC) Money and Society, directed at people who want to understand money from a social innovation perspective. Education about money and all that it implies is a critical part of what Slater does.

Interview – Part 1

“Matthew Slater is a community currency engineer. He proposes a technology that will scale trust and solidarity beyond the local level, for communities running their economy with their own currencies. ‘You could do the whole global economy that way’, Slater envisions in this new monetary architecture of interconnected complementary currencies. There is, however, no sense of gullible techno-fetishism in his ideas. He is very much aware that technology, and top-down reforms to the monetary system, are not enough to change power relations in society if they are not accompanied by a simultaneous change of consciousness among the people.

In this interview, we discuss his project the Credit Commons (part 2), in greater detail, as well as broad range of topics: his reflections on our contemporary monetary system, the role of complementary currencies for achieving more self-determination at a local level, the importance of governance for the Credit Commons and his view on a more collaborative economy based on solidarity, where relations intermediated by money would be not so prevalent.

Bruno Chies: Let’s start with a very general question: What is wrong, in your opinion, with today’s state-backed money?

Matthew Slater: It’s hard to separate what’s wrong with money from what’s wrong in everything else in society. The fundamental problem with the design of money is that it’s treated in all respects as a commodity which is owned by rich people and lent to everybody else, while money should be a medium of exchange first and foremost. In fact, rich people don’t own money, they’re actually lending it out of nothing. They do have their own assets, but what they’re lending is a legal fiction and it is a privilege that they have been given by the government, the crown, the sovereign, whatever, and can then charge interest on. So that’s a problem that goes deeper than the monetary system, to the system of privilege in society.

BC: What do you think about proposals of monetary reforms at the level of the state, like the Positive Money proposal in which money should be created debt-free and solely by the government, through a democratically accountable committee?

MS: I think it’s great if you regard the monetary system as a separately individual system. But as soon as you start bringing in the critique that a government is owned by corporations, this changes. You start seeing that either a reform like that cannot happen at all, in which case all you can do is raise awareness about how bad things are, or you can say that if it did happen somebody will get to this democratically accountable committee. That committee will never be neutral.

It is not simply a matter of redesigning money and the purpose it should serve…

I think that’s naïve. Money reflects our attitude towards the government, our attitude towards the rich and their attitude towards us. If you changed money, but not the attitude, the attitude would change it back. Money isn’t real, it’s only a reflection or projection of other power dynamics in society.

What do you think is the role of complementary and alternative currencies in the process of transitioning to a different social model?

I think they have several roles. One is to prototype. Another one is to understand more deeply how these systems work. Yet another is to take a little bit of sovereignty into our local groups. I think those are the main ones.

The idea of taking back sovereignty sounds like it is about taking back power and expanding democracy. It this what you mean by it?

I don’t know much about the history of the word sovereignty, but it usually starts with the king. The king is the sovereign and nobody tells him what to do. Sovereignty is not something we can all strive towards, but greater self-determination is something we could. This will always be at the cost of whoever is telling us what to do and how to be. I would like to see a society in which people exercise greater self-determination. A complementary currency could build trust and issue units among a group that wants to exercise a little bit of economic power. Typically, they will issue these units out of nothing, as if they had currency or as IOU credit obligations, because you don’t benefit very much from a currency if you have to buy it first…

Which is the difference between commodity-based currencies and credit-based currencies…

Exactly. You can exercise some sovereignty by creating a unit of account and everyone agreeing that to value it in exchange with each other. These units of account are worthless to anyone outside that group, so they can’t be taken away in tax. It also provides a way to build your own taxing system which leads to self-determination by allocating those resources. When groups come together to work in solidarity, there are loads of devices they can use, hacks and things like that, and a currency is one of them. It helps them to allocate resources and helps them to agree on what they value together.

Such as issue new tokens in order to fund collective projects?

It would be very similar to taxing and spending. If you issue new tokens, their value will go down, but the issuer takes the spending power. This is exactly what governments do. In theory, they spend, which is an act of issuance, and then tax back to prevent the inflation. It’s not the other way around, as the myth of handbag economics suggests. In this myth, the government is like a household, that has to earn before spending, and money is treated as a commodity. If you spend more than you take in, you have to borrow and pay interest. On one side of the economy, ordinary people would earn and then spend, and on the other side, the government would spend and then earn, which would make a good cycle. Now, along with others in government, George Osborne of the British Conservative Party is saying that the government should run a surplus, which means that the rest of the economy must run a deficit. That’s a problem. It looks good for the government because it can say it’s not spending too much, but at the same time it forces everybody else to spend too much.

And go into debt…

The government’s role is to issue money by spending more than it takes back in tax. The difference is the supply of money. That is the theory of fiat money, which we don’t have anymore. Currently, the supply of money is all that the banks lent, that hadn’t previously been saved. The banks have taken on the role of sovereign.

They are creating money out of nothing.

Yes, and that’s a very serious issue because it is impossible to argue that the banks are working with and for the people in their act of issuing money. The banks are profiting from the people by their very constitution. So Positive Money, in restoring the money-creating power to the state is at least trying to tell the story that the state is in partnership with the people, and that, rather than banks, the state has the legitimacy to be sovereign and to issue money. Of course, (neoclassical) economists do not acknowledge that what the banks are doing is issuing money, their theory is that banks only lend money that already exists. But this turned out to be false, so false, that the Bank of England admitted to it two years ago. This myth is taught in economics classes still and the implications of its wrongness are very profound.”

This is the end of Part 1 of this interview. Part 2 discusses the Credit Commons.

The interview was originally published at the Institute of Network Cultures (INC).

Photo by Trenten Kelley

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What if the hundreds, even thousands of existing local currency initiatives were interoperable? Could they constitute a global system of exchange and offer at least a partial alternative to a dominant parasitic financial system? What are the social and technical obstacles to scaling grassroots initiatives which grow out of local community action?

The Credit Commons is a proposal from the builders of two of the largest blocs of community currencies in the world. Tim Jenkin, developer of Community Exchange Systems and Matthew Slater, developer of Hamlets and cofounder of Community Forge. A new white paper introduces the a backbone accounting infrastructure, touches on the economics and the technology, and describes the parts already in place. A small but diverse group has formed around the initiative and set up creditcommons.net where the paper is hosted and developments can be recorded.

Interoperable complementary currencies is hardly a new idea, but it is difficult both technically and politically because grassroots initiatives are by nature diverse and disconnected. The profusion of handmade platforms ten or fifteen years ago is consolidating to a few platforms, making it easier to address the question of interoperability between perhaps 1000 to 2000 online exchanges.

Previous attempts to enable intertrading have all focused on creating new ‘meta’ platforms in which exchanges rather than members keep accounts. This is technically easy but results in cumbersome user experiences and even accounting discrepancies. More seriously, governance – of exchange rate mechanisms, credit allocation and dispute resolution – always ended up in the hands of whoever happened to own the platform.

The problem of ownership and control has become easily solvable since Bitcoin. Blockchain protocols replace ownership with a set of rules and consensus algorithms. But the Credit Commons’ resemblance to Bitcoin stops there: what we intend is an entirely different monetary model with an implicit social aspect.

Bitcoin as money, being limited in quantity and costly to produce, is firmly based in the commodity money paradigm. Commodities are ideal for the store of value function because they are actually ‘valuable’. A good medium of exchange though, must be sufficient and available when needed, but doesn’t have to be valuable. Exchange means to give and receive economic value in the same measure, as opposed to accumulating credit or debit indefinitely. If exchange is the intention then valueless tokens, which have meaning only within that marketplace, function perfectly as intermediaries, facilitating complicated multilateral exchange. A mutual credit circle is a group of people who give each other credit, trusting them to repay, and use that credit as liquidity between themselves. This was all well understood monetary theory but has been losing traction since about 1694.

However the drawback of relying on trust is that it thins as groups grow. Hence the most innovative part of the credit commons design is that mutual credit systems can be nested into super-systems. Each circle can also retain full autonomy over monetary policy and exchange rates, as long as they balance imports with exports.

The Credit Commons is more than just a technical proposal to piece  different applications together.  By proposing trust circles governed at every level, it proposes an entirely different way of organising our economy. It is not just a technical protocol. The smallest circles govern themselves and come together voluntarily to form larger blocs with more collective power to issue and redeem credit.

Monetary thinkers throughout history have argued that money best serves society when its value comes not from its metal content or even its rentable income, but when it supports existing social frameworks of trust and exchange. A payment of valueless money is not the end of an exchange, but merely its half-way point; the exchange is complete only when both parties have something of value in their hands and the place-holding tokens have returned to nothing.

The Credit Commons does not need to be sold to investors. Thanks to available technology, it can be created with comparatively limited resources, as a parallel exchange system to the existing one. We are seeking technical partners to join us in assembling a network to connect multitudes of small alternative currency communities, so that

“Perhaps a day might come when there would be at last be enough to go round, and when posterity could enter into the enjoyment of our labors.” (Keynes, The Economic Consequences of the Peace (1919))

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