Choosing Mechanisms: Cost Recovery
Cost Recovery Mechanisms
All payment systems cost some human effort to be kept in operation, and typically
also infrastructure expenses. While some may be able to be covered in the
complementary currency itself (typically labor), there is often a hard currency
component (computers, Internet service or telephone expenses) that need to be
covered one way or the other. When that aspect hasn’t been thought through, the
operation and maintenance of the currency system tend to gradually deteriorate,
service is provided in a haphazard way, with the consequence of slowly degrading
satisfaction of the users. In short, unless some income is generated to pay for the
work performed the system is probably not going to be sustainable in the long-run.
The first step is to make a clear separation of what costs need to be covered in
conventional money, and what part can be covered with the complementary currency.
There are two types of budgets to be made in each of these currencies: a start-up
and an on-going operation budget.
Next, the options to generate income are chosen, for each type of currency involved.
These options are limited, what follows is an exhaustive list.
No Recovery: The first option is not to recover any of the costs. For the
complementary currency component of the costs, most mutual credit systems simply
open an account for “general overhead” and the people doing work for the system,
are credited and this overhead account is debited.
For other systems, or for the conventional currency component, not recovering any
costs is sustainable only if the design of the system is such that no such costs are
incurred in the first place, or if there is a “sugar-daddy” organization that is willing to
either provide or raise the funds to make the system operational and keep it going.
Some peer-to-peer systems are actually designed to incur no costs, and therefore do
not need membership or recovery mechanism either. That is the case for instance
with the WAT system in Japan, based on bills of trade issued by businesses among
each other.
Flat Fee: The second classical option is to have a flat fee. That can be a periodical
membership fee (typically yearly or quarterly) or an entry fee that participants pay to
the central operation to be able to participate. In some cases, there are higher
membership fees for businesses than for individuals. This is usually done to cover the
conventional money component of the costs.
Transaction Fee: Transaction fees fall in two categories: those that are based on a
small percentage of the amount involved, and those that are a flat amount for each
transaction. They are typically levied at the moment of the transaction, although some
provide a monthly total instead. The transaction fees are normally levied in the same
currency of the transaction itself.
Interest, demurrage, and other time related charges: In the section on store of
value we discussed the issues around interest, demurrage, step functions, or
expiration deadline currencies. Of course, such time related charges produce an
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