Choosing Mechanisms: Issuing Procedures
Mixed processes: Some systems combine features of various issuing
approaches described above. For example WIR is issued both as mutual credit and
from a central office with legal collateral. Or some social purpose complementary
currencies are also accepted in partial payment by local businesses as a loyalty
currency.
Advantages and Disadvantages of Issuing Procedures
Here again, one can identify some advantages and disadvantages for each one
those systems. There tends to be a systematic trade-off between the ease of
creating the currency and the effort needed to gain and maintain its credibility. An
appropriate balance between these two objectives is a key decision for a robust
currency design.
All things being equal, as one goes down the above list of the different ways to
issue the currency (from Backed Currencies to Central Distribution), it becomes
easier for its participants to create the currency; but it requires simultaneously more
discipline to maintain the currency’s credibility.
Currencies that have a legally enforceable collateral (as is supposed to be the case
for the majority of the national currencies issued), currencies that are fully backed
by a good or service that is in broad demand, or that are purchased and backed
with national currency have logically an easier time to gain credibility. But on the
downside, often the very people who don’t have the necessary collateral or cash
are also those for whom a complementary currency would be most beneficial.
Loyalty currencies have as backing mainly the reputation of the businesses that
issue them.
Mutual credit has as significant advantage that the quantity of money created is by
definition always perfectly matching its need. There are also no risks of inflation in
mutual credit systems. In contrast, the problem of over-issuing is the biggest risk
run by currencies that are created by borrowing without collateral, or by central
issue. It is important with these latter models to cautiously control the quantity of
currency issued, otherwise its depreciation and risk of loss of credibility is a
predictable outcome.
1 During the month of December 2001, Argentina went into a financial meltdown: all of the banks were
closed for months and people were not allowed to access their bank deposits. During the summer of
2002 an estimated 7 million people were using the complementary currency on a regular basis. By
November of that same year, however, the trueque movement had shrunk back to about 70,000
participants, roughly a 90 % drop. What happened? The short answer is that the Credito system was
abused by unscrupulous leaders, who over-issued the currency for their own personal benefit. From a
complementary currency design viewpoint, three key flaws can be detected:
1. The creditos were created as a fiat currency by a central authority.
2. There was a lack of transparency to its users, so that a central authority
could keep their accounting secret.
3. The creditos were primarily created as paper currency, without adequate
safeguards against counterfeiting.
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