Producing our energy through renewable means, growing our food in community gardens or recycling our waste are just a few examples of how we can live more sustainably whilst giving back to our society. But what if we could also grow our own money? Roel Wolfert, COO of QOIN, an Amsterdam-based local currency systems provider, explains how communities can benefit from local currencies programs.
Q: What are community currency programs? How do they work?
Local currencies have existed for a very long time. Community currencies are typically initiated by community leaders and usually have a specific economic, environmental or social objective. They don’t necessarily need to be money-like and can be issued as time-credits or digital-credits for producing solar energy.
The most famous one is the WIR Franc from Switzerland, founded just before World War II. It has over sixty thousand participants and stimulates local trading between businesses. This helps to balance out both negative and positive economic effects caused by fluctuations in the Swiss Franc.
Q: What is the motivation to create local currencies?
In general, the local currencies have single or multi-purpose objectives. The main criteria is that a local currency is always focused on a community. This could be across country, lets say the community of Java developers or a geographical region such as a town like Bristol and its Bristol Pound.
There are three success drivers for issuing community currencies; environmental, social and economic. The ideal is to combine them as QOIN did for SamenDoen or the green energy focused Solarcoin program. Solarcoin has a backing in the sense of kwh and it can be globally or regionally bound. Another fundamental aspect of a good local currency is the focus on creating desired social behaviour, such as volunteering. Spice, for instance, in the UK, rewards volunteering by giving time credits.
Q: Once you have credit in a local currency, are you stuck with it, or can you exchange it in a local bank?
It depends on where you are and what currency scheme you are using. Usually a currency’s objective is to close the loop as much as possible and accelarate the currency’s circulation. People tend to spend what is perceived less valuable first. It musn’t have many options where the consumer can convert the currency back to Euro as it kills the value and velocity in the system. Generally we do it at the end of the valuechain (retailer or local business) when we can assure that velocity is optimised.
Q: How do you measure a currency’s success?
There are several ways of viewing the success of a local currency. First is profitability. The limited entity attached to the multipurpose currency program is profitable within 12 months. These profits are then being reinvested in the local community in local currency. We can measure its economic impact through the amount of currency in circulation times the velocity (E = M * V). Let’s say that 250 000 euros worth of local currency is injected into a community, shifts hands four or five times on average per year. That would represent a total of 1 250 000 euros in that specific region. That region has let’s say economic measurement 200 million euros which represent 0.5% increase of the local economy. This percentage may grow over time as the amount of currency in circulation increases due to active participation.
That example is just the macroeconomic indicator and there are many other aspects that we can measure. For more information, Professor Nigel Dodd details how to measure a local currency’s impact in his book People Powered Money. He suggests including a mix of social, economic and environmental outcomes depending on what the users of the currency value. This could be individual wellbeing, connected community or improved environment.
Q: Why are local organisations investing in community currencies?
Social housing organisations, municipalities, youth centers, volunteering organisations and local governments all have a real need to save euros by effectively implementing government policy. They subscribe to the system and the currency helps drive the desired behaviour that delivers the cost reductions. When retailers and local entrepreneurs subscribe to the system they can increase revenue and create loyalty from their customers. Volunteering organisations benefit significantly from the system, as the number of their volunteers usually quadruples and the quality of them also improves. The system stimulates not just intrinsically motivated volunteers to do more, but also people who normally will not volunteer and now are motivated for reasons like increased purchasing power. All in all, this leads to cost savings and quality improvements in the whole community.
Q: What are the most common community currencies form factors?
Most currencies are digital (NFC, mobile wallets, terminals on the mobile phone, internet banking systems, ..) with a small percentage issued as standard paper money.
Q: What technology needs to be employed to launch a local currency project?
Technology that is common in that region. There is no global standard for local currencies. If you are aiming to launch in Africa then you would use Blackberry, Bluetooth and Wi-Fi as people don’t have access to contactless. QOIN also has a lot of desktop users due to the high number of participants above 55 years of age.
Q: What are the easiest user experience solutions?
When you look at UX experience we are continuously improving. Every month we have mystery guests, outsiders that we ask for feedback on user experience. We register and measure their behaviour and continuously feed the outcomes and recommendations back to improve the system. The solution, everybody understands is contactless pvc card concept as this is a standard in banking in Europe.
Q: Do you think local currencies will take off in future?
It’s the long tale of finance. There is no global player in the market that is dominant in managing the long tale. Finance has never managed the long tale, we are. As we are on our way to launch more programs, we have more big financial institutions interested because we help them understand how the long tale works and what is in it for them. We don’t need the advantage of global scale. What we need is the local interest and the purpose.
- by Michala Kalfirtova