Economic Co-operation and Complementary
European Central Bank. Multilateral, asia/pacific and western hemisphere division. Directorate general international and european relations.
"Economic co-operation and complementary currency project" (Abstract)
by Carlotta Portoghesi (Project Coordinator) and Maurizio Pittau, Claire Rousseaux (Project Assistents)
The economic co-operation and complementary currency project is an idea for study the local currencies that works in parallel with national money systems. It is uniquely designed to provide a stable international mechanism for planning, contractual and payment purposes worldwide. It is intended to address three fundamental systemic problems of our current monetary system, namely:
Financial crises in on emerging market economies (EMEs) in Asia and Latin
America.
The lack of an international standard of value.
The accentuation of boom and bust cycles stimulated by the conventional money
creation process.
The complementary currencies are agreements within communities to use something else than conventional national currency to facilitate exchanges among its members. Complementary currencies do not replace but rather supplement (i.e. complement) the national monetary system and provide greater liquidity. They are designed primarily to facilitate transactions and are not instruments for savings and investment. There are over 5,000 systems operational around the world today. The exponential growth has taken place within the last five years, especially in Latin America, Asia, Australia and Europe. Local communities in the world, are now issuing their own currency, independently from the national money system. Some communities issue paper currency; others issue complementary electronic money.
Our international monetary system has, in the last several decades, entered into a period of growing instability. The demise of the gold-dollar standard in 1971 inaugurated an era of floating exchanges that, coupled with financial deregulation and computerization (i.e. a 24/7 foreign exchange market) has led to a significant increase in currency speculation, with major currencies exhibiting a volatility that is presently four times higher than in 1971. A given currency can now lose much or even most of its value in a matter of hours, which may be precipitated by nothing more than mere speculation or rumor. This unstable monetary situation has resulted in the many foreign exchange crises that have affected no less than 87 different countries over the past 25 years, of which Argentina early in 2002 was but its latest victim . The current volatility of our money system has resulted in significantly increased commercial risks with regard to particular national currencies. Currency risks are now typically larger than political risks (i.e. the possibility that a foreign government nationalizes the investment), or even market risks (i.e. the possibility that clients do not want the product.
All contemporary national currencies are bank-debt created fiat currency. That means there is no commodity backing. Additionally, all conventional money is created through the fractional banking system, and as a consequence is debt-based. Finally, since the dollar-gold equivalence standard was repealed in 1971, there is no international standard of value anymore. Complementary currencies in contrast, are created for different purposes, and consequently have very different rules for their creation and their operation. Frequent Flyer miles is an example of a commercial complementary currency. Many others are designed with a social purpose. However, for the most part, complementary currencies are still operating below the radar of officialdom and the media. Many social-purpose complementary currencies are expressed in time units. Other complementary currencies are using land or coal as their reference. Some systems back their local money with their national currency. Complementary currencies are typically not designed with a “store of value” function. Consequently they are not used for savings. Several systems use a demurrage charge, similar to a parking fee, to ensure that the currency is not hoarded but is always circulating. The investments and store of value functions are in conventional money, or can be made in the form of land, gold, diamonds etc.
Well-designed complementary currencies do not create inflation. Additionally, these systems are transparent as the community in which it circulates, maintain and organizes these schemes. Complementary currency systems permit a local or regional community to mobilize its underutilized resources to satisfy otherwise unmet needs. The increased liquidity they provide is a way of increasing trade and public services desired by the community without resorting to borrowing or raising taxes. Local currencies enable more efficient "workfare" type solutions, as low income earning individuals can be asked to make at least a token payment for services in local currencies that can be earned by working on community projects, rather than in scarce national currency. The complementary currencies are legal, although there are some regulations to be taken into account on a federal and at the state level. Local currencies can encourage democratic debate in local jurisdictions about the level of public services that is desired in areas including education, health, social services, public safety, environmental protection, etc. Local currencies would avoid the risks associated with massive borrowing whether on a municipal, county or state level.