This January it was my privilege to be invited to visit Grassroots Economics Foundation (GrE) in Kenya, a project which has inspired me since I first met founder Will Ruddick at a conference in 2011. The trip was generously funded by the One Project which supports and promotes his work in various ways.
The visit afforded us lots of time to understand each other better after years of fragmented chat. I also got to meet some of the microentrepreneurs and community leaders who actually implement the Community Asset Vouchers (CAV) schemes.
The tribes living on the Kenyan coast have a tradition of rotational labour, in which groups assemble around single type of activity, such as agriculture, or building, and the members work for each other in turn. This practice has severely eroded in the last generation, owing to factors like the mechanisation of farming, and the growing role of the financialised economy. It survives in the countryside, but in the cities has been largely superseded by the rotational savings schemes which have become a pillar of the Kenyan 'real' economy.
Grassroots Economics has been helping small networks of entrepreneurs increase their circulation by issuing vouchers for circulation between them and around the community for some years. Now it seems the vouchers are being integrated into these more traditional mweria circles. Vouchers support the mweria by giving it a reliable and verifiable way of remembering how much each person has worked for the others; instead of writing it in a book, they transfer tokens using the app. But it is better than a mweria because it enables local business outside the mweria to give and receive from the group as a whole - without using scarce money.
I regard this whole system as a fundamentally monetary innovation. It resembles how Britain and USA worked in for much of the 19th Century, when any respectable business could pay with their own credit i.e not guaranteed by the state. But Will regards the very notion of money as a tool of oppression, recalling the hut taxes imposed by the British to force the natives to labour for them. A practice which, arguably, continues to this day.
I view a credit/debt as an ancient type of contract between named parties which unfortunately became, in the capitalist milieu, a 'bearer instrument' where the bearer was anonymous. This allowed credit to circulate much more widely but severed the trust between creditor and debtor, replacing it with the courts. When the creditor is bound to the debtor, their interests are aligned towards the success of the investment and repayment of the debt. But when the creditor is merely the 'bearer' he can simply sell the voucher for cash at the first sign of trouble, there's no partnership.
Will has a different view altogether, because for him money is a colonial relic. If a person makes a commitment to produce and deliver goods and services, that commitment is a thing, which has value within that social system. It has even more value if others in the community back up that commitment and sign their names to it. That moment of formalisation is when commitments become Community Asset Vouchers which the community is willing to exchange for goods and services, trusting that they can get something for it later.
It gets interesting for me when the vouchers change hands leave the hands of the issuer or issuers and change hands at a discount. The discount mostly is a compensation to the bearer for bearing the risk of issuer default. I understand that differential discounting of each issuer's credit is a real drag on circulation, because the variable price is an extra risk, and because the credit of each issuer requires that the bearer do due diligence. It was for such reasons that eventually governments intervened to regulate credit issuance and stand behind all bank credit.
GrE tried this 'free market' approach for a while, but eventually just made a recommendation that all members exchange all vouchers at their national currency face value, because it was easier. This seems to be working quite well, at least if the accelerating uptake of the system is an indicator. Because GrE advises that vouchers are strongly backed, defaults are vanishingly rare and the 1:1 exchange rate is working. With my colonial monetary spectacles on it seems to me that this agreement effectively makes CAVs into a single currency with multiple issuers - which is a historically unusual configuration.
">
The image above shows local community groups trading amongst themselves and between each other. It shows how the different tokens churn around the system. This can present a problem because each producer should ideally be paid in their own vouchers, which means the vouchers need to find their way from whoever accepted them to whoever will redeem them.
In monetary terms this would be accomplished by an exchange or network of exchanges or brokers. Will frames it differently though. He has adapted a type of smart contract called an automated market maker which revolutionised cryptocurrency exchange in 2016 by holding pools of assets and offering to exchange them (at a price it determines) with the public. He calls this a 'commitment pool' because it holds commitments / vouchers from various issuers, makes them available for others in the community to swap, probably for a small fee. Those fees could offset the demurrage fee in the same way that interest on bank deposits can offset inflation. Pools have another function which is to encourage people to hold a wide variety of vouchers and thus spread the default risk.
A smart contract implementing the protocol has been published. It defines a protocol for exchange which would allow the building of a network of configurable but compatible exchanges. Will reasons that any exchange could be configurable in these ways:
- The 'Curation Interface' determines the target selection of vouchers in the pool. The pool would name the vouchers it was prepared to hold and the optimum proportion of each.
- The 'Depth Interface' refers to the maximum number of each type of voucher allowed in the pool. This limits the pools exposure to individual vouchers.
- The 'Ratios/prices Interface' is a price list. The prices can be fixed or determined dynamically in code, typically to help restore the balance of vouchers Will calls this a 'relative value index', and points out that the list itself can serve as a better unit of account, a vector unit of account.
- The 'Business logic' determines the transaction fees, commissions, and could even potentially block some transactions if desired.
I hope the reader can now see why I was so pleased to be able to observe Will's work in depth, and so grateful for the opportunity. This post only covers what was new to me but there there's much more to his thinking and currency design in Will's blog and various papers authored along the way. I hope everyone aspiring to create new media of exchange will take inspiration from his example. I explored the ideas in this post much more deeply in my new paper, Constructing systems of exchange.
Comments