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<nettime> a tale of two currencies
Keith Hart on Tue, 8 Jan 2002 00:28:46 +0100 (CET)

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<nettime> a tale of two currencies

A tale of two currencies

It was the best of times, it was the worst of times. -- Charles Dickens

On Friday, I was stopped outside the Banque de France by a platoon of
soldiers, armed to the teeth, guarding a shipment of euros. An indomitable
old lady -- white hair, shades, big fur coat and comfortable shoes --
ignored them and kept on walking. They let her pass. The euro is protected
by the combined armies of twelve states, I thought, but they can't stop a
Parisian matriarch in her stride. The whole charade -- guns guarding this
stuff, our money, from us, the people -- was redeemed by one person
confident enough in herself to call their bluff.

I live in what I like to think of as the
Amsterdam-Brussels-Paris-Geneva-Milan corridor, a world of public order,
fast trains and multi-lingual people. I want a Europe of the regions, based
on its great cities and their hinterlands. The French press this week
celebrated a European unity more complete than any known since the Roman
empire. It is true that the euro leads to a United States of Europe and
offers us the best chance yet of limiting the excesses of national
governments. The banks did their best to slow the change down, of course:
serving only their own customers, ATMs out of order, levying foreign
transaction charges on euro cheques from other countries. But then the
habit of supping copiously at the trough of national monopoly money dies
hard . The television news had shots of bemused but happy punters fingering
their euros in supermarket queues. There was no economic analysis. The
birth of the euro was a political symbol and a practical matter of handling
change. If we want to reflect on the economic consequences of the new
currency, it may help to look elsewhere.

At the other end of the world, the argentino was also born -- and then
immediately died. Whereas Europe is stable and prosperous, Argentina has
had five presidents in two weeks and the monetary crisis there could lead
to civil war. In 1991, the peso was pegged to the dollar as a way of ending
hyper-inflation. This produced a measure of economic success for a while,
but Argentina's ruling elite has a world-class record for fiscal
irresponsibility and it soon piled up $132 billion in national debt. The
peso was overvalued, trading in New York at three-quarters the official
rate. Argentinians acquired debts in dollars and on every street corner
pesos were off-loaded for dollars. Local products became uncompetitive and
were replaced by imports, leading to a deflationary downward spiral.
Liquidity, cash in circulation, became even more scarce than usual and
provincial governments issued their own money as interest-bearing bonds.
The argentino was proposed as the nationalization of these provincial
currencies (not in the form of bonds, but as paper paying no interest). It
was hoped that this measure would provide interim purchasing power while
the government worked out how to devalue the peso without triggering off
hyper-inflation. But who would buy money from this government? The idea was
quickly dropped.

Ordinary citizens floated their own 'social money' in the late 90s, forming
an association, Red Global de Trueque Solidario (Global Solidarity Barter
Network or RGTS), which issued 15 million currency units (creditos) and
then split into a more money-minded organization, Red Global de Trueque,
and one stressing egalitarian community, Red del Trueque Solidario. The
RGTS credits are a single-issuer scrip like the national currencies that
they aim to complement. They are given away or bought cheaply as tokens of
exchange within a closed circuit. These and the provincial government
experiments in local currency are a response to the rigidity of the fixed
dollar exchange rate which squeezed the life out of the domestic economy,
when profligate debt and capital flight made devaluation inevitable. 

Before dismissing this case as the old story of 'Third World' economic
failure, it is worth recalling that around 1900 Argentina had the sixth
highest per capita national income in the world and was considered to be a
potential rival to the United States. This is the latest example of the
IMF's well-established policy of sacrificing national economies to the
logic of international capital flows, a policy first imposed on Austria
after the first world war (but not of course by the IMF), of whom it was
said afterwards that the operation was successful, but unfortunately the
patient died. The desperate attempts of Argentinians to maintain a market
economy in the absence of liquidity evokes nothing so much as the social
credit movement in North America during the Great Depression.

The value of juxtaposing Europe and Argentina is first as a reminder that
we do all live in the same world economy and may suffer from similar
limitations. Second,  the euro, with its single centralized exchange rate,
could function like the dollar/peso arrangement in relation to Europe's
diversified regions, especially with the accession of Eastern European
countries. This in turn should lead us to explore a variety of social
mechanisms for organizing money, rather than rely on just one. We have
already seen that Argentinians have started creating their own money at
several levels of society. This is just one aspect of a worldwide movement
to set up community currencies which has been growing in strength of late.
Community currencies point to a fundamental reassessment of the conditions
for economic democracy contained in relations between states, people and

The great thing about the euro is that over 300 mn people agreed to measure
their economic transactions with a new unit. Moreover, the currency was
seen to be contrived, to be a fiction. There was no question of its being
the heir to medieval precursors. This impression was reinforced by a
two-year transitional period in which the euro had only a virtual
existence. Even so it managed to lose a fifth of its value against the
dollar in that period. The euro's management is likely to be less
democratically accountable to the public even than its national precursors.
The twelve central bank governors of the participating countries represent
what is in effect a league of states. The euro may not be a national
currency, but, like the dollar, it aims to be a federal state currency. The
essence of state money is that currency of little or no worth is offered to
a people by the government in payment for real goods and services, as the
sole legal means of exchange within the territory and with the obligation
to pay taxes on all transactions using it.

Genghis Khan pioneered state money as worthless scrip, when he issued a
currency made from a special bark imprinted with his seal. Refusal to
accept it carried the death penalty. An impressive public works programme,
including a new capital, was financed in this way. Foreign traders,
however, were able to insist on being paid with something less personal;
they preferred commodity money containing precious metals whose real asset
value was recognized across political borders. Marco Polo tells us that the
Khan tried to pay him too in bark currency, but he managed to get away with
some real money and his life. The euro, like most money used in
international transactions, is a political currency (issued jointly by the
league of twelve states) with a commodity price established through
financial markets. In other words, it combines the heads and tails of
classical coin of the realm. What would money issued directly by the people
look like?

Community currencies have come a long way in the last two decades since
Michael Linton invented LETS in British Columbia. The idea of LETS is that
any network can constitute itself as a community of exchange by nominating
a currency and recording all transactions through a central register. The
totality of transactions at any time sums to zero. The money is issued by
all the members, whenever any of them has a negative balance. They make a
promise to honour such commitments in future. The loss of individual
members to the circuit does not impede the ability of the others to trade,
as it does when the supply from a single issuer dries up. The currency
itself is simply a virtual measure. It has no commodity value, therefore no
price (interest), no reason to become scarce nor to be hoarded. 

Most LETS systems to date are unique, self-sufficient organizations
providing a minor economic alternative without much prospect of replacing
the role of conventional money and markets in our lives. But recent
developments, especially in the use of information technologies, have made
community currencies a faster, cheaper and more effective means of carrying
out normal commerce. Smart cards registering transactions in up to fifteen
currencies, linked to businesses and non-profit organizations as well as
individuals, allow these circuits to become integrated into the market
economy. National domain name systems and multiple currency clearing
platforms open the way for the banks to handle LETS business (although none
has yet done so). Community currencies also offer one solution to the
problem of electronic micro-payments, a possibility being explored with the
European Commission at this time. In Japan large corporations are
participating with grassroots democratic organizations in LETS experiments.
A collaborative project of software engineering and social innovation is
maturing to the point where talk of a revolution in money is not just the
self-deluding hype of enthusiasts.

Maastricht means that the economic destiny of 300 million Europeans will be
tied to the fortunes of a single currency whose management cannot possibly
meet their varied needs and interests. The euro is in principle a throwback
to the Bretton Woods era of fixed parity exchange rates, at least for the
participating countries, and it does not take much imagination to figure
out that the deflationary consequences for some parts of the European
economy might be occasionally unpleasant. The constituent governments of
Euroland will come under pressure from their own people for more flexible
instruments of economic management. The euro cannot do the job all by
itself. National monopolies of money have in any case only been around
since the 1850s. Now would be a good time to recognize the need for a
variety of monetary instruments, for as many in fact as our communities.

Britain's relationship to the euro will be of more than passing interest.
At present Blair and Brown have contrived to replicate the old Tory policy
of the hard ecu, whereby the national currency persists in competition with
a centrally managed European currency, with each finding its own level. I
endorse the European drive towards political unity and I share the
widespread dismay over Britain's apparent reluctance to join in. But this
does not prevent me from holding out for a pluralistic monetary regime
rather than a unitary one. It may well be that, by suppressing their
national currencies, some countries will encourage the formation of
parallel exchange circuits, employing virtual deutschmarks or francs as
community currencies. 

Radical change today hinges on the digital revolution. But the forms of
money are only superficially technical: notes, coins, cheques, plastic,
digits. The most important forms are social and, after several thousand
years of only two kinds (commodity money and state money in various
combinations), it takes some effort to embrace another, people's money.
Digitalization does point to the growing separation between society and
landed power. I have suggested that embracing community currencies would
enable us to take fuller advantage of that potential. The euro involves
only a limited break with the territorial principle. Its logic is still
that of a central bank monopoly within an expanded territory. There are
other democratic possibilities. We can make our own money rather than pay
for the privilege of receiving it from our rulers. Europeans may not yet be
reduced to the desperate measures of the Argentinians, but we too have some
way to go before we can afford to rest content with the money forms at our

Paris, 7th January 2002

Keith Hart is the author of Money in an Unequal World (Texere, New York and
London, 2001; see www.thememorybank.co.uk) and, with Michael Linton and
Ernie Yacub, of Common Wealth: open money and economic democracy (in
preparation). Thanks to Eduardo Giannetti and Heloisa Primavera. 

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