Mobile Money

Jan Chipchase has been investigating mobile mediums of exchange. I was introduced to him via his excellent TED talk, and he talks about using cell phones and money also on his blog.

Jan describes how people wire money to someone in a remote village. They call up the local (privately run) cell phone booth, recharge the operators card with minutes, and the operator converts those minutes into cash for the villager (with a surcharge). The cell phone booth operator gets their money back by renting out the minutes to local villagers.

Hmm, who said hot air was worthless? also reminds me of timebanks, where the unit of account can be measured in talk time. I digress.

Jan points out the economic actor's ID is the phone #. paypal started with email being the economic ID. They've recently added cell phone #s as the ID people can send money to.

anyhow, this illustration is being more fully explored in conferences such as
Mobile Financial Services. clearly, there's some momentum here with exploring this medium of exchange. clear enough to hear EF Hutton.

scanning the blogs on this subject, and digital money is a great one, they seem to be focused on self-regulation to heighten trust, and possibly to heighten the industries barrier's to entry. here's dave birch's economic take:

That's because while no regulation at all might minimise compliance costs for the provider, it does not minimise costs for society as a whole: consumers carry on using more inefficient forms of payment (cash, in the countries being discussed) because they have regulatory certainty.

with mobile money's nomenclature micro-payments, the concept hasnt taken off just yet. perhaps it's because people are aware that the real agenda isnt small-payments but more-payments? I suspect it's not worth the hassle to allow yourself to be nickeled and dimed with a medium that can burn a hole in your pocket. better to stick with nickels and dimes.

But the groundswell is there. as the more people associate their identity with their cell phone, and need this to jingle in their in their pocket, it's probably a matter of a generation or 2 where this will become the choice medium of exchange. I suspect when they stop footsieing around with this micro-payment framing and just make it better than other cash (rather than a way to milk people), it will take off like a rocket.

Open Money Foundation Part 2

I met with the founder last week, and seems to be still figuring out the mission statement of this project. Complementary exchange protocols are interesting, but Gillaume may direct his organization to focus more on the real world issue of how to divert spare capacity to non-profit organizations, by creating Non-Profit Script, or a special purpose LETsystem for non-profits.

Because of the special needs of non-profit donators (in-kind donations, tax record keeping, etc), and because the non-profit community may be more open to the late adopting money crowd, I think there is space for this good cause.

A different mission completely, and just as interesting. It's less technology oriented (creating solutions looking for a problem), and focused on a subset of the world's troubles to solve. I'll report on their activities when they finally settle on their direction.

Mutual Credit as Money

Community Exchange Systems pop up in economically distressed times. When people feel they are short of money, what todo? make it yourselves! here's a system that allows anyone to create a mutual credit (point keeping) system:

Community Exchange System

With the impending implosion of the usury-based, global money system, now is the time to seek a new way of 'doing' money, one not based on debt and controlled by a global monetary elite who seem happy about destroying our planet in the pursuit of profit.

Conventional money is created as debt by private financial institutions for their own profit-making purposes, not as a public service. This is the root cause of the economic, social and environmental problems that beset us. The amount of debt determines the quantity of money, which has nothing to do with the amount of money we need to live decent lives.

CES 'money' is created by its users so it can never be in short supply. So long as you can offer something of value you can have from the community goods and services of like value.

Join the growing community who have discovered a new way of 'doing' money, a healthy money that will create a healthy society.

This is part of the complimentary currency movement that's at the opposite end of the centralized/decentralized money making spectrum (SDRs are on the opposite side).

energy as money

Creating money out of tangible assets is nothing new. The idea to use energy as the basis of capital is novel, and this is the first project i've seen that tries to show how this might work.

If you already have Kilowatt Cards to Authenticate:

Kilowatt Cards are gift cards that pay for 10 kilowatt-hours of electricity in any home utility account (including all taxes and fees) when REDEEMED here. The cards can be redeemed by anyone to pay for household electricity worldwide. Since they can be used to pay for anyone's electricity, they can also be used to barter for other things - resulting in an international store-of-value (assets) and a stateless medium-of-exchange (electricity).

To prove that a Kilowatt Card is real and active, enter the last six digits of its serial number in this form. If the number is active, two new digits will be returned that should be written on the card by hand, forming the end of a new six-digit number, while the first two digits are cancelled. The method creates a new serial number every time, while the old number is cancelled. So nobody holding a Kilowatt Card can use copies of it, since all copies will have a cancelled serial number after any one of them has been AUTHENTICATED

This way plain paper cards can be traded widely, yet proven real by anyone with access to the internet, before they accept it.

He talks about this as a gift card, but has language of "store of value" and "medium of exchange". yes, we're talking about money here.

Despite the roughness of this project (his authentication process probably doesnt inspire trust), it's a great idea and one that could be expanded upon. he's trying to implement it in a way that gets the project off the ground quickly, and is a worthy experiment to illustrate how a money supply, oops, i mean gift card supply can be created.

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added 5/26
"The system has been operational since July 2007, when we gave away about 10,000 kWh (1,000 cards) at a Rainbow Gathering in Arkansas. Only 60 kWh of those have been redeemed so far.. The total amount in circulation today is about 30,000 kWh." - bob (founder of kiowatt cards)

Medium of Exchange's Economic Effects

Nicaragua just released a new note, with a curious high rate of velocity:

For Nicaraguans, New Currency Is a Hot Potato:

In a country accustomed to surprises from its government, Nicaraguans received another curiosity on May 15 when they awoke to find that the Central Bank, moving in the night as stealthily as the Tooth Fairy, had snuck a new legal tender into their economy while the markets were sound asleep.

The new bills, printed on a peculiar plastic-like material in an unfamiliar size and adorned with never-before-seen designs, are meant to replace the old, ratty paper bills that cause germaphobes to collapse in conniptions every time they are handed change. The problem is the new bills were slipped into the economy without any public awareness campaign and minimal forewarning. A week after the plastic money was let loose on the economy, the Central Bank still hadn't updated its website to indicate that the new bills even existed.

As a result, most people didn't know what to think when they were suddenly handed a new plastic 10 or 20 cordoba bill, the lowest denominations of Nicaraguan tender and therefore the most commonly used. "This looks like European money," says one taxi driver, in a voice hinting pride, as he twisted and creased the bill in cruel defiance of its seemingly indestructible space-age properties. Others have described it as "play money" or complain that its gloss makes it "slip through my hands."

Most of the criticism, however, seems to indicate an underlying lack of confidence and trust in the government. There are many who remember the first Sandinista government's inventive monetary policies and the resulting mega-inflation of the 1980s. As a result, some people are now treating the new plastic dinero as if it were a hot potato. "Many people don't want these bills because they think they are valueless and they're going to get stuck with them, so they're spending them as fast as they can," says clothing vendor Fabiola Espinoza. It has unintentionally created a bizarre stimulus effect on Nicaragua's beleaguered economy. "As soon as I get one of the plastic bills, I try to pass it on right away to someone else," says shopkeeper Gloria Romero.

The most immediate trouble with this new medium of exchange is that people are not recognizable. as per wikipedia for Medium of Exchange:

To be widely marketable, a medium of exchange should possess the following characteristics:

1. transportability
2. divisibility
3. high market value in relation to volume and weight
4. recognizability
5. resistance to counterfeiting

Because people dont recognize it, and are not sure that it is a good store of value, they pass it along. Stimulating the economy in the short term, the decrease in trust can cause both political and economic trouble down the road.

I dont have access to the now 2 year old economist article, but among the "cash is dead" hubris, the study proclaiming how people spend 20% more when they use a credit card, rather than cash, even when there is no liquidity constraint. The Economist wants consumers to spend more and get more into debt, so this is viewed as positive by the editors of the Economist.

back to the article:

The public's suspicion of the new bills has been validated by serious legal concerns by economists and opposition lawmakers. Several legislators have pointed out that the new bills were printed without the signature of the Minister of Finance, as required by the country's Monetary Law, effectively making them fake bills. "These bills are illegal and worthless and should only be used to play Monopoly," says opposition legislative leader Wilfredo Navarro. "President Daniel Ortega is a counterfeiter. That's the level things have gotten to in Nicaragua these days." The lawmaker, a member of the legislature's Economic Commission, says "any serious government" would immediately recognize the error and recall the money. But so far the Sandinistas aren't budging.

Instead, government officials have responded in what has become the Sandinistas' standard reaction to criticism: triumphalism mixed with personal attacks. Sandinista lawmakers have accused Navarro of "economic terrorism" for questioning the bills' legality, and Central Bank president Antenor Rosales dismissed the criticism as the complaints of rich people "who are more accustomed to using debit cards and checks and don't care about the people." Said Rosales, "The Central Bank is profoundly satisfied with the excellent reception that the bills have had with the Nicaraguan population. Everywhere in Nicaragua the bills are being used."

Rosales defended the legality of the bills, insisting that legislation passed in 1995 gives the Central Bank "exclusive authority" to mint and print money. The number of signatures that appear or don't appear on the money is not important, he said. Critics, however, argue that the Central Bank's exclusive authority doesn't give it creative license to invent new styles of currency that stray from the technical specifications laid out in the Monetary Law. "The government couldn't just start circulating cacao beans and say it's currency like the indigenous did," says economist Nestor Avendano. "They have to respect the law."

Ah, the medium is the message. Of course recognizability is important. people forget how trust is built up in these mediums. I find it telling how the treasurer's guaranteeing signature is important.

With loss of expression in the treasury control, no wonder people are less likely to trust it. Creating money overnight without proper controls can cause a devalue a currency as a store of value (inflation). Pity the people in these coffee shops dont understand that the devaluation will probably be in all of their national money supply. But at least they're smart enough to understand there's possibly a scam going on.

Community Currency Magazine

CC Magazine is the most readable, comprehensive, and professional magazine i've seen documenting the current wave of community currency development. their online blog MainStreetCash.org is worth a full browse if you're an information seeker on the subject, including case studies and white papers.

The International Journal of Community Currency Research is where you want to go for your more academic research. it's another excellent resource.

Rounding out my personal list of top sites is the Community Currency Resource Center.

Please comment on other sources to share this wealth.

time banks

There's been several Hour Currency's the past few decades, perhaps most referenced in america, is Ithaca HOURS. Ithaca HOURs popped up during the early 90s recession (ie, during economically stressed times), and was implemented as a closed and anonymous paper currency.

Time Banks are not all implemented this way. A more modern medium is to do this via the web. Time Banks offers online software to help communities keep track of the hours they share together. As with all other currency efforts i've seen, it's richly steeped in a value system that believes in social equality (note the social justice jargon all over the place on their website).

Interestingly, because their is no monetary value placed on these exchanges, the IRS does not tax transactions. It's placed more in the category of gift economy. perhaps it's a bit of a grey area, as it's a tightly reciprocal gift economy (different than the pay-forward true giving value system of currencies like the giving coins i've blogged about).

I quite like these value systems these groups put forth, though i question their effacy in getting larger economic circles involved in trade with these mediums. Most business and economic spheres are steeped in a division of labor culture that values hours unequally, based on perceived value to the buyer, and what the market price is (ie, the value to the buyer is always higher than the price in the market place, which does sound a bit unfair, doesn’t it?). also, it's a bit hard to measure other forms of capital (like goods) as "labor capital". while it intellectually makes sense, it even makes my own brain hurt a little bit to overload labor with capital. I can see why these social justice people believe there's a conspiracy against labor when power (ie capital) is defined as something that it's not.

anyhow, this floating exchange rate between people's exchangeable hours makes me think about the exchange rates between multiple community currencies and possible private business scripts. I struggle a bit with the loose lexicon of this subject. Changes in community exchange rates (with dollars or other currencies) would basically result in community pay raises or pay cuts (when they are selling their labor/goods), and community buying power increases or decreases (whey they are buying from outside their community system.

This power sharing story already plays out geopolitically between nation-states. I can hear the time hour community railing against the economic injustice of whole groups of people trapped in a currency that relegates their whole nation to sweatshop activity. I cant really blame them for going to the opposite extreme of equality for all. A noble effort, though would need some innovation to bring it out of the fringe.

Derivatives as Money

Throughout this financial crisis , intellectuals have struggled to re-define our understanding of money. To understand currencies, one must investigate how money is used as reserves (to deal with the redux bank run issues), debt based money mechanics systems, and the new financial securitization innovations over the past 20 years, including securitized debt (for example CDOs), and their financial grease: derivatives (credit default, interest rate, and currency swaps).

The Liquidity Pyramid
Much speculation lately focuses not so much on what the stock market will do (the answer to that should be self-evident, especially once shorting stocks again becomes a practical reality), but what the impact of recent economic policies will be not just on inflation (regional or global), but also on that most sacrosanct piece of paper, the U.S. dollar.

In order to approach this question from a different angle than the conventional theoretical wisdom of Quantitative Easing being the end all be all explanation for the mid- and long-term fate of the U.S. currency, an approach that has much more practical credence is that presented by David Roche of Independent Strategy, which demonstrates overall liquidity, defined as claims on goods, services and assets, as an inverted pyramid.



At the bottom of this pyramid is the power money of reserve cash - liquidity created on the balance sheet of central banks. As noted, it accounts for a mere 1% of global liquidity, and thus the impact that the Fed and other world central banks will have with existing policies that address merely this aspect of liquidity will be, at best, massively muted. Above this is the liquidity bank loans liquidity, created through the conventional credit multiplier mechanism of commercial banks. Above that still is the liquidity created by securitization of debt. This experiment, gone horribly wrong, allowed claims on illiquid assets to grow further relative to the reserve money in the system. This is precisely the layer that the Fed and Treasury are trying to revive with the various TALF iterations, so far unsuccessfully. And at the very top of the pyramid is the layer of interest rate and credit derivatives: a means whereby institutions were able to maximize claims on physical and financial assets, by insuring against losses, without increasing precautionary reserves either of capital or reserve money.

In order to fully understand currency and price movements, one has to realize that the securitization of debt, and creation of derivatives amounted to a huge virtual printing press, primarily fueled by a massive increase in risk appetite which allowed for a huge expansion in the value of claims on financial assets and goods and services. It is worth pointing out, that the Fed has little to no control over this "printing press" at this point, which at last count was responsible for over 90% of the liquidity in the system.

Show me the money

In a fiat currency system, as previously pointed out, money is nothing more than a claim on assets, goods and services, and, most dangerously, money created at the top of the pyramid, in electronic form or otherwise, is just as real as the coins and physical dollars held at the basement of the Federal Reserve. The propagation of money higher in the liquidity pyramid explains why all traditional measures of money supply are not only inadequate but likely flawed: orthodox measure of money supply only include the first two pyramid tiers and completely ignore the major ones at the top. This is a major problem as analysts and economists who rely on these traditional "money metrics" only get a glimpse of 7% of the global liquidity in circulation. As for the the balance? The effect of creating an overabundant supply of money (that was not figuring into any monetarist policies) was that the price of money fell relative to assets, commodities and goods, services and labor. Therefore not only did generalized price inflation accelerate, but so did the increase in asset prices as well as the 6 year commodity bull run over the past 6 years.

The comments on this subject are a lively discussion on how to define money supplies. Considering that derivative securities are often treated as equivalent to money (for example, the notional value of derivatives are recorded on balance sheets), I tend to think this author is on the right track for understanding the mega topics of inflation and deflation.

Modern finance is largely about translating value from one medium to another, and if you want to touch all the parts of the world financial elephant, including how people treat securitized assets is crucial.

Open Money Foundation

Guillaume from San Francisco is developing a non-profit to push forward a set of standards for interoperability of complimentary currencies.

Considering Guillaume’s been developing APIs (application protocol interfaces) for the banking industry, and the fact he’s been collaborating with the founders from the LETS initiatives (mutual community credit systems) I believe that he’s got a great chance of making forward progress. Bring forward these complementary currency political philosophies with rigorous technical experience is going to bring this non-profit effort quite far.

Consider what he's been talking about this month on his blog:

Open Money Foundation update and logo

The Open Money Foundation is gathering interest.

I’ve discussed the idea to a variety of people in the last few weeks, ranging from virtual world developers to Web developers, community currency activists and gold currency advocates, and there is a strong agreement towards a very focused and simple goal of currency services interoperability.

This simple goal has to be viewed as a first and necessary step to realize the larger vision of Open Money or free currencies. In particular for community currencies, another cornerstone are economically-driven adoption models such as Community Way.

Open Money Foundation mission

In a nutshell, Open Money Foundation should define the OpenID of currency services:

Open Money = a set of open interface specifications designed for adoption that governs the interoperability between independent currency services and client applications.

Note that this is not restricted to community currencies currencies. We think World of Warcraft virtual gold coins, phone airtime minutes, digital gold currencies, Linden dollars or any virtual currency can benefit from this interoperability. Conversely, we think that community currencies will benefit from the participation of virtual/game/alternate currency providers.

A currency service that complies with Open Money Foundation specifications will enable the following benefits for end-users:

• automatic discovery of currency services on the Internet.
• one click currency registration request: users will be able to very easily request to join a currency service from their favorite currency application (”wallet”?).
• single view of all currency balances: users will be able to view all their balances at various currency service from their favorite Open Money-compliant currency app.
• transacting on any currency service from any Open Money compliant app.
• starting a new currency on an existing currency service will be as easy as starting a group on Facebook (this is specific to credit currencies such as community currencies)
• and more.

The goal of these specifications isn’t to re-invent the wheel. There are many open specifications to leverage to address some of the problems above (OpenID, OpenSocial, OAuth, OFX) and some currency systems already leverage these.

An important aspect of the suggested focus is to not focus on implementation but only on interfaces. In the case of a currency service, implementation is for instance how creditworthiness and credit limits are determined, or whether interest or fees are charged. An interface is simply: how do I request to the currency service a demand for credit. There are many advantages to focus on interfaces not implementation:

• We don’t get into the philosophical discussions of what is a currency, what are its characteristics, etc.
• We can each focus on our area of expertise: some on client applications that make it easy for users to use the currency, some on server scalability, some on currency design, etc.
• We leave an opportunity for implementers to differentiate themselves and address various community requirements, either as a generic platform with a currency definition language or as an ad-hoc currency service for a specific community, either as a not-for-profit, or for profit.

Besides offering a forum for the development of these specifications, the Open Money Foundation will channel funding for the development of an open source reference implementation that everyone can at least use to test their own implementation, or build upon.

I’m looking forward for feedback on this topic. If you like these goals and are interested to participate in a way or another, please comment.

micro-payment community currency blend

Seems that intellectuals and community innovation leaders are considering the new micropayment startup called tipjoy to implement community currencies for affinity and geographic groups:

Tipjoy.com, a possible home for CraigBucks

Douglas Rushkoff is a guest blogger. I spent a bit of time trying to convince Craig Newmark to develop an alternative currency with me for use, initially, on Craigslist called CraigBucks. Although he (perhaps wisely) has decided that it might be better for such a thing to arise independently of Craigslist proper, that hasn't stopped me from looking at how to take everything that works so well about transparent, local currencies (specifically, those of the LETS variety), and apply them to non-local communities with shared values.

The main trick is to have a currency that - unlike dollars, which are lent into existence by a bank - is instead worked into existence through an exchange. One person in the system is willing to be debited for what he gets from another. And everything stays completely transparent. Eventually (like in a file-sharing system) a person taking but not giving ends up in too much virtual debt to acquire more goods and services without finding something to do or trade with someone.

Coincidentally, then, I came across TipJoy, a pretty robust little system through which people can pay each other "tips" via the net, or even Twitter. Tie the TipJoy system to an alternative currency database instead of dollars, and the system should be able to work. The more transparent it is, the more people will be able to determine just what the unit of currency is worth to everyone else.

And as "Winston" suggested we call them over in a discussion at Rushkoff.com, why not call them NewMarks?

Tipjoy just recently announced a competition to get people to write to their new API. I'm quite interested in what comes of this!

ID money

Can an identity be worth it's weight in gold?

If you're dying for a beer, entry to the bar is free if you're driver's license says you are over 21. if not, you dont have enough money to buy a beer, no matter what else is in your wallet. Who you are in the transaction, also matters in a political economy.

In our modern world of Credit and Debit cards, where the medium of exchange doesn't actually change hands permanently, these 2 things can work together.

Who you are when using a credit card matters. A card is simply a pointer to money, rather than the money itself (be it credit or cash in some bank accounting system). And this pointer is determined by the identity of the card holder. hopefully for the merchant, the card holder is the same as the card user.

Libertarians tend to hate pointers to wealth, as it undermines their feeling of sovereign power. it's hard to protect your wealth with a gun if someone else can remove your pointer to wealth. Fiat cash more anonymously is a pointer to wealth and can be diluted/manipulated by governments, and even a metal coin is a pointer to the wealth of something you can eat (though arguably, metal contains within itself past labor and capital required to mine it).

credit cards have the card holder's name on it, and must be signed for, or some other secret password be used to pass this pointer wealth from buyer to vendor. More recently within the past decade, even a photo can be placed on the card. Credit cards are looking more and more like driver's licenses every day.

in fact, if the credit card company issues a card to someone they have proof of their identity, including birthday information, if they included that on the credit card, would it be considered a valid ID to get into a bar? I'm not aware of the legal implications of this, but if not technically legal, i suspect could be made legal with a little friendly lobbying.

In order to raise money in these financially difficult times, I dont see any reason why the DMV wouldnt want to embed a Visa/MasterCard into a drivers license. or are these things sacred, like getting into a bar?

anyhow, on with the conflation of money and identity. consider this new initiative in oakland:

ACORNs - City of Oakland ID Money

Alternative Currency for Oakland Residents and Neighbors

…An Oakland Merchant Credit System/ID as Local Currency…

BY WILSON RILES, JR

A number of groups in Oakland are organizing around a residential ID card. The City and County of San Francisco has voted to implement one in August. The principle motivation of the San Francisco effort and those currently involved in the Oakland effort is to make more real the “sanctuary city” concept for the “undocumented.” It is believed that a City ID would provide the “undocumented” an official document that would be useful in many circumstances that you might imagine: opening bank accounts, verification for credit, resident identification for neighborhood security situations (the police departments generally support such efforts), etc.

In order for an ID card to be successfully implemented for such purposes, however, the card would also have to be of some value and use for those who are “documented” residents also. Otherwise, such an ID card would only be used by the undocumented and it would simply identify a person as an “illegal” and increase rather than decrease vulnerability. This is the experience with the Consular Cards distributed by the Mexican government. Consequently, in San Francisco they are considering having the ID card there also function as a discount card for some City services such as libraries, zoos, and public transportation. Note that San Francisco, being a City and a County, has direct control over more of these kinds of public services than Oakland does. In San Francisco, some are also thinking of incorporating a prepaid credit card into their ID.

I think that Oakland can do better than that by fashioning a card that would be of great benefit to all the residents of Oakland. Only a narrow slice of the resident population uses the zoo, the libraries, and other local services in the control of City government. It is not the cost that keeps most Oakland residents away from these services; it is interest and the availability of alternatives activities that they can also afford. In addition, only a slice of the low-income resident population bothers with discount cards or prepaid credit cards. Most folks really do not need another credit card option. My suggestion is that we address the roots of one of Oakland’s most intractable problems: totally permeable economic membranes.

My suggestion is that we combine the ID concept with the concept of a local currency. You could title this either a “merchant credit system” or a local, virtual, Alternative Currency for Oakland Residents and Neighbors (ACORN). In other words, we would call that local currency the “ACORN.” This captures a local prosperity/growth concept for the currency. The United States has a rich history of local currencies. [If you are not aware of this, check out - for example - the following web site: http://www.schumachersociety.org/local_currencies/currency_groups.html. There are local currencies in Ithaca (N.Y.), Berkshire (Mass.), Humboldt (CA.), Lawrence (Kansas), Floyd (Virginia), Calgary (Canada), and many more places in this country and around the world. There are more references at the end of this piece.]

The “big boys” use currency trading not only to hedge against inflation and trade fluctuations but also to amass assets; a local currency would make some of those options available to the City of Oakland and the “little guy.” An additional important benefit is to keep more resources within the micro-economy of the City. Currently Oakland has the lowest “multiplier rate” of any city in the Bay Area; that means that the money that flows into Oakland “turns over” very few times before it flows out into other communities. Local currency significantly increases the “multiplier rate.”

Past attempts to address this problem included attempting to have more City employees live in Oakland, thus expecting them to spend the public dollars from their paychecks in Oakland. [The State constitution does not allow Oakland – unlike some cities in eastern states – to require employees to live in the boundaries of the City.] Oakland has discussed using incentives to achieve this local residency of City employees. The City also instituted various weak “hire Oakland” programs. We have made major efforts to attract major retail outlets hoping to capture more of the retail dollar that leaks outside of our community; for many reasons this has not worked well enough either. [Part of this problem is the lack of resources and attention that is paid to small local businesses: the business sector that has proven the most capable of benefiting and benefiting from local prosperity.] Local merchants’ groups struggle with the City to promote Oakland businesses’ buy-local advertising programs. Some local merchants are currently considering a pre-paid VISA card to promote the Oakland “brand;” the ACORN ID-currency card has many advantages over this pre-paid credit card idea.

Oakland’s attempts at attracting meeting/convention business and tourism has also had limited benefits because tourists simply take BART over to San Francisco to spend their money. If Oakland does not correct for this problem, no amount of convention business, housing development, or office development will improve our local economic situation very much over all. I think that the development of a local currency will be of immediate help. In the tourist business for example, the City, hotels, or visitor sites, as a promotion, could give tourists ACORNs to stimulate their expenditures in Oakland.

In addition, one of the largely unspoken criticisms of the “undocumented” is the millions of dollars that they send to their home country (remittances) that are taken out of the economies of local communities. [This criticism does not take into account the money immigrants spend in the community that might not happen if they were not present to do the work at the compensation levels that are offered.] If the work of employees in Oakland were compensated – at least in part – in ACORNs (accepted for goods and services by Oakland restaurants, retail stores, etc.), this would be a huge boost to Oakland’s economy – producing more local jobs and allowing higher salaries in the local services economy. More of the income earned in Oakland would stay in Oakland. This would tremendously increase the “multiplier effect.”

In San Francisco, the I.D. ordinance attempts to respond to the need that more individuals than the “undocumented” should have these ID cards to make them effective by allowing them to be used as discount cards at libraries, the zoo, the golf course, and for transportation on Muni. Oakland would tap into a larger number of activities by making the ID card also function as local currency. Dr. Raul Hinojosa of UCLA estimates a huge multibillion dollar development potential by working more justly with immigrant residents. Oakland could tremendously boost the local micro economy by paying City employees partially in ACORNs (giving them an ACORN credit/ID card). If just 10% of City employees’ pay were paid in equivalent ACORNs, the current budget deficit of approximately $30 million dollars would be covered and approximately $30 million dollars would be injected into Oakland’s local economy, guaranteed. This would lessen the pressure to lay-off needed City employees.

If the City accepts ACORNs for the payment of parking fees, fines, business licenses, development fees, etc., this will facilitate the circulation of the ACORN in Oakland. The City could encourage the hiring of Oakland residents and many other things by encouraging businesses and others to accept ACORNs and by giving them a cut in costs if they pay by ACORNs. The City would lose little since the greatest economic problem in Oakland is the loss of the economic “multiplier effect” that will be corrected using the ACORN cards.

With the participation of a local bank or financial institution, a magnetic-strip card that could be used in the current card reader technology could be easily implemented. This bank or financial institution would also be able to provide currency exchange services with US dollars as well as with the currency of other cities and other countries. This includes exchanges with the Native American reservations associated with the significant population of people from indigenous tribes that live in Oakland; Oakland has one of the highest concentrations of indigenous people west of the Mississippi. Most of the accounts (checking and savings) of the previously undocumented would probably be placed at this institution in addition to the processing of remittances. City and School District employees will want to open up other accounts in the financial institution that also has their ACORN account. The People’s Community Partnership Federal Credit Union has shown interest and is researching regulatory restrictions. This program is in agreement with their corporate mission.

In addition, local currency would encourage intra-Oakland business-to-business commerce. This would benefit the small and people-of-color businesses in Oakland more than the chains, thus stimulating more local ownership success. Businesses, which “got on board” with this early, would have “a leg up” on lagging businesses in competing for these resources.

The Hass School of Business at UC Berkeley, and business schools and economic departments from Stanford, Mills College and other nearby education institutions could constitute an Oakland ACORN “Reserve Board” to monitor and control the ACORN currency for the benefit of Oakland residents. The “Reserve Board” would also be responsible for the financial education of resident adults and youth. The study of the workings of the local currency could be beneficial to our youth to learn and understand economics at a deeper level than most. The participation of the School District in this educational effort as well as in compensating Oakland teachers – at least partially – in ACORNs would give a huge boost to the success and prosperity of the community. Oakland could truly become a “model city” in every way, including through its economic system and its educational system. Members of the Oakland Unified School District Board are currently considering this proposal.

There may even be uses for the local currency to benefit Oakland’s international trade position, as the fifth largest port in the U.S. Traders may – at times – want the option to denominate their trade to the U.S. in a currency other than the U.S. dollar. In addition, because of the hugely diverse international resident population in Oakland, establishing currency exchange rates with other countries would facilitate more small businesses and local residents getting involved in the international trade business. Making true what I think Oakland’s permanent slogan ought to be, Oakland, Home to the World.

There is some controversy regarding city ids. This particular effort is born out of the idea to bring illegal immigrants into the mainstream, for their own benefit and safety. though this pointer to identity can be used politically against them, on the balance, i suspect it's better for the participants.

Anyhow, this idea that who you are (a resident) affords you economic privilege (discounts) is an intriguing way to manage political economies. Despite this effort being a lot about localizing the economy, I can see how a Muslim credit card could disallow purchase of alcohol.

For while this pointer is used at the point-of-sale, it's also the point of control, from a political economic perspective. I wonder if this will be a defining way of managing overlapping political economies in the future.

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5/28 update: wilson's local currency initiative to create a local oakland currency has stalled in the city council. while they think it's interesting, they didnt understand local currency well enough, or have a good enough example, to move forward with this proposal. If the decision makers had more knowledge about municipal script from the 30s, i wonder if they would have pushed this forward.

Gold is Money

consider:
Aristotle's choice of money, revisited

This is a nice little comparison of different things that can have value. Durable, Portable, Divisible, and Intrinsic values are metrics that make up the important uses of money. Medium of Exchange (divisible, portable), Unit of Account (divisible), and Store of Value (Durable, Intrinsic Value).




He makes the case that many of these things in their modern form have more money like qualities . And I certainly agree, this has been where things have been heading.

Speak to a God, Gold, and Guns person though, and they might suggest that ETFs are unproven in the longer term, and while they are portable, divisible, that they are durable (try trading in your etf if the government collapsed), and the line in your account holds no intrinsic value, though it's easier to trade to something of intrinsic value (ie, it's more like a dollar, in that it gives the bearer a claim to something with intrinsic value).

So while I'd give different answers to the questions he poses, they are extremely good questions, and from a non-god/gold/gun perspective, he's absolutely correct.

The Reflux Rate

The maximum rate of redemption (the reflux rate) provides an excellent risk measure what a securities holding institution can absorb during times of stressful withdrawals. The maximum reflux rate expresses how quickly funds can be withdrawn, before the holding institution fails, or must temporarily close its doors to those who want their money back.

This reminds me of the bank run in It’s a Wonderful Life, when the community savings bank experienced a run, and Stuart used his honeymoon money to boost the reflux rate to keep his community bank open.

http://www.youtube.com/watch?v=_Er69b4HMl8

This also reminds me of the great 2008 electronic run on money funds, where ½ trillion dollars worth of redemptions were requested over the space of about 5 hours. Only mad scrambling and explicit new guarantees stopped this epic bank run from collapsing the entire financial universe.

http://boingboing.net/2009/02/09/rep-kanjorski-550-bi.html

According to Greco’s book, ”Understanding and Creating Alternatives to Legal Tender”, page 61, for a community script, such as what was widely used during the 1930s Great Depression:

“One of the fundamental rules of currency issuance is that the issuer be willing to redeem his or her own currency at face value (par), and that she or he be able to generate enough value (sales) in goods and/or services to redeem the currency at the rate of about 1 percent per day, which is equivalent to being able to redeem the entire issue in about three months time.”

His rule of thumb is quite good for small community currencies, with an eye on not creating ponzi-like systems where the late buyers of the currency, or any security, could be left holding the bag.

In regulating new securities markets, regulating bodies try to pay close attention to the expected character of how a reflux rate performs in adverse conditions. This essentially is what the current bank stress tests are all about. It revolves around the question of “how much reserves must be kept on hand to ensure smooth withdrawals, given possible adverse condition scenarios to the supporting inflows”.

For larger asset pools, perhaps lower reflux rates are reasonable to expect, but I wonder how much different the rules should be from smaller pools, given how quickly money funds were evaporating last fall.

But for new currencies and securities, or currencies that are not expected to have a useful life of multiple years (such as Depression style script), this question becomes all the more important. From a strong securities marketplace, to closing out the fund, script, or mortgage market, in a way that is “fair” to the late buyers is something that is reasonable to expect, and a regulatory framework developed for an open currency marketplace should reflect this.