it to abandon its paper notes and go electronic. The result would be something very similar to the Liquidity Network system that Graham Barnes describes in the next article.
New variants of another type of user-created currency, the Local Exchange and Trading System (LETS) started by Michael Linton in the Comox Valley in British Columbia in the early 1990s, are likely to be launched. Hundreds of LETS were set up around the world because of the recession at that time but unfortunately, most of the start-ups collapsed after about two years. This was because of a defect in their design: they were based on debt but, unlike the present money system, had no mechanism for controlling the amount of debt members took on or for ensuring that debts were repaid within an agreed time. Any new LETS-type systems that emerge are likely to be web-based and thus better able to control the debts their members take on. As these debts will be for very short periods, they should not be incompatible with a shrinking national economy.
Complementary currencies have been used to good effect in times of economic turmoil in the past. Some worked so well in the US in the 1930s that Professor Russell Sprague of Harvard University advised President Roosevelt to close them down because the American monetary system was being “democratized out of [the government’s] hands.” The same thing happened to currencies spent into circulation by provincial governments in Argentina in 2001 when the peso got very scarce because a lot of money was being taken out of the country. These monies made up around 20% of the money supply at their peak and prevented a great deal of hardship but they were withdrawn in mid-2003 for two main reasons. One was pressure from the IMF, which felt that Argentina would be unable to control its money supply and hence its exchange rate and rate of inflation if the provinces continued to issue their own monies. The other, more powerful, reason was that the federal government felt that the currencies gave the provinces too much autonomy and might even lead to the breakup of the country.
4. New Ways to Borrow and Finance
The regional monies mentioned above will not be backed by anything since a promise to pay something specific in exchange for them implies a debt. Moreover, if promises are given, someone has to stand over them and that means that whoever does so not only has to control the currency’s issue but also has to have the resources to make good the promise should that be required. In other words, the promiser would have to play the role that the banks currently perform with debt-based money. Such backed monies would not therefore spread financial power. Instead, they could lead to its concentration.
Even so, some future types of currency will be backed by promises. Some may promise to deliver real things, like kilowatt hours of electricity, just as the pound sterling and the US dollar were once backed by promises to deliver gold. Others may be bonds backed by entitlements to a share an income stream, rather than a share of profits, as Chris Cook describes in his article in this book. Both these types of money will be used for saving rather than buying and selling. People will buy them with their regional currency and either hold them until maturity if they are bonds, or sell them for regional money at whatever the exchange rate happens to be when they need to spend.
These savings currencies could work like this. Suppose a community wanted to set up an energy supply company (ESCo) to install and run a combined heat and power plant supplying hot water for central heating and electricity to its local area. The regional currency required to purchase the equipment could be raised by selling energy “bonds” which promise to pay the bearer the price of a specific number of kWh on the day they mature. For example, someone could buy a bond worth whatever the price of 10,000 kWh was when that bond matured in five years. The money to redeem that bond would come from the payments made by people buying energy from the plant in its fifth year. The ESCo would also offer other bonds with different maturity dates and, as they were gradually redeemed, those buying power from the ESCo would, in fact, be taking ownership of the ESCo themselves.
These energy bonds will probably be issued in large denominations for sale to purchasers both inside and outside the community and will not circulate as money. However, once the ESCo is supplying power, the managing committee could turn it into a bank. It could issue notes for, say, 50 and 100 kWh which locals could use for buying and selling, secure in the knowledge that the note had real value as it could always be used to pay their energy bills. Then, once its notes had gained acceptance, the ESCo could open accounts for people so that the full range of money-moving services was available to those using the energy-backed units. An ESCo would be unlikely to do this, though, if people were happy with the way their regional currency was being run. Only if the regional unit was rapidly losing its value in energy terms would its users migrate to one which was not.
Conclusion
Up to now, those who allocated a society’s money supply by determining who could borrow, for what and how much, determined what got done. In the future, that role will pass to those who supply its energy. Only this group will have, quite literally, the power to do anything. Money once bought energy. Now energy, or at least an entitlement to it, will actually be money and energy firms may become the new banks in the way I outlined. This makes it particularly important that communities develop their own energy supplies, and that if banks issuing energy-backed money do develop, they are community owned.
As energy gets scarcer, its cost in terms of the length of time we have to work to buy a kilowatt-hour, or its equivalent, is going to increase. Looked at the other way round, energy is cheaper today than it is ever likely to be again in terms of what we have to give up to get it. We must therefore ensure that, in our communities and elsewhere, the energy-intensive projects required to provide the essentials of life in an energy-scarce world are carried out now. If they are not, their real cost will go up and they may never be done.
Working examples of both backed and unbacked forms of modern regional and community monies are needed urgently. Until there is at least one example of a non-debt currency other than gold working well somewhere in the world, governments will cling to the hope that increasingly unstable national and multinational debt-based currencies will retain their value and their efforts to ensure that they do will blight millions of lives.
Moreover, without equitable, locally and regionally controllable monetary alternatives to provide flexibility, the inevitable transition to a lower-energy economy will be extraordinarily painful for thousands of ordinary communities, and millions of ordinary people. Indeed, their transitions will almost certainly come about as a result of a chaotic collapse rather than a managed descent and the levels of energy use that they are able to sustain afterwards will be greatly reduced. Their output will therefore be low and may be insufficient to allow everyone to survive. A total reconstruction of our money-issuing and financing systems is therefore a sine qua non if we are to escape Vesuvius’ flames.
Endnotes
1. William R. Clark, Petrodollar Warfare: Oil, Iraq and the Future of the Dollar, (New Society Publishers, 2005), p. 31. See books.google.com/books?id=q6efPwhWIHUC&pg=PA31&lpg=PA31&dq=”us+saudi”+arabian+joint+commission+on+economic+cooperation+in+june+1974&source=web&ots=1hDQ7lQDEL&sig=ukyrXqNPUAhGdZaO155oC95sD-M#v=onepage&q=%22us%20saudi%22%20arabian%20joint%20commission%20on%20economic%20cooperation%20in%20june%201974&f=false.
2. Qiao Liang and Wang Xiangsui, both colonels in the Chinese army, wrote a book, Unrestricted Warfare, which appeared on the internet in English 1999 about strategies China could use to defeat a technologically superior opponent such as the United States through a variety of means including currency manipulation. Extracts from the book can be found at cryptome.org/cuw.htm.
3. Yanhui Zhang, Debt Crisis in the Third World (2003). See grin.com/e-book/39036/debt-crisis-in-the-third-world.
