Stimulating ideas on how to re-engineer our monetary systems

Businesses have tended to leave the question of how the monetary system works to the government, central banks, and the banking system. Yet in doing so they miss the opportunity to solve key monetary and financial problems that cause real heartburn in times of economic downturn—leading to layoffs, bankruptcies, and cascading economic crises.

Bernard Lietaer promotes the need for monetary diversity as a means of stability diversity and complementary currencies, as a means of stabilityphoto by Kris Krüg for PopTech

Belgian banking and currency expert Bernard Lietaer and community developer Gwendolyn Hallsmith present some of their stimulating ideas on how to re-engineer our monetary systems for the sustainability revolution.

When credit lines get prohibitively expensive or are pulled back, as is the case today, the jobs evaporate.

The Commercial Credit Circuit (C3)—provides critical working capital for small- and medium-sized businesses which can protect themselves from economic downturns and financial instability by taking a small part of the monetary system into their own hands. It represents a substantial improvement on commercial barter by making its business-to-business (B2B) currency convertible into official national currency.

When money is not available at all, an old option has been barter. Barter is one of the oldest exchange mechanisms in history. It is an exchange of goods or services without any standard medium of exchange. “Commercial barter” clubs or businesses typically use an internal currency as a standard medium of exchange, and so calling this “barter” is technically a misnomer.
Like individuals, businesses, too, can have a cash-flow shortage but a surplus of goods. But old-fashioned barter isn’t convenient when one tries to pay in corn, or pigs, or saddle shoes. And doing so might limit what a business can purchase, because a barter exchange requires that the needs and resources of two parties match.

The process starts when one participating small- or medium-sized business gets insurance on an invoice or other payment claim. This insured invoice is then used to back a complementary currency—let’s call it BusinessBucks—issued through a computerized transaction for the same amount as the invoice. The BusinessBucks are then used as liquid payment instruments within a business-to-business network. Each recipient of BusinessBucks can either cash them in for dollars, euros, yen, pesos—the conventional bank debt money—at the cost of paying the interest to the point the invoice matures, or the recipient can pass the BusinessBucks on, without cost, to pay its own suppliers. At the maturity date for the invoice, the corresponding amount gets paid in conventional money, either by the company to which the invoice was originally issued or, in case of default, by the insurance company that insured that invoice. Also, at the maturity date, all the BusinessBucks that were created on the basis of that invoice become convertible to conventional money at no interest cost.

This process injects working capital into the C3 members’ network at a substantially lower cost than what would otherwise be possible because the insurance costs less on an aggregate level than compounding interest from bank loans in a conventional credit system (in Uruguay, the insurance cost amounts to 1 percent of the invoice). Given that small- and medium-sized firms provide the vast majority of all private jobs, the C3 mechanism systemically contributes to the stability of employment and of the entire economy.

Continue reading: Making Money for Business: Currencies, Profit, and Long-Term Thinking By Bernard Lietaer, Gwendolyn Hallsmith

The Terra is a global business-to-business currency, fully backed by a standardized basket of a dozen important commodities. Here’s how it works: (1a) An oil producer with an excess inventory of 1 million barrels of oil sells that quantity to the Terra alliance; (1b and 1c) The Terra alliance sells some of that oil to increase its holdings of the other 11 component commodities; (1d) The alliance credits the Terra account of the producer with a quantity of Terra units equal to the current purchasing power of 1 million barrels of oil; (2a) The oil producer uses the Terras to buy an oil rig from a company willing to accept the Terras in trade; (2b) The rig supplier uses the Terras to buy components from its own supplier; (2c) The process continues, with the Terras circulating until redeemed; (3) The oil producer and other Terra users pay a demurrage charge when using the Terra based on how long the Terra was held in their accounts; (4a) Whenever Terras are redeemed, the final user is charged a 2 percent redemption fee; (4b) The Terra Alliance then sells the portion of its commodity holdings to which those Terras have claim, and pays the redeeming party in conventional currency; (5) Piggybackers simply use the Terra as a trade reference currency, pricing contracts in it but settling those contracts in an equivalent amount of another currency.

The Terra is designed as a complementary currency operating in parallel with conventional currencies like the dollar, euro, and yen. It would not replace them but rather would supplement their use with another trading mechanism that has a different structure.

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