Complementary currencies can increase local economic inclusion. Is this the way forward?
Rebelling against capitalism, strengthening the sense of community or ensuring local economic investment. These are just a few of the widely varying motives for using a money system other than national currencies like the euro, dollar or real. Throughout the world, groups of people have been using complementary currencies for centuries. Since the 1980s, they have been used particularly to invest in local economies, creating a small-scale alternative to neoliberalism and growing individualism. With alternative monetary systems seeming to attract renewed interest in the wake of the current global financial crisis, the moment for the second international conference on Complementary Currency Systems at the Institute of Social Studies (ISS) in The Hague will not have been chosen at random.
Alternative currency systems do not use regular money but a self-created currency, making them less dependent on regular banks. But are they a real solution for economic uncertainty or just mental escapism? In Argentina, in 2001 as much as 20% of the economically active population used a complementary currency. But before the end of the Argentine economic crisis this had already decreased. Although the currency was popular during the economic crisis, there is no clear relationship between the popularity of alternative currency and the state of the Argentine economy, as Georgina Gómez of ISS argued at the conference.
There is a wide variety of complementary currencies, all with different goals and backgrounds. They can be driven by anti-capitalist ideologies or adhere to a value-free approach, they may be based on money or on time, the currency might be bought or be obtained for free after registration. Complementary currency systems are usually used within a group, involving a relatively limited number of people and businesses, and are therefore also known as community currencies. Because they are decentralized and locally owned, they strengthen the sense of community. But are they an effective tool to involve those who are currently excluded from the economy?
Time banks are an example of a complementary currency system in which no money is involved. People exchange skills and services on an egalitarian basis: one hour of cleaning, for example, equals one hour of judicial assistance. Ruth Naughton-Doe of the University of Bristol described how some time banks in the UK explicitly target elderly people and people with mental health problems. Those who are easily excluded from the economy, especially in times of crisis, get the chance to become economically active again, and can obtain other kinds of support from these informal networks. In addition, these communities usually offer training and courses.
Another interesting example of the use of complementary money to make an economy more inclusive is the Palmas currency in Brazil. The currency, issued by community development bank Banco Palmas, can only be spent within the neighbourhood of Conjunto Palmeiras in the Brazilian city of Fortaleza. This not only increases local consumption but also promotes local production and labour by providing credit for production. This partly takes the form of micro credits. As the poor do not always have access to regular financial services, Banco Palmas enables them to become financially included. According to Juliana Braz of the University of São Paulo and Camille Meyer of Université Libre de Bruxelles, the introduction of the Palmas currency has improved the economic development of Conjunto Palmeiras. Strengthening the economic development of a locality also makes it structurally less vulnerable to future economic fluctuations.
Despite the power of community money in Brazil to foster financial inclusion, there is still much to do, as Marusa Vasconcelos Freire, researcher and legal counsel at the Central Bank of Brazil, writes:
‘Despite the efforts of Brazilian society to promote financial inclusion in the last twenty years, together with discussions on the subject, the issue of legal regulatory measures and improvement of activities in the microfinance industry, extending the sector beyond simply supplying credit remains one of the major challenges to expanding the provision of services and financial products that are appropriate to the needs of the Brazilian population at the base of the financial pyramid, especially in communities with a low value on the human development index.’1
There are more constraints to the use of complementary currency as a means of inclusion, which are inherent to either the alternative or the regular system. The complementary currencies that exist today usually involve only a small number of people and businesses. According to Baeg Eui Hong of Seoul National University, this means that they play a limited role in providing local goods and services to the market, while Ruth Naughton-Doe said that there is limited evidence of British time banks making a real change in terms of employment and cheap community care. In general, because alternative money can only be spent in shops and on services that accept it, it is less likely that it will also trigger change on a larger scale.
High transaction costs and a lack of resources and support can result in a slow take-off for complementary currencies, as can too much dependence on voluntary work or subsidies, or bad financial management. The Eco-Pesa currency used in a slum in Kenya relied on donor money. Later, as Jem Bendell of the University of Cumbria said, the community changed to a new currency, the Bangla-Pesa. With this system, businesses themselves issue vouchers that can be spent locally, instead of being dependent on donations.
On a small scale, community and complementary currencies can be a useful tool to involve more people in economic processes, as researchers from all over the world showed at the conference in The Hague. Due to, or despite, this limited scale, it may achieve more in terms of wellbeing than economic growth, but that is exactly what the transformation towards more economic inclusiveness is all about.
 = Marusa Vasconcelos Freire, A importância dos bancos comunitários para a inclusão financeira. Banco Palmas 15 anos: resistindo e inovando, volume 1. São Paulo: NESOL-USP and Instituto Palmas, p. 44. [Translation by AvdV]
Photo credit main picture: VXLA / Ravenswood Currency Exchange, Chicago