Why we need new kinds of money

“On the morning after the Depression a man came to work building a house, and the foreman said to him "Sorry chum you can't work today. There ain't no inches." He said "What do you mean there ain't no inches? We got lumber, we got metal, we even got tape measures." The foreman said "The trouble with you is you don't understand business. There are no inches. We have been using too many of them and there are not enough to go around.” Alan Watts, From Time to Eternity, 1960

Alan Watts’ famous story about the inches inspired the inventor of LETS, Michael Linton, to launch his new mutual credit currency in Canada. It is also highly relevant to the situation of many local economies in the eye of the storm.

They have things that need doing, raw materials necessary to do them, people who want to do them and people who want them done – but no money to bring those sides together. What we need is the information system necessary to bring those sides together.

Compared to the time when Linton launched LETS, nearly a generation ago, we understand much better how it is possible to create new means of exchange. It has happening, on a relatively small scale, all over the world.

That is why my colleagues and I have worked with NESTA to publish a typology of the different kinds of exchange mechanisms that are emerging.

There are now a great variety of exchange systems that exist alongside the traditional cash economy, ranging from baby-sitting clubs to nectar points. Some of them revolve around complementary currencies, like time dollars or the new Transition currencies like the Brixton pound.

Others are built on systems of mutuality that may be supplemented by the use of cash or complementary currencies, like baby-sitting clubs, peer lending schemes or the Southwark Circle.  In each system, the information and the value functions of money are balanced differently.

The main distinction we draw in the typology is between two different kinds of reciprocal exchange:

1. Social exchange: designed primarily to motivate people’s behaviour, to meet social objectives (information function dominant).

2. Economic exchange: designed primarily to circulate and to meet economic objectives (store of value function dominant).

Of course, there are those in each category which occasionally behave like the others – time credits which circulate among the users, or local currencies which are actually just paid out by the local council to motivate people to behave. But their central purpose is what counts here, and – with many exceptions - the central purpose tends to determine the basic design.

That is the key message of the publication: there is no one perfect kind of currency that can solve all the problems of money. You need to tailor your money to solve specific problems.

But the real question is why these have emerged over the past three decades so powerfully? I believe it is for the following reasons:

• Conventional markets are not available for some exchanges which are very important.

• Currencies have become international, and their value is control elsewhere, which means that ordinary money sometimes carries too complex messages for these exchanges (Curitiba might not have been able to clean up the streets with spare capacity on its buses by using money).

• Some vital things are not valued by conventional currencies and market exchanges – human skills, local skills, local food, waste, last year’s fashions etc.

• There isn’t enough money to pay for co-production in the conventional way, and – even if you did – it risks confusing people’s motivations.

All these reasons seem likely to continue, so the basic motivation for innovative new exchanges are probably going to continue as well.  What makes the difference compared to the position a decade ago is that there are now successful and mainstream models running, mainly in Latin America – though it is too early to say what will happen with them.

It seems likely that the private sector will catch up within the next decade: there are already plans for new kinds of exchange using Facebook and Google.

Boots’ loyalty card has carried space for multiple currencies for more than ten years now. Mobile phone banking is now mainstream in Africa (thanks to DFID and Vodafone, ironically).

It is hard to avoid the conclusion that most of us will be used to the idea of multiple counting systems, probably on our phones, within a decade or so.