Complementary Currency

Notes on a Complementary Currency for Philanthropy

November 25, 2001

Tom Munnecke

"If one stops to think about it, money is a fascinating phenomenon. Imagine a Martian landing in a poor neighbourhood and seeing rundown communities, people sleeping in the streets, children without mentors or going hungry, trees and rivers dying from lack of care, ecological breakdowns and all of the other problems we face. He would also discover that we know exactly what to do about all these things. Finally, he would see that many people willing to work are either unemployed, or use only a part of their skills. He would see that many have jobs but are not doing the work they are passionate about. And that they are all waiting for money. Imagine the Martian asking us to explain what is that strange "money" thing we seem to be waiting for. Could you tell him with a straight face that we are waiting for an "agreement within a community to use something - really almost anything - as a medium of exchange"? And keep waiting?” (Bernard Lietaer, in The Future of Money)

This paper presents some concepts for creating a complementary currency to support the activities of GivingSpace. This currency is called the Philo, after the Greek prefix for love, dear,or friend. It can be found in philanthropy (love of humanity), philosophy (love of wisdom), and philology (love of learning and literature).

Philos could be considered to be a kind of “frequent flier program” for philanthropy.

“Money has evolved from shells to green paper to the artful arrangement of binary digits.” said Dee Hock, founding CEO of Visa International.

Bernard Lietear presents a way to more closely relate our values and our currency – the use of “complementary currencies” to supplement traditional currency. For example, airline’s frequent flier programs are a form of complementary currency which create value and customer loyalty.

Trust is integral to currencies. People who exchange goods and services for a dollar, for example, trust that they will be able to exchange the dollar with someone else. The value of the currency fluctuates, at least in part, with the amount of trust a community has in it. A dollar bill says, “This note is legal tender for all debts, public and private” but that is all.

If there were not a sufficiently large community of people who trusted that the dollar had value, the value of the dollar would plummet. On the other hand, this trust is subject to the law of increasing returns: the more people trust the currency, the more trustworthy it becomes for others to trust.

• A complementary currency is based on the same principle: There must be a community of people who trust the currency. The more people trust it, the more attractive it becomes to others, which in turn creates additional trust.
• A complementary currency thus becomes a perfect adjunct to a space which seeks to encourage trust and community relating to philanthropic activity. It becomes a key component of a global “virtuous circle” fueled by Internet connectivity to stimulate trust, community, and transformational activity.

How can Complementary Currencies be Used?

Complementary currencies can be used in a variety of ways. For example, Lietaer states:

1 Complementary currencies make possible transactions and exchanges that otherwise would not occur…in one survey, more than half the people [using a complementary currency] started to provide services as a direct result of the availability of the complementary currencies in their community.

2 This additional work and wealth is being generated where it is most needed without the need for taxes, government bureaucracy, and without creating the risk of inflation in the mainstream economy. Note that this is additional wealth, not the redistribution of existing wealth. Therefore complementary currencies are not a new form of welfare. Welfare is a compulsory transfer of resources from the rich to the poor via taxes. In contrast, the use of complementary currencies is voluntary for everyone; it creates new wealth, and – once started – becomes a completely self-funding mechanism to address many social problems without requiring permanent subsidies or taxes.

3 Complementary currencies make not only social sense, but also business sense. They enable locally owned businesses to compete better against large chain distribution systems… in this sense, complementary currencies can also contribute to make the local economy more self-reliant, a modest but healthy counterweight to the relentless globalization of the economy.

The Internet is a perfect technology for creating complementary currencies:

“It happens that some characteristics of the Net make it an ideal space where community-supporting currencies could happily thrive next to traditional national currencies, enabling a new symbiosis between the two approaches. Because Internet offers unlimited “space” and transcends natural and cultural boundaries, the electronic marketplace need not be limited to one exclusive currency system. New synergies between virtual communities and local communities would become possible, improving quality of life of the participating Netizens.”

How the Philo Might Operate

Philos could be earned by donors as they participate in GivingSpace activities . The currency would be closely related with the GivingSpace trust and reputation management system. Those who had a high reputation within a given community could find that their donations were matched by others. Foundations may offer matching grants to stimulate personal involvement in philanthropy, or others who respected a particular individual’s activities and track record. A person with a large cache of Philos may “piggyback” on a newcomers to GivingSpace to encourage their giving by matching their contributions.

A donor would thus be recognized by the total number of Philos earned (equivalent to the way that frequent fliers track their total mileage) as well as their GivingSpace “leverage:” the multiplier effect on their donation activity. Highly trusted and respected donors, for example, may find that their donations are matched 10 to one. This leverage factor of 10 would mean that every dollar they give is matched by 10 others from foundations and “admirers.”

Mr. Jones, private philanthropist, would be able to brag at cocktail parties about having reached the One Million Philo Level (the sum total of his leveraged giving), and that his current GivingSpace leverage rose from 7.9 to 9.7 last month.

Philos could be earned, saved and spent on philanthropic activities by GivingSpace donors. They could be earned by donations of time, materials, or volunteer activities. Neighbors who heard of his achievements would be motivated to keep up with Mr. Jones by launching their on GivingSpace activities, looking for particularly transformational opportunities which, if successfully invested in, would increase their leverage.

Donors would study the patterns of transformation database to learn which patterns have been successful in the past, in what contexts, and with “lessons learned”. They would look to find opportunities to apply patterns to recipients. As they became more adept at this and their reputation climbed, they would find their leverage factor increasing. They may find that some foundation has “piggybacked” on them, offering to bump their leverage because of past successes or contributions. This would create a self organizing, self propagating virtuous circle.

Philos could also be earned and spent by recipients. For example, a women’s microcredit group in Nepal could earn Philos by teaching women in a nearby village how to run a credit coop. In turn, they may be able to exchange these Philos for other activities. They too, may find that their Philos have been leveraged by others.

A foundation may decide to offer matching funds for local Nepalese women who have earned Philos for their local efforts. This too, creates a virtuous circle for “recipients,” although now the relationship between giver and taker has become blurred into a state of mutuality and community, rather than one-way flows. Others could earn Philos by participating in conservation or reforestation projects, for example, teaching public health, or other community activities.

GivingSpace donors reading a newspaper report about a particular issue may wish to respond. Perhaps the newspaper published GivingSpace icons in the printed article, or perhaps a third party would create “shadow” icons to match the news releases.

Donors could click on the articles’ GivingSpace icon, and scan a list of possible recipients who are actively working to improve the situation. The donor would select one or more recipients, and contribute some Philos. This donation would be matched by the appropriate matching contributions from foundations and other individuals.

The more donors give, the more leverage they accumulate. The more trustworthy they prove themselves to be, the more powerful their contributions. Foundations seeking to invest their funds wisely would offer GivingSpace leverage, knowing that their matching funds were “piggybacking” individuals who were voting with their own money, and had earned a specified level of trust.

An Example

Betty is the departmental administrative assistant who seems to know everyone. She leads the holiday food drives, and is always involved with some charity or another, with a donation jar on her desk. She is trusted by everyone, and they know that she is quite choosey about what charities to support. They see her after work, loading the food drive collection in her car, and she fairly glows when she tells everyone how much they have contributed.

When Betty becomes active in GivingSpace, that trust relationship is continued and enhanced. People are free with their donations, and, trusting Betty to use them wisely, “piggyback” on her decisions. Her leverage soars to 20, the point where for every dollar she donates, her peers will donate $19.

After a year or so, she notices that foundations also contribute. Because she has maintained a high trust level for over a year, the foundation’s screening software selects her as a likely candidate for supporting. Suddenly, she sees her leverage climb to 50, as she is able to direct funds from the foundation.

In fact, her “superstar” status has attracted so much attention that the “spotlight overflow” mechanism kicks in. Since she has not yet earned leverage privileges above 50, other donors wishing to “piggyback” on her decisions are given the option of diverting to someone else.

All of her colleagues congratulate her for her philanthropic power. They also realize that because they have pulled together to support Betty, their donations go further, too. They increase their level of participation, and Betty’s ability to make decisions grows and grows.

Note the “win-win” effects of all this. Everybody participates out of their own self interest, and in so doing, creates additional value for everyone else to participate. This “autocatalytic” effect triggers a feedback loop, making the system ever larger with ever greater participation. Note that donors are not locked into the “Thank you for your donation/please send more money” dynamics of fundraising, but rather guide and increase their donation based on the “transformational energy” and trust-raising process.

The positive loop is:

• Betty is able to increase her effectiveness as a stimulus and coordinator of charitable activities, one of her fondest ambitions
• Her colleagues in the department feel that their charitable contributions are being effectively used, and they feel a sense of community as Betty’s leverage attracts attention of others.
• The foundations are able to distribute funds at the “grass roots” levels, with confidence that they will be used in a conscientious way. Because they are matching the decisions made by people spending their own money, they feel that their money is being spent wisely. They are happy to see more people become involved in philanthropic activities, and feel that their contributions provide a fresh stimulus for new donors to participate.
• Susan down the hall, hearing all the commotion, begins her own efforts to involve her department in GivingSpace activities. Another pool of donors is formed, who expand GivingSpace to even more activity, and the cycle refreshes itself.

Another Example

• Juanita is a mother of five living in Guatemala. She has successfully learned to sew and received a loan from a micro credit group. If she were able to buy more fabric, she could make even more money, but her cash flow is tight. She discovers that she can earn Philos to buy fabric if she teaches others in her village how to sew. (A foundation has granted funds to match local initiative activities.) She teaches some classes, a local caseworker awards her the Philos, and she is able to expand her sewing business. Because there are more women in the village doing sewing now, they find it easier to sell their goods, transport them to market, and get materials.

This too is a win-win situation. Each is acting according to their own self interest, and in so doing, improves the entire community. This triggers a positive feedback loop, just like Betty’s example above. Juanita has increased the supply of donor opportunities, and increased the reputation of the “sewing machine” pattern as well as “teach a peer” pattern for village development. These lessons and reputations are captured and applied in other forms of self-organizing village growth models, as villagers come up with an ever growing number of ways to organize themselves, create donor opportunities, and build trust.

• Juanita gets the financial boost she needs by earning Philos by teaching others. She also gets the satisfaction of helping others in her community.
• The other villagers Juanita teaches learn a skill, and are able to apply for a loan for a sewing machine for themselves. They see Juanita as a role model, further enhancing Juanita’s leverage and reputation within GivingSpace.
• Foundations are able to invest their funds at the small scale, grass root level without micromanaging the process. They are able to monitor the success of their distributions based on the reputations earned They, too are surprised at the novelty and ingenuity employed by villages as they are turned loose to develop their own activities and ideas for growth. They discover that good news travels quickly, and other villages who have heard of the process are inventing their own growth path.

Will People Really Give Without Being Pressured?

There are those who will be cynical about these processes, saying that people will not spontaneously give without a “pitch,” through the mail, media, or telephone call. However, as we have seen with regard to World Trade Center outburst of charitable giving, people are spontaneously generous. What is lacking is the feedback mechanism. People need to feel that their contributions made a difference and that they are participating in a trusted community.

As people develop greater trust and greater community, they will discover for themselves the power of philanthropic activity. Each will develop an individual style of giving, risk, communication, and feedback. There will be mistakes, but the reputation and trust system will eventually filter these out.

Someone will fund a well, forgetting to fund the maintenance and electricity for it. Others will see the “donate a well” pattern of giving will include a “lessons learned’ section which helps future donors avoid the same problem. (The person who wrote the lessons learned report, incidentally, earned additional Philos for the effort, and is rewarded with bonus trust points whenever future donors read his or her comments).

Some Questions:

• Could GivingSpace be the “central bank” for Philos?

  What does this mean, and how would it work. Is this legal? Are there international or anti trust issues involved?

• Could the value created by being the central bank fund the operation of GivingSpace?

  Could GivingSpace bootstrap itself as the central bank with only limited start up capital, using Philos to pay for its ongoing operation?

• Is there a smart way to do the bookkeeping of Philos?

  Could the currency be abused?

• Could Philos be counterfeited? Could the trust mechanism be grossly manipulated? Would it spin out of control, with wildly exaggerated leverage given to a few individuals? Could it inflate or deflate? Could it cause unintended negative consequences?

  How would the Philanthropic Markup Language (PML) use Philos?

• In defining an extensible markup language to serve as the linguistic underpinning of GivingSpace, how do we relate to Philos? Do we also handle other currencies?

  How would the currency work?

What are all the mechanisms required to create a complementary currency? How would these be accomplished, by whom, with what responsibility?

Is “Philo” a good name?

Is it already copyrighted? Does it have excessively negative connotations in any language or religious group? Are the benefits of creating a complementary currency worth its cost?

Could the same results be accomplished by ignoring the currency issue altogether? Could their operation be made simple and comprehensible to the average person? Is this idea even feasible?

This is just a proposal for a concept, with no reference to real working systems of similar operation.

Currency Links

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