Rethinking Money Designing a money systém sensitive to the environment What is Money ? • •Functional Definition – what money does • •Money is a: • –Medium of exchange –Measure of value/unit of account –Store of value • These roles may be incompatible •Amongst money's many functions, that of the lubrication of a fully functioning economy is the most basic •If some people are storing money then it may not be able to lubricate the economy efficiently •Speculation can mean that money is sucked out of the local economy to areas of the world where it can attract a higher rate of return as investment capital Theory: the money multiplier •„Reserve ratio“ of 10%; money multiplier is the reciprocal of this, i.e. 10 • •An initial deposit is made of £100 •The bank lends £90 of this and holds £10 •The borrower uses the £90 to pay for work and it is deposited in the workerś account •Now customer balances have increased by the original £100 plus the £90 from the new cheque deposits: a total of £190 •The bank can now lend 90% of the £90, a further £81. •Total deposits are now increased by another £81 to £271 •This process repeats and the total increase in bank deposits is 10 times the amount initially deposited: i.e. £1,000 • Money ,as „store of value“ •Bank creation of money is not controlled by some set ratio—only ´prudence´ •The constraint on bank lending is only a willing supply of borrowers •When there are no more borrowers the systém collapses •Quantity of money is not related to economic activity Myth no. 1: the fractional reserve Money ,as „store of value“ •Most money is „fiat" •Banks do not hold gold and neither to governments •The agreement in 1944 was that the dollar would be backed by gold •This link was broken unilaterally in 1971 Myth no. 2: money has „backing“ Myth no. 3: money is neutral •Most economic activity is based on borrowed money •The money that is deposited belonged to somebody with excess money •The person who borrowed it has insufficient money •Interest will transfer money from the working person with less money to the person living from unearned income • Money and globalisation •The finance industry lies at the heart of globalisation. Of the total international transactions of a trillion or so dollars each day, 95 per cent are purely financial. Globalisation in not about trade; it is about money. •the financial system now completely dominates the real economy of goods and services •Mellor et al. The Politics of Money, 2002 The „credit crunch“ •The supply of borrowers ran out •Many existing loans had been made without good collateral and could not be repaid •Bank nominal assets were inflated way beyond their actual assets •All financial institutions were seeking cash and it was sucked out of the real economy leading to Recession What Mervyn King Said •‘Unemployment is up, businesses have closed, and the direct and indirect costs to the taxpayer have resulted in fiscal deficits in several countries of over 10% of GDP – the largest peacetime deficits ever.’ •‘Of all the many ways of organising banking, the worst is the one we have today.’ “Banking: From Bagehot to Basel, and Back Again”, The Second Bagehot Lecture, Buttonwood Gathering, New York City, 25 October 2010 Projected borrowing(PSNB), 17 Dec. 2009 PSNB projection a year ago: beginning of huge borrowing is clearly located in autumn 2008 Public Sector Net Borrowing: how much the government is expecting to have to borrow in the relevant time period. Projected borrowing(PSNB), 21 April 2010 By the following spring we were on a completely different axis. DebtMachine n97% of money is created as debt by banks: n95% of money transactions have no contact with real goods nAllows people to make a claim on future value And what he didn’t say Money is inequitable and also puts pressure on the planet. Once it is created people have to work and exploit resources to make the goods to catch up. This is how economic growth works and why we are destroying the planet. The Crises are the Same Crisis ÒSustainability requires equality ÒSustainability requires financial stability, because debt-free money forces economic growth ÒDebt requires inequality, because of interest transferring money from poor to rich The crises are the same crisis Money is a store of value •Money made in one period can make a claim on goods and services in the future •These goods and services use energy and resources •The money supply is hugely increasing •This is the driving force behind economic growth Distance between money and economic activity Proportion of government to bank money in UK, 1968-2004 UK public debt ballooning Policies •Money to be created as credit not debt •Tobin Tax on international currency transactions •Intention of monetary policy should be to balance money supply with level of economic activity •Money should be created as a public resource, not privately, by banks Can we design money to create a green economy? •Shift consumption into the local economy? •Encourage activity in the core economy? •Counteract recessionary pressures? •Reduce consumption? http://4.bp.blogspot.com/_ekn4wiQt_t0/Sq55M7vQdOI/AAAAAAAAHQ0/DhIwhWe5bHM/s320/%C2%A37a.jpg Velocity as well as quantity is important •Quantity theory of money: –MV = PT –M is the quantity of money in the economy –V is the speed with which it circulates (number of times it is spent) –P = the price level –T = the number of transactions Can we change the velocity of circulation? •Interest encourages people to hold money and slows it down •Negative interest (demurrage) might speed it up •Silvio Gesell (1862-1930) The Chiemgauer •Uses principle of demurrage •Electronic and paper money •Back one-for-one by euros •Can be exchanged back for a 5% fee •Accepted by 150+ shops • • 81c33dfebc RTEmagicC_scheinf_cherweb •http://www.chiemgauer-regional.de/ http://www.uea.ac.uk/env/ijccr/pdfs/IJCCRvol13(2009)pp61-75Gelleri.pdf •Stroud is an exemplar sustainable community located in rural Gloucestershire some 30 miles North-East of Bristol, UK •A former textile town, it suffered severe industrial restructuring in the second half of the 20th century •Site of one of the UK’s most successful LETS schemes (North, 2008) •One of the first UK towns to register with the nascent Transition Network in September 2006 http://www.shopinstroud.com/media/directory/teasle.jpg About Stroud How it works •Issued by the co-operative on a one-for-one exchange basis for pounds sterling •Businesses, consumers and charities are encouraged to join the scheme, although it is possible to pick the notes up in change and use them for purchasing •When consumers buy Stroud Pounds a percentage of the value is donated to a local charity of their choice •This is balanced by a 3% ‘redemption’ charge when businesses exchange the money back for sterling The Stroud Pound Roundabout Reinforcing the local economy •3% demurrage to increase velocity of circulation •Identification with local economic themes •Laurie Lee http://3.bp.blogspot.com/_ekn4wiQt_t0/S63DXuFBaQI/AAAAAAAAIjA/Ch1KbBRYsBc/s1600/Stroudpound.jpg Story after one year •Launched in September 2009 •A total of £10,066 were exchanged for Stroud Pounds •Slightly over half of those (£5940) had been redeemed •£290 allocated to the ten local good causes which people had chosen. A year after the launch of the scheme SP4,126 were in circulation. The scheme had around 180 consumer members and 44 outlets or service providers where the local currency could be spent. • Encourage activity in the core economy? Time Money or Service Credits ®Money denominated in hours: one hour, one credit ®Co-production social service ethos is crucial ®Balance does not matter – generational solidarity ®Connections made by a broker and by telephone ®Usually more successful when run by a social services agency ®Unlike LETS, does reach the poor/excluded/elderly robert_owen_samuels_collection_duke_university