I remember reading an economic history book and they mentioned that the Spanish bringing gold to Europe from the Americas stimulated the European economy, and it struck me all at once that basically none of the economic activity in Europe required gold (they weren't making intricate electronics, after all). Growing food, making clothes, tools, shelter, it all could have been done without the gold. What they needed was "money" that everyone believed was valuable in order to convince people to do work. It's the work that causes prosperity, not the gold.
I think local currency can function similarly. A lot of people in small towns struggle to turn their skills into dollars, partly because the modern economy values a lot of stuff rather weirdly. Just because their skills aren't easily translatable into dollars globally doesn't mean that they can't still make their local community a much better place, provided there's a way for someone in the local community to communicate that they value the service (which they can't do using dollars, because they also don't have any).
>the Spanish bringing gold to Europe from the Americas stimulated the European economy
"Stimulated the economy" is a choice way of looking at it. What it did was create a period of inflation on a scale of size and duration never before seen. It basically led to the decline of Spain as a major world power.
Demand for gold primarily was due to trade with Asia. The problem wasn't that people didn't have gold to trade in their local communities. Local economies rarely relied on coinage during this time. They use an informal credit system on the small scales (like IOUs).
The Asian thirst for precious metals was driven by high internal use of coinage where for Europe, it was mostly to buy things from Asia. As the European gold balances dropped, they sought other sources from Africa and later from the Americas to continue trade.
I've just finished Stephanie Kelton's book on modern monetary theory (MMT), The Deficit Myth, which says much the same thing about any fiat currency: The issuer of a fiat currency is not bound by the same constraints as users of that currency. I'm not quite convinced (although I'm no economist), but it was an interesting "read" (audiobook).
The modern rebirth of local currencies was probably the Austrian town of Wörgl which having been hit badly by the Great Depression recovered magnificently after creating its own local currency in 1932. The currency was so successful it was later forcibly shut down by Austria's Central Bank.
It's amazing how well a society can function, if you ensure that the money that circulates in it doesn't leak out of it, fueling further investment and purchases. I think it's worth actually re-examining our view of globalization and global trade with this in mind.
I'm no economist, but wouldn't this lead to greater wealth disparity?
When money leaks out, it leaks in to somewhere else. Sort of like connecting bodies of water will lower the water level of one body and raise it in another. One place will lose out and another will gain.
Unless differences in local taxation/laws/amenities/other lead to wealth/poverty hotspots. With some areas vacuuming up wealth and others repelling it. Is that what this is really solving? Unable to compete on local taxation/laws/amenities/other, cities have to find another way to prevent their wealth being repelled.
Sounds like just another wall though. Which can surely never last
Well, yes; this is standard velocity of money stuff. It is detrimental to the economy to hoard money, and even more in a ""hard money"" situation to hoard the hard money, whether that turns out to be gold and silver or just dollars in a collapsing non-dollar country.
But if you try to close the economy as a result you end up with mercantilism, and having to forgo all sorts of opportunities for cheaper, better products because you have to buy from the local entrenched elite producers instead.
Plus it basically doesn't work in the oil age for most countries because they have to import oil.
>if you ensure that the money that circulates in it doesn't leak out of it, fueling further investment and purchases. I think it's worth actually re-examining our view of globalization and global trade with this in mind.
Where do you draw the boundaries? Is money leaking outside the globe?
These schemes always remind of Paddy’s Bucks from Its Always Sunny in Philadelphia.
They are a monetary solution sent in to fight financial problems. The solution to those problems usually lies outside issuing your own money; it instead compounds your problems. There’s probably a case to be made for them if you could find and administer an optimal currency area, which is a monumental challenge.
It is a bit weird that cryptocurrency folks talk about "disrupting" financial system when they actually talk about rolling monetary policy back to about middle ages. Come up with a currency anyone can create and there you have a real disruption.
More modern doesn't necessarily mean better. That's a fallacy.
For instance, it's possible that a currency based on long chains of debt is prone to massive blow-ups. That's modern day fiat currency. In contrast, cryptocurrencies like Bitcoin are not based on debt.
> Come up with a currency anyone can create and there you have a real disruption.
If I've understood you correctly, something like that does exist. See Ethereum and its ERC-20 tokens.
If I interpret beefield correctly, they're not talking about being able to create new currencies but rather a currency that anyone can mint.
Here's an interesting one, an attempt at decentralized UBI where each individual gets issued individual "coloured coins" and participants accept currency based on a web of trust: https://handbook.joincircles.net/about/whitepaper.html
I think this direction is very worth exploring. Today fiat currency is generated through creation of debt between banks. Most cryptocurrency is generated through validation of transactions (be it PoW or PoS).
The idea of moving currency minting down to individuals in a way that can maintain a sustainable inflation is very attractive to me. The really hard part is squaring the triangle of no privileged centralized parties with censorship capabilities while neither being vulnerable to sybil attacks or locking out disenfranchised minorities from the economy.
Circles is the only serious attempt at that I've seen and I'd love to see more innovation and critical analysis in this venue.
Scarcity creates an illusion of value "at rest". Currencies aren't very useful "at rest", though. (As entertaining as it is to imagine to go diving into a Bank Vault Scrooge McDuck-style, it isn't very practical in reality.) It's in how they flow that inter-personal value happens. I feel like one of these days we'll truly discover an economic calculus based on the second and third derivatives of "value", and maybe scarcity is holding us back. (I often use an electrical circuit analogy. Our conception of wealth is "instantaneous voltage", and while high potential voltage sometimes has its uses in some types of circuits, it's the wattage/amperage that does real work over time.)
As far as I understand complementary currencies are not supposed to disrupt anything (as their purpose isn't to replace fiat), not a new idea and in no way linked to crypto currencies. Crypto comes into play to support a more modern and secure transactional system to an idea that's already existed for decades.
Bitcoin is also pushed by far-left extremists, anarchists, nihilists, centrists and adherents to loads of other schools of thought. From the BTC-maximilists I've come to known, some very active in the community, I'd say it's not representative of BTC proponents in general.
Though I don't think I'd like the top BTC whales of today to effectively run the global economy.
This right here shows how much the value of USD depends on the power of taxation. Even if you barter goods with no USD used, the IRS will still force you to find a way to obtain USD to pay taxes on that barter.
Heh, good point. I suspect that one of the features of these currencies is that they're not taxed in practice, even if the letter of the law says that they should be(?)
I wonder what is wrong with the USA's economy, because the FED is printing dollars like never before to provide liquidity to the economy and still cities have to fall back to initiatives like this one to keep their local economies going.
Where did all the dollar liquidity of those cities run away to?
In the US, almost every of the 50 states must balance their budgets. They can't spend what they don't have without selling debt (municipal bonds that pay interest). They can't manufacture money as that is handled at the Federal level.
Sure, but the FED money is going somewhere in the USA. Either to banks or other companies. Those companies are located in states. So eventually the FED money flows to those 50 states.
But it apparently doesn't reach local companies and people, or maybe it does but then it quickly leaks away again.
I wonder why that is.
Not sure where they are getting the wir-currency facs from. But they are definately wrong about 1/5th of swiss companies using it. 60‘000 members of wir (private&company) versus ~600‘000 businesses in switzerland cant match up with that statement.
This seems like a horrible idea. How does nobody realize that you can't just "will" a currency into having value? A piece of paper won't produce value... At least bitcoin gains it's value from traders buying USD with BTC.
Local councils can create some value by allowing people to pay council taxes, fees and fines with the issued currency. Enough to peg it 1:1 with the USD? I'll be honest, I don't know how countries like panama manage that, so hell if I know how a council would do it.
Fundamentally, this is what underwrites the US dollar as well. If you don't pay your taxes you (eventually, provided you aren't connected enough to avoid it) get arrested. You can generate your wealth in corn or software or boat building, but you have to pay your taxes in US dollars. You can't barter your boats for corn and pay your taxes in corn. Thus, (almost) everyone in the US needs some US dollars to avoid being jailed. This is the foundation upon which the value of the US dollar is built.
Of course, making sure it doesn't blow up in the councils face in a few months/years time due to lax issuing controls is a different matter.
I suspect there may be a psychological effect giving these currencies value as well, considering they've only been rolled out in small towns. Imagine living in a 2000 population town like in the article where everyone is socially connected. If you refused local currency because you doubted its future value, your business could very quickly become a local pariah.
Taxation is necessary to maintain the value of currency when dealing with a country of millions of people, but somewhere on the sliding scale as the population numbers we deal with decrease social factors outweigh purely economic factors. One of the biggest impacts modern capitalism has on human society is its ability to strip away all social considerations from financial decisions. In the premodern world your shopkeeper was also your neighbor, and every transaction was filled with social considerations like your relative wealth, recent hardship, or length of acquaintance. In the modern world, everything has a fixed price regardless of whether the buyer is a foreign stranger or childhood friend. Only by stripping away messy individual social connections does trade among 7 billion people operate efficiently.
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I think local currency can function similarly. A lot of people in small towns struggle to turn their skills into dollars, partly because the modern economy values a lot of stuff rather weirdly. Just because their skills aren't easily translatable into dollars globally doesn't mean that they can't still make their local community a much better place, provided there's a way for someone in the local community to communicate that they value the service (which they can't do using dollars, because they also don't have any).
"Stimulated the economy" is a choice way of looking at it. What it did was create a period of inflation on a scale of size and duration never before seen. It basically led to the decline of Spain as a major world power.
https://en.m.wikipedia.org/wiki/Price_revolution
The Asian thirst for precious metals was driven by high internal use of coinage where for Europe, it was mostly to buy things from Asia. As the European gold balances dropped, they sought other sources from Africa and later from the Americas to continue trade.
You can learn more here: https://en.wikipedia.org/wiki/Great_Bullion_Famine
If you're really interested, I recommend "Debt" by David Graeber
The Deficit Myth: https://www.amazon.com/Deficit-Myth-Monetary-Peoples-Economy... (not an affiliate link)
A good MMT primer seems to be a Vox article by Dylan Matthews (TIL he's the son of Jim Matthews, creator of the Fetch FTP client), at https://www.vox.com/future-perfect/2019/4/16/18251646/modern...
https://en.wikipedia.org/wiki/W%C3%B6rgl
When money leaks out, it leaks in to somewhere else. Sort of like connecting bodies of water will lower the water level of one body and raise it in another. One place will lose out and another will gain.
Unless differences in local taxation/laws/amenities/other lead to wealth/poverty hotspots. With some areas vacuuming up wealth and others repelling it. Is that what this is really solving? Unable to compete on local taxation/laws/amenities/other, cities have to find another way to prevent their wealth being repelled.
Sounds like just another wall though. Which can surely never last
Well, yes; this is standard velocity of money stuff. It is detrimental to the economy to hoard money, and even more in a ""hard money"" situation to hoard the hard money, whether that turns out to be gold and silver or just dollars in a collapsing non-dollar country.
But if you try to close the economy as a result you end up with mercantilism, and having to forgo all sorts of opportunities for cheaper, better products because you have to buy from the local entrenched elite producers instead.
Plus it basically doesn't work in the oil age for most countries because they have to import oil.
Where do you draw the boundaries? Is money leaking outside the globe?
Deleted Comment
They are a monetary solution sent in to fight financial problems. The solution to those problems usually lies outside issuing your own money; it instead compounds your problems. There’s probably a case to be made for them if you could find and administer an optimal currency area, which is a monumental challenge.
For instance, it's possible that a currency based on long chains of debt is prone to massive blow-ups. That's modern day fiat currency. In contrast, cryptocurrencies like Bitcoin are not based on debt.
> Come up with a currency anyone can create and there you have a real disruption.
If I've understood you correctly, something like that does exist. See Ethereum and its ERC-20 tokens.
Here's an interesting one, an attempt at decentralized UBI where each individual gets issued individual "coloured coins" and participants accept currency based on a web of trust: https://handbook.joincircles.net/about/whitepaper.html
I think this direction is very worth exploring. Today fiat currency is generated through creation of debt between banks. Most cryptocurrency is generated through validation of transactions (be it PoW or PoS). The idea of moving currency minting down to individuals in a way that can maintain a sustainable inflation is very attractive to me. The really hard part is squaring the triangle of no privileged centralized parties with censorship capabilities while neither being vulnerable to sybil attacks or locking out disenfranchised minorities from the economy.
Circles is the only serious attempt at that I've seen and I'd love to see more innovation and critical analysis in this venue.
Indeed. One of the most bizarre arguments coming from the crypto-world is "there's a finite amount!". Why would you want your currency to be limited?
Why? Anyone can make their own currency. Whether electronic or quite literally, on a printer. No one's going to take it.
It's a bit of a hard read, but the author proves that Bitcoin is pushed by far right activists who have extreme views of how money should work.
Though I don't think I'd like the top BTC whales of today to effectively run the global economy.
In real USD.
https://www.irs.gov/newsroom/four-things-you-should-know-if-...
Where did all the dollar liquidity of those cities run away to?
https://www.ncsl.org/research/fiscal-policy/state-balanced-b...
But it apparently doesn't reach local companies and people, or maybe it does but then it quickly leaks away again. I wonder why that is.
Dead Comment
Fundamentally, this is what underwrites the US dollar as well. If you don't pay your taxes you (eventually, provided you aren't connected enough to avoid it) get arrested. You can generate your wealth in corn or software or boat building, but you have to pay your taxes in US dollars. You can't barter your boats for corn and pay your taxes in corn. Thus, (almost) everyone in the US needs some US dollars to avoid being jailed. This is the foundation upon which the value of the US dollar is built.
Of course, making sure it doesn't blow up in the councils face in a few months/years time due to lax issuing controls is a different matter.
Taxation is necessary to maintain the value of currency when dealing with a country of millions of people, but somewhere on the sliding scale as the population numbers we deal with decrease social factors outweigh purely economic factors. One of the biggest impacts modern capitalism has on human society is its ability to strip away all social considerations from financial decisions. In the premodern world your shopkeeper was also your neighbor, and every transaction was filled with social considerations like your relative wealth, recent hardship, or length of acquaintance. In the modern world, everything has a fixed price regardless of whether the buyer is a foreign stranger or childhood friend. Only by stripping away messy individual social connections does trade among 7 billion people operate efficiently.