The Community is the currency

chriscookAs the economy of Cyprus implodes, UK austerity measures begin to bite and the banking industry retreats further into itself, the need for new and ‘bottom up’ community-based economic tools has never been greater.

One such tool is the Credit Unions, where people make deposits which fund loans within a community with a ‘common bond’, which may be geographic, functional (eg the Metropolitan Police) or possibly both.

Another emerging tool is the complementary currency, of which the best known is probably the emerging range of Transition currencies such as: the Totnes Pound; Lewes Pound; Bristol Pound; Brixton Pound and so on.

While both of these tend to keep economic value local, which is unequivocally a good thing, what they essentially do is move existing economic value around; they don’t actually do a great deal to stimulate new economic activity, the need for which is growing daily more urgent.

Maybe there’s another way of doing it?

A Linlithgow Guarantee Society

The concept of a Guarantee Society is not a new one. For the last 140 years ship owners have clubbed together in a range of ‘Protection and Indemnity’ (P & I) Clubs which mutually insure risks which commercial insurers would not cover. For the last 135 years the same service provider, Thomas Miller, has served P & I Clubs by: managing risks, handling the pool of resources backing these risks; handling claims and providing other services to P & I Club members.

Since 1992 some 18 European countries have seen the formation of Guarantee Societies which enable members of an association, typically businesses, to join together to mutually guarantee bank loans by their members.

Anyone familiar with the work in the field of micro-credit of Dr Muhammad Yunus with Grameen Bank in Bangla Desh will know that one of the key success factors was the way in which micro-loans are supported by the guarantees and support of small circles of friends and relatives.

The advent of pervasive direct instant connectivity and paperless accounting and administration now enables the concept of the Guarantee Society to mobilise a new approach to Community Credit.

A Linlithgow Community Credit Card

What might this look like? Well, firstly, in the future, it will probably be an element of the SIM card on everyone’s mobile phone. In the meantime it will look and operate just like any other credit card, but ‘under the bonnet’ it will be very different.

Let’s imagine a Linlithgow Credit Card, because it is the green and pleasant ‘Garden Burgh’ in Scotland where I live. Local businesses will club together, as they are doing already in a Business Improvement District (BID) initiative, as enterprise members of the Linlithgow Guarantee Society (LGS). They will then extend interest-free credit, time to pay, to local people who become individual members of LGS.

While this credit is interest-free, it will not be cost-free. A subscription will cover the agreed costs of the necessary accounting system, of which there are several cheaply available, and of the service provider. This could be perhaps a credit union or even a local bank such as our local Airdrie Savings Bank, which is the sole survivor of the Trustee Savings Banks which were privatised with the depositors’ own money.

The role of this service provider is to set and manage ‘guarantee limits’ on credit extended by enterprises, and the credit extended to individuals, and also handle problems and defaults. In other words, the service provider will do precisely what it does now but the difference is that it would no longer be exposed to the risk of defaults. Banks would queue up and compete to provide such a service.

If a bank doesn’t take the credit risk, who does?

It is the Guarantee Society members collectively who will be exposed to the risk, and they will protect themselves simply through the making of a ‘guarantee charge’ to both businesses and individuals in respect of the use of the guarantee. In other words, both businesses and customers would pay into a ‘Default Pool’ held in common by a bank as custodian for the members, rather than by a bank as proprietary owner.

Here Linlithgow benefits from being in the West Lothian region, whose council is one of four Scottish local authorities which still maintains a Muncipal Bank. The very restricted purpose of the West Lothian Bank is purely to receive deposits from West Lothian Council staff and pensioners, pay them a decent rate of interest and lend money at a reasonable rate of interest to the Council.

Wherever the default pool of funds is held, a service provider ‘managing partner’, in addition to covering agreed costs, could be incentivised with an agreed bonus based upon service level and default experience.

The Co-operative Advantage

Anyone familiar with how credit cards work, which is to make a fat transaction charge to sellers, and to charge substantial interest and other charges on unpaid balances, will see that a community credit card will operate essentially as a co-operative of sellers sharing credit risk with a co-operative of buyers.

Any surplus from operation could be distributed to members as they see fit, possibly to relieve poverty or simply as a co-op dividend so that those who provide the guarantee, but do not use it, are recompensed for the risk they shoulder.

The outcome would be that such a Linlithgow Community Credit Card could out-compete conventional cards simply because it has the Co-operative Advantage of not paying returns to rentier shareholders and payments to management not reflected by performance.

The Community is the Currency

The really interesting possibilities arise from the fact that every individual is also an ‘enterprise’; it’s just that the value of the service they can provide is not recognised. So the growing number of unemployed could be extended credit by their fellow Guarantee Society members and in return could provide care for each other, and for the place in which they live or provide cultural value like music, art and drama.

As with conventional credit cards, there are no deposits necessary in such a system, which could be introduced tomorrow using conventional software. The result in Linlithgow would be a Linlithgow Pound, which spends just like a conventional pound, but does not require, as do Transition Pounds, the pound for pound backing of conventional sterling manufactured by the banking system.

So Linlithgow Pounds would be created and would circulate only within the community of members of the Linlithgow Guarantee Society.

The Linlithgow Community is the Currency.

Chris Cook is a Senior Research Fellow at the Institute for Security and Resilience Studies at University College London. Chris was director at the International Petroleum Exchange IPE. IPE is known for trading Brent Crude until 2005.

5 Comments on The Community is the currency

  1. Neil Barnes // April 3, 2013 at 11:55 pm // Reply

    As a fellow trustee of TL, there is a growing sense that only community-driven innovation, truly cooperative, like our Danish counterparts, will take us to the next level in our journey towards sustainable development and resilience.

    Linlithgow is well endowed with wealth, historical assets, strong community groups and clubs and ‘should’ have the appetite and intelligence to make this a reality.

    What about the less affluent neighbourhoods who might need such solutions more urgently? There are local community development trusts in these neighbourhoods who, given the support, perhaps via learning from Linlithgow if it can introduce the new ideas successfully, could make such bold steps.

    Ironically, Linlithgow has just introduced its first food bank (although it may be folks from outside the town using it?), and as a young family meeting other ‘youngish’ parents on a regular basis, we hear anecdotal evidence of hard times. Linlithgow is not immune. Indeed the issue of underoccupancy, isolation and potential hardship for some of our elderly, may be more of an intractable problem in the town than meets the eye.

    To help address this, Chris and the group are also holiding discussions and putting forward ideas on sustainable energy, including the ‘kilowatthour’ currency.

    With Chris’ deep understanding of the legal and financial models and instruments to make these radical changes, coupled with the desire and passion of TL and its members, it may be that we can finally look forward to keeping our pennies and pounds or local buttons for ourselves and not distant, faceless fat cats.

    We deserve at least the chance to try something new. After all, pouring debt on debt doesn’t work. Relying on distant fuel and food supplies has a ring of inevitability about it. Let’s not even mention climate change.

    The Transition movement, ideas like Chris’ to fuel and sustain what could inevitably lead to a booming local multiplier effect, and hopefully new jobs and opportunities, and learning from the emerging good exemplars of the Transition movement, gives us hope that our local communities can thrive once again.

    Keep the ideas coming Chris!

  2. Chris Cook // April 5, 2013 at 8:49 am // Reply

    Thanks, Neil

    It is not realised that (undated) credit is a completely different animal from debt, and that credit based upon the capacity of people to care for each other and for the place in which they live; to educate and tutor the younger generations; to create works of art and music; is just as valuable – in fact more – than much of the soul-destroying and unnecessary ‘economic activity’ that takes place today for the enrichment of the few and at the expense of the many.

    All we have to do as a community is to accept that fact.

  3. Fascinating model Chris. I hope that Linlithgow can blaze a trail in this area.

  4. Mike Riddell (@mikeriddell62) // February 3, 2015 at 11:21 am // Reply

    Things are beginning to hot up in the digital community currency space now. I note that this article was penned back in April 13 but so much more has happened since then. In particular it is worth checking out what’s happening in Hull (I’m advising them) with Hullcoin – a digital currency the purpose of which is financial inclusion. So, lot’s going on in this world.

    The only thing i want to comment about is the system you refer to. There are some accounting packages out there that are employed by the community currency world, but they are what’s best described as ‘back-end’ systems that aren’t very pretty or clever.

    The front-end is the bit to get right. That’s where the User-experience is delivered. In non-technical language the front-end would be your facebook or twitter log in – that’s the ‘experience’. the backend is where all the algorithms do their matching and connecting work.

    Its the front end that engages not the back end. Which is why the front is more important than the back.

    It’s really about time that the community currency movement got its act together better. couldn’t you chris or Jem bendell get something sorted????

    Cheers, Mike.

  5. Couldn’t agree more, Mike. For the user it should be a seamless and familiar experience – but with a very different outcome. If anyone wants to look under the bonnet, then they can.

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