Alternative Forms of Currency - Case Study Example

1.0 Introduction Alternative forms of currency seem to be responding to the inefficiencies created by money especially during unfavorable economic times when money becomes scarce and business people still need make transactions. According to Schwartz (2008), alternative forms of currencies have historically been existent as businesses attempted to innovate as a result of the problems they enocuntered with the coneventional money. In essence, the alternative forms of currency are in no way means to replace the conventional currency but rather they act as supplements in cases where conventional currency have proven ineffecient. Therefore, by adopting alternative forms of currency the a monetary system applies its flexibility with regard to the economic dynamics at play at a particular time. Alternative forms of currency have particularly been important in small communities where there exists mutual trust. These communities can make use of the alternatives forms of currency to strengthen their economies and to ensure that the demand for the produce of those particualr communities goes high (Farrington 2008). Technology has also introduced more sohisticated from of alterantive currencies where people create online communities that use alternative forms of currency. In essence, communities can escape the tedious formalities, requirements and risks that are associated with conventional currency and enjoy the effeciencies associated with alternatives forms of currency while at the same time strengthening the local communities and enhancing business relations. This paper reviews the current state of knowledge of the benefits and limitations of multiple exchange movements as well as noting areas for future research. 2.0 Local Exchange Trading System (LETS) 2.1 Functionality Basically, LETS involves people living within a given community who have decided to form some sort of a system requiring membership and where the members trade with each other using the barter trade system. Hoeben (2003) outlines that in average members of such a community do not make more than one exchange every month. In essence, the economic viability of such a system is significantly limited. In practice the actual exhange of goods for other goods do not actually take place but the members invent some sort of virtual currency that is used to monitor the balance of the members (Greco 2001). The system does not charge or accrue any interest becaue its major role is to monitor the transactions by its members. LETS responded to the need of European communities during tough financial times and since then the system has gained significant fame. However, the founder of LEST outlined that for the system to be functional certain conditionalities had to be met. These conditionalities were that the system should be run “professionally” and that the cost of operation should be paid by the members via “LETS currency”, trade should only take place on the basis of free will, full transparency is expected with regards to the accounts of each member so that other members can know the persons draggin the system behind, the unit of currency should always be equal to the national currency (Douthwaite 2002). 2.2 Benetits of LETS 2.2.1 Wealth Creation for Communities LETS plays the important role of empwering local communities to create and accrue that stays within communities and functions to benefit the communities. According to Visser (2005), the wealth of a community is viewed in terms of the goods and services the community owns and not the money the community has in its banks. LETS places emphasis on the generation of goods and services because members will need these goods and services to be able to accumulate LETS credit that they can use to buy other goods and services. Each individual in the LETS community will be motivated to play an active role on the system by having as many trading partners as possible. In order to have trading partners one will need to have goods and services to offer the trading partners and to have enough credit to be able to purchase goods and services from the trading partners (Sforzi 2003). In essence, LETS creates a situation where the primary focus is in the creation of wealth. LETS helps in wealth creation by giving more people within a community to participate in the program. The conventional currency system requires that one has money or some means of employement that will provide money in order to be absorbed in the mainstream wealth creation system. The only that one needs in order to partake in wealth creation are goods and services to offer. Such a system can work for communities with people who for some reason or the other are not able to get employment of get bank accounts (Hallsmith et al 2011). In essence, LETS allows people who would have been left out of wealth creation by the conventional currency system where one will need capital to be able to join the system. When local communities are able to stabilize their wealth creation strategies free from macro-economical dynamics such as inflation, then such communities can function to cushion the impact during economic difficult times. Many communities adopting a systems such as LEST will then have a broader and positive economic impact even at the national level. 2.2.2 Promotes Ethical Conduct in Business LETS plays the important role of nurturing proper business conduct within communities that is beneficial for the growth of any economy both at the community and national levels. One of the pre-requisite principles for LETS is that all the accounts of members should be made public as a way of pressuring people with debts to settle their debts in LETS currency. In essence, when someone accrues so much LETS debt all the other members will have to know and that individual will certainly lose trading partners. In a LETS system that has functioned for a long time, the culture of honesty and transparency will have been automatically nurtured because LETS cannot operate in the absence of these important business values. Since LETS functions to supplement the conventional currency system thre are higher chances that these values will be applied even in the conventional currency system. 2.3 Limitations of LETS The major d of the LETS system is that it can only operate at the effeciently at the community level. Various communities have attemped to innovate upon the ideas of LETS by creating LETS currencies that operate in a somewhat parrarell fashion to the national currency. In Ithaca, the development of an alternative currency was successful. However, in other areas such as indonesis the local currency called the bia was met with criticism as some argued that it was operating in violation of the national currency. Therefore, the applicability of the LEST still remains limited to the community level. The LEST system can only function in conjuction with the conventional monetary system. The system cannot stand alone as the only system of exchange because it was initially developed to respond to the inadequacies of the conventional currency system and not to replace it. These limitations have prevented the full implementation of the LEST system in a broader and national perspective. 2.4 Future Opportunities The use of LEST in communities whe intergrated within the mainstream monetary system and used in conjuction with the conventional currency system can be beneficial for trade unions. Credit facilities usually offered by trade union show evidence of unequal distribution between the rich and the poor. The rich usually have a higher opportunity to borrow large sums of money even when their savings are relatively minimal. On the other hand the poor usually have low capacity to borrow despite tha fact that they save a lot of money as compared to the rich. In essence, trade unions create avenues with which the rich can take money from communities and use it for development not necessarily within the community. LEST system has the capacity of creating opposition to the exit of wealth from a community. According to Development (2002), LEST can work together with local banks to ensure that wealth stays within communities and that both the rich and the poor have equal access to banking and credit facilities. LETS communities can also defy the geographical boundaries and take advantage of advances in business and information technology. LEST communities can exist online where individuals can just post their goods and services online and then the interested members can purchase the products using LEST currency (Visser 2005). In essence, such an approach can significantly expand the scope of LEST and increase the number of people that are able to acess the services. 3.0 Time Banks 3.1 Functionality Time Banks was an idea that was coined by Edgar Cahn iin the U.S. after he realized that time was a resource that could be used as a medium of exchange among communities. The concept worked on a system where an individual could accumulate time credits by volunteering their services to the community. The accumulated credits could therefore be used in period when the individual is in need of services or the individual can donate the time to be used by needy members. The concept came into practice and gained popularity after it was realized that in most instances members who gave services freely to the community were not rewarded. The concept was not to actually compensate people for their time but to create manpower in communities that lacked proper infrastrcture. In essenc, such communities could create a system that was self-reliant and where the provision of services depended solely on the time invested by individuals (Boyle 2009). The World Bank (2012) even cited the time bank concept as one of the most innovative initiatives in response to the financial crisis. In essence, time banks could be considered as a form of alternative currency that sought to empower communities and make them self-reliant. 3. 2 Benefits of Time Banks 3.2.1 Retain Social and Economic Benefits Time banks play the importan role of ensuring that the social and economic benefits of a given community stays within the community and benefits the community members. As a community adopts the concept of time banking and time dollars, they become so engraved in the mind sof individuals that they start to think of it as a form of wealth that one needs to accumulate and perhaps use in future. In such a situaiton, individuals will be motivated to work much harder and accumulate as much time dollars as they can. Eventually, community members will be motivated to invent new ideas that will serve to empower and foster developments within these communities (Development, Community Capacity Building: Creating a Better Future Together 2012). Communities that retain social and economic benefits are bound to strengthen and graps the dynamics in operation within their economies. In addition, such communities will also accumulate wealth. Examples of social benefits that willl be accrued are a sense of belonging among community members, cohesion and intergration and honesty and transparency. 3.2.2 Reciprocity Time banks create an important platform in which individuals within a community can enjoy the benefits of reciprocity. Individuals can have a chance to creatively use their skills and accumulate time dollars that they use for further development. The system promotes creativity and promotes the self-esteem of community members. This is because community members can use their skills to bring about change that will not only impact positively on their personal development but also benefit the community in general. The reciprocity also serves the social function of bonding the community where communities member operate within a self sustaining environment charcterized by the accumulation and trading with time dollars. 3.2.2 Creation of Employment The concept of time banks and time dollars allow people who are unable to get employment for one reason or another to take part in developmental projects in the community. These members can accumulate time dollars that they can use for other benefits within the society without necessarily having to work for payment with mainstream money (Marks 2009). Such kind of innovativeness can actually be beneficial for ex-convicts who might find it hard to secure mainstream jobs. 3.3 Limitations of Time Banks Time banks share the same limitations as LETS due to the fact that they can only be used at the community level. Furthermore, time banks can only be used alongside the conventional monetary system. This is because the purpose for the establishement of time banks was to supplement conventional currency in situations where conventional currency was inadequate in meeting the needs of community members. 3.4 Future Opportunities The time bank concept holds many potentials especially when communities begin intergrating the time dollars gained into the mainstream economies. For instance, when a person accumulates the time dollars they can use it to purchase services for personal development such as attend a community college of get treatement in a local hospital. The time dollars can also be used to pay for transportation as one moves from one place to another within the community. Expansion of the usage of time dollars can optimize the already benefits that have been witnessed in communities that have adopted the alternative currency system. The system can also be adopted by insitutions such as city halls where they can call upon people for community service and these people are paid using time dollars that they can use to to the movies or enjoy other services. 4.0 Conclusion Alternatives forms of payments have grown over the decades to become important parts of communities in dealing with the ineffeciencies of the conventional currency systems. Although one would agree that that the alternatives forms of currency cannot replace the conventional currency, the general realization is that economic systems that accommodate both operate effeciently and are more resilient against economic challenges such as recession. Within a multiple currency environment the systems function to complement each other. Evidently, the alternative currency systems were only invented to deal with the challenges people encountered with the conventional currency system. Money obtains its value not from its form but from the value of the goods it represents. Therefore, money is flexible and implementing alternative forms should not be dififcult. Although currently the benfits are confined to communities, the future opportunities for the alternative system are real and perhaps sooner or later such systems can operate formally with the conventional currency system in a higher scale. Bibliography Boyle, David. The New Economics: A Bigger Picture. New York: Earthscan, 2009. Development, Organisation for Economic Co-operation and. Community Capacity Building: Creating a Better Future Together. New York: Organisation for Economic Co-operation and Development, 201. —. The Future of Money. London: Organisation for Economic Co-operation and Development, 2002. Douthwaite, M. B. Enabling Innovation: A Practical Guide to Understanding and Fostering Technological Change. New York, NY: Zed Books, 2002. Farrington, Arin. "When Money Isnt Flowing: Invent Your Own Currency." Berkshares: Local Currency for the Berkshire Region. October 2008. http://www.berkshares.org/press/08oct13.htm (accessed May 1, 2012). Greco, Thomas H. Money: Understanding and Creating Alternatives to Legal Tender. Chelsea, Britain: Chelsea Green Publishing Company, 2001. Hallsmith, Gwendolyn. Creating Wealth: Growing Local Economies With Local Currencies. Toronto, Canada: New Society Publishers, 2011. Hoeben, Corine. Lets be a Community: Community in Local Exchange Trading Systems. Amsterdam, Netherlands: Hoeben, 2003. Marks, Michael B. A Theoretical and Empirical Investigation of Co-production Interventions. Albany: State University of New York, 2009. Schwartz, Judith. "Alternative Currencies Grow in Popularity." Time Business. December 14, 2008. http://www.time.com/time/business/article/0,8599,1865467,00.html (accessed May 4, 2012). Sforzi, Fabio. The Institutions of Local Development. Hants, Britain: Ashgate Publishing Group, 2003. Visser, Wayne. Business Frontiers: Social Responsibility, Sustainable Development and Economic Justice. Hyderabad, India: ICFAI University Press, 2005. World Bank. Local Initiatives to the Global Financial Crisis: Looking for Alternatives. New Jersey: Universidad de Deusto, 2012. Read More