domain operations Commons: 4/5

Complementary Currencies

Also known as: Community Currencies, Local Currencies, Alternative Currencies

1. Overview (150-300 words)

A complementary currency is a medium of exchange that operates alongside a national currency, rather than replacing it. These currencies are created and used by communities, organizations, or businesses to achieve specific social, economic, or environmental goals that are not adequately addressed by the conventional monetary system. The use of complementary currencies is based on mutual agreement among participants and they are typically not classified as legal tender. The primary purpose of these currencies is to stimulate local economies, foster community resilience, and encourage more sustainable and equitable forms of exchange. By creating alternative circuits of exchange, complementary currencies can help to unlock underutilized resources, promote local production and consumption, and build stronger social connections within a community. The concept of complementary currencies is not new, with historical precedents found in various forms throughout history. However, the modern movement gained momentum in the latter half of the 20th century, driven by a growing awareness of the social and environmental consequences of the dominant financial system.

2. Core Principles (3-7 principles, 200-400 words)

  1. Supplementarity, Not Substitution: Complementary currencies are designed to work in parallel with and supplement national currencies, not to replace them. They fill gaps and address needs that the mainstream monetary system often overlooks, such as fostering local economic activity, valuing non-traditional work, and promoting social cohesion.

  2. Voluntary and Agreement-Based: Participation in a complementary currency system is entirely voluntary. The value and acceptance of the currency are based on a mutual agreement and trust among its users. This bottom-up approach ensures that the currency is responsive to the needs and values of the community it serves.

  3. Purpose-Driven Design: Unlike conventional money, which is typically neutral and all-purpose, complementary currencies are often designed with specific objectives in mind. These objectives can range from strengthening local economies and promoting environmental sustainability to supporting social care and community development. The design of the currency, including its issuance, circulation, and governance, is tailored to achieve these specific goals.

3. Key Practices (5-10 practices, 300-600 words)

  1. Local Exchange Trading Systems (LETS): LETS are community-based, non-profit networks where members can exchange goods and services using a locally created currency. These systems typically use a central online accounting system to track transactions, and the currency is often backed by the members’ own promises to provide goods and services. LETS are designed to build community and strengthen local economies by keeping wealth circulating within the community.

  2. Time-Based Currencies (Time Banks): Time banks are a form of complementary currency where the unit of account is the person-hour. Participants earn credits by providing services to others and can then spend these credits to receive services from other members. Time banking is based on the principle that everyone’s time is equal, and it is often used to foster social networks, build community, and provide support for the elderly, the unemployed, and other vulnerable populations.

  3. Regional Currencies: These are currencies that are designed to circulate within a specific geographic region, such as a city or a bioregion. Regional currencies are often used to promote local businesses, reduce carbon emissions by encouraging local trade, and build a stronger sense of regional identity. Examples include the Bristol Pound in the UK and the BerkShares in the US.

  4. Business-to-Business (B2B) Credit Circuits: These are networks of businesses that use a complementary currency to trade with each other. These systems, such as the WIR Bank in Switzerland and Sardex in Sardinia, allow businesses to access credit and liquidity without relying on traditional banks. By creating a parallel credit system, these networks can help to stabilize the local economy and support small and medium-sized enterprises.

  5. Sectoral Currencies: These are currencies that are designed to be used within a specific economic sector, such as education, healthcare, or environmental services. For example, a currency could be created to reward people for engaging in environmentally friendly behaviors, such as recycling or using public transportation. These currencies can be used to incentivize desired behaviors and to create new markets for social and environmental goods.

4. Application Context (200-300 words)

  • Best Used For:
    • Community Economic Development: Strengthening local economies by encouraging local spending and supporting small businesses.
    • Social Inclusion: Providing a means for marginalized individuals and communities to participate in the economy and build social connections.
    • Environmental Sustainability: Promoting environmentally friendly behaviors and supporting the development of a green economy.
    • Resilience to Economic Shocks: Creating alternative economic networks that can provide a buffer against the volatility of the global financial system.
  • Not Suitable For:
    • Large-Scale, Cross-Border Trade: Complementary currencies are typically designed for local or regional use and are not well-suited for international trade.
    • Replacing National Currencies: They are intended to supplement, not replace, national currencies and are not a solution for fundamental monetary reform.
  • Scale:
    • Complementary currencies can operate at various scales, from small, neighborhood-based time banks to large, regional currency systems encompassing thousands of businesses and individuals. They can be applied at the level of individuals, teams, departments, organizations, multi-organizational networks, and entire ecosystems.
  • Domains:
    • Complementary currencies have been applied in a wide range of domains, including retail, food systems, healthcare, education, social care, and environmental services.

5. Implementation (400-600 words)

  • Prerequisites:
    • A Clear Purpose and Vision: A successful complementary currency system needs a clear and shared understanding of what it is trying to achieve.
    • A Committed Core Group: A dedicated group of individuals or organizations is needed to champion the currency and drive its development.
    • A Supportive Community: The currency needs to be embraced by a critical mass of users, including both individuals and businesses.
    • A Robust Governance Structure: A clear and transparent governance structure is needed to manage the currency and ensure its long-term sustainability.
  • Getting Started:
    1. Define the Purpose and Scope: Clearly articulate the goals of the currency and the community it will serve.
    2. Design the Currency: Determine the type of currency, its unit of account, how it will be issued and circulated, and its governance structure.
    3. Build the Network: Recruit a core group of users, including both individuals and businesses, to start using the currency.
    4. Launch and Iterate: Launch the currency and then continuously monitor its performance and make adjustments as needed.
  • Common Challenges:
    • Lack of Awareness and Understanding: Many people are unfamiliar with the concept of complementary currencies and may be skeptical of their value.
    • Building a Critical Mass of Users: A currency needs a sufficient number of users to be viable.
    • Ensuring Liquidity: There needs to be a sufficient supply of goods and services available for purchase with the currency.
    • Legal and Regulatory Hurdles: Complementary currencies may face legal and regulatory challenges in some jurisdictions.
  • Success Factors:
    • Strong Community Engagement: The success of a complementary currency depends on the active participation of its users.
    • A Diverse Range of Goods and Services: A wide variety of goods and services needs to be available to keep the currency circulating.
    • A User-Friendly Technology Platform: A well-designed and easy-to-use technology platform can greatly facilitate the use of the currency.
    • Collaboration with Local Government and Other Institutions: Support from local government and other institutions can help to legitimize the currency and promote its adoption.

6. Evidence & Impact (300-500 words)

  • Notable Adopters:
    • WIR Bank (Switzerland): Founded in 1934, the WIR Bank is one of the oldest and most successful complementary currency systems in the world. It serves over 60,000 small and medium-sized enterprises in Switzerland, providing them with a B2B credit system that helps them to weather economic downturns and access liquidity.
    • Sardex (Sardinia, Italy): Launched in 2009, Sardex is a B2B credit circuit that has helped to stimulate the local economy in Sardinia. The system has grown to include over 3,000 businesses and has facilitated millions of euros in trade.
    • Bristol Pound (UK): The Bristol Pound was a regional currency that operated from 2012 to 2021. It was one of the most successful local currency initiatives in the UK, with thousands of individuals and businesses participating. The currency helped to support local businesses and build a stronger sense of community in Bristol.
    • BerkShares (USA): BerkShares is a local currency that has been operating in the Berkshire region of Massachusetts since 2006. The currency is accepted by over 400 local businesses and has helped to keep wealth circulating within the community.
    • Fureai Kippu (Japan): Fureai Kippu, or “caring relationship tickets,” is a Japanese time-based currency that was created in 1995. The system allows people to earn credits by providing care for the elderly, which they can then use to receive care for themselves or their relatives. The system has been successful in promoting social care and building intergenerational solidarity.
  • Documented Outcomes:
    • Increased Local Economic Activity: Studies of complementary currency systems have shown that they can lead to an increase in local trade and economic activity. By providing an alternative means of exchange, these currencies can help to unlock underutilized resources and create new economic opportunities.
    • Greater Social Cohesion: Complementary currencies can help to build stronger social connections and a greater sense of community. By encouraging people to trade with their neighbors and support local businesses, these currencies can foster a sense of shared identity and purpose.
    • Support for Small and Medium-Sized Enterprises: B2B credit circuits like the WIR Bank and Sardex have been shown to provide valuable support for small and medium-sized enterprises, helping them to access credit and liquidity and to weather economic downturns.
  • Research Support:
    • A growing body of research has documented the social and economic impacts of complementary currencies. For example, a 2017 study by Fare and Ahmed found that complementary currency systems can foster social and economic changes. [1] Similarly, a 2013 study by Blanc and Fare highlighted the important role that governments and administrations can play in supporting the development of these currencies. [2]

[1] Fare, M., & Ahmed, P. O. (2017). Complementary currency systems and their ability to support economic and social changes. Development and Change, 48(5), 947-971.

[2] Blanc, J., & Fare, M. (2013). Understanding the role of governments and administrations in the implementation of community and complementary currencies. Annals of Public and Cooperative Economics, 84(1), 59-77.

7. Cognitive Era Considerations (200-400 words)

  • Cognitive Augmentation Potential: AI and automation can significantly enhance the efficiency and effectiveness of complementary currency systems. For example, AI-powered platforms could be used to manage the issuance and circulation of currencies, to match buyers and sellers, and to track the social and environmental impacts of the system. Machine learning algorithms could be used to analyze transaction data and to identify opportunities for optimizing the currency’s design and governance. Smart contracts on a blockchain could automate the execution of transactions and the enforcement of rules, reducing administrative overhead and increasing trust in the system.

  • Human-Machine Balance: While AI and automation can handle many of the technical and administrative aspects of a complementary currency system, the human element remains crucial. The design of the currency, the setting of its goals, and the building of the community of users all require human judgment, creativity, and social skills. The relationships of trust and reciprocity that are at the heart of many complementary currency systems cannot be automated. The role of humans in the cognitive era will be to focus on these higher-level tasks, while leveraging AI and automation to handle the more routine aspects of managing the currency.

  • Evolution Outlook: In the cognitive era, we are likely to see a proliferation of new and innovative complementary currency models that are enabled by AI and other emerging technologies. We may see the rise of

8. Commons Alignment Assessment (v2.0)

This assessment evaluates the pattern based on the Commons OS v2.0 framework, which focuses on the pattern’s ability to enable resilient collective value creation.

1. Stakeholder Architecture: Complementary currencies establish a clear stakeholder architecture of rights and responsibilities among their direct human participants, such as individuals and businesses. However, the framework is primarily anthropocentric; non-human stakeholders like the environment or future generations are treated as beneficiaries of human action rather than as stakeholders with inherent rights within the system. The system’s rules are designed by and for the current users, with less formal structure for representing the needs of the broader ecosystem or subsequent generations.

2. Value Creation Capability: This pattern excels at enabling collective value creation beyond purely economic measures. By design, complementary currencies foster social value through community building and trust, and can be targeted to generate ecological value by incentivizing sustainable behaviors. They create new circuits of exchange that make previously underutilized resources and skills (like in Time Banks) visible and valuable, thereby building a more holistic and resilient form of community wealth.

3. Resilience & Adaptability: The pattern is a powerful tool for enhancing resilience and adaptability. B2B credit circuits like the WIR Bank and Sardex have proven their ability to maintain economic coherence during financial crises by providing an alternative source of liquidity when conventional credit freezes. This capacity to create a parallel, counter-cyclical economic system allows communities and business networks to thrive on change and adapt to the stresses of the broader financial system.

4. Ownership Architecture: Complementary currencies inherently redefine ownership as a set of rights and responsibilities rather than just monetary equity. The “value” in the system is co-created and co-owned by the participants who agree to accept and honor the currency. This shifts the focus from private accumulation to collective circulation, where the responsibility to keep the currency flowing is as important as the right to spend it, fostering a sense of shared stewardship over the community’s economic well-being.

5. Design for Autonomy: The pattern is highly compatible with autonomous systems, DAOs, and distributed technologies. The underlying logic of rule-based, agreement-driven exchange can be easily encoded in smart contracts on a blockchain, reducing coordination overhead and increasing transparency. This allows for the creation of highly automated and scalable currency systems that can operate with a high degree of autonomy, governed by the rules embedded in their code.

6. Composability & Interoperability: Complementary currencies are highly composable. They can be combined with other patterns, such as cooperative ownership models, reputation systems, or governance frameworks like Sociocracy, to create more complex and robust value-creation systems. For example, a LETS could be integrated with a community land trust to manage shared resources, demonstrating the pattern’s ability to serve as a foundational layer in a larger architecture.

7. Fractal Value Creation: The logic of creating purpose-driven mediums of exchange is inherently fractal. It can be applied at the micro-scale of a small neighborhood time bank, the meso-scale of a regional business network, and potentially the macro-scale of transnational alliances. The core principles of valuing specific interactions and resources can be replicated and adapted to fit the unique context of each scale, from a team to an entire ecosystem.

Overall Score: 4 (Value Creation Enabler)

Rationale: Complementary Currencies are a strong enabler of collective value creation, providing a practical framework for communities to design their own economic relationships. The pattern excels in creating diverse forms of value, enhancing resilience, and is highly adaptable to new technologies like AI and blockchain. It scores a 4 because while it provides the tools for a new value architecture, its success is highly dependent on the specific design and implementation, and it does not inherently embed rights for non-human stakeholders.

Opportunities for Improvement:

  • Explicitly integrate non-human stakeholders (e.g., a river, a forest) into the governance and value-flow design, perhaps through DAOs or trusts that act on their behalf.
  • Develop standardized protocols for interoperability between different complementary currency systems to create a more liquid and resilient “network of networks.”
  • Embed dynamic feedback mechanisms, potentially using AI, to automatically adjust currency parameters (e.g., demurrage, issuance rate) to better achieve collective goals like carbon reduction or social equity.

9. Resources & References (200-400 words)

  • Essential Reading:
    • Lietaer, B. (2001). The Future of Money: From Monoculture to Diversity. The Future of Money provides a comprehensive overview of the history and theory of money, and makes a compelling case for the need for a more diverse and resilient monetary ecosystem.
    • Glover, P. (2013). Hometown Money: How to Enrich Your Community with Local Currency. This book is a practical guide to creating and managing local currencies, with a wealth of examples and case studies from around the world.
    • North, P. (2010). Local Money: How to Make it Happen in Your Community. This book provides a step-by-step guide to launching a local currency, with a focus on the practical challenges and opportunities of community-based economic development.
  • Organizations & Communities:
    • The Social Trade Organisation: The Social Trade Organisation is a global network of complementary currency systems that promotes the use of these currencies for social and environmental goals.
    • The International Journal of Community Currency Research (IJCCR): The IJCCR is a peer-reviewed academic journal that publishes research on all aspects of complementary currencies.
  • Tools & Platforms:
    • Cyclos: Cyclos is an open-source software platform that provides a complete banking system for complementary currencies. It includes tools for managing users, processing transactions, and creating online marketplaces.
    • Community Forge: Community Forge is a provider of open-source software for community currencies, including LETS and time banks.
  • References:
    1. Fare, M., & Ahmed, P. O. (2017). Complementary currency systems and their ability to support economic and social changes. Development and Change, 48(5), 947-971.
    2. Blanc, J., & Fare, M. (2013). Understanding the role of governments and administrations in the implementation of community and complementary currencies. Annals of Public and Cooperative Economics, 84(1), 59-77.
    3. Lietaer, B. (2004). Complementary currencies in Japan today: History, originality and relevance. International Journal of Community Currency Research, 8, 1-23.
    4. Wikipedia. (2023). Complementary currency. Retrieved from https://en.wikipedia.org/wiki/Complementary_currency
    5. Gelleri, C. (n.d.). The Phenomenon of Complementary Currencies. Just Money. Retrieved from https://justmoney.org/the-phenomenon-of-complementary-currencies/