Embedding the Governance of Money in Traditional Communal Institutions
* Article: A Route to Commons-Based Democratic Monies? Embedding the Governance of Money in Traditional Communal Institutions. By Ester Barinaga. Front. Blockchain, 27 November 2020 | 
"The financial crisis of 2008 resulted, among other, on a popular awareness that the monetary system was not working for the interest of the many. The blockchain technology that was launched soon after offered monetary activists and entrepreneurs a tool to re-imagine, re-claim and re-organize money along a vague ideal of a commons paradigm. A wave of monetary experimentation ensued that took a most concrete form in two entrepreneurial spaces: crypto-currencies with global ambitions and local currencies based on communal democracy. Seemingly distinct on the outset, both strands share a determination to develop a monetary system that serves the many. This has led participants on both sides to reach out toward each other. The article looks at one such attempt: the Sarafu community crypto-currencies in Kenya. These currencies are embedding the creation of money in traditional community savings groups. Using Eleanor Ostrom’s framework and building on interview and ethnographic material, the article identifies the economic logic of mutualization proper of the savings groups as one that transforms private assets (one’s savings) into a financial commons for the group. To build on this logic, the Sarafu model in-the-making is embedding the production and governance of the new community cryptocurrencies in these saving groups. In that doing, Sarafu has the potential to advance a new architecture of money. However, findings suggest that the standardization and automation of the new monetary rules through smart contracts impose neoliberal ideas that slipped into the code, risking the erosion of the very communal decision-making processes that made savings groups interesting anchors of a money commons in the first place."
Conclusion: Democratic or Despotic Money?
"The monetary awakening induced by the financial collapse of 2008 resulted in increasingly loud calls for a money that serves the interests of the many and that is subject to the continuous revisions and active negotiations of slow, but inclusive, democratic processes (Mellor, 2016). Calls for monetary democracy got an empowering tool with the launch of bitcoin in 2009 (Swartz, 2017). Bitcoin’s underlying technology—the blockchain—and the technological developments that followed—such as smart contracts that automate the application of rules—gave these calls a cheap, yet potentially powerful instrument to realize their dreams. The possibility to design, and implement, a commons-based money was intoxicating and a number of grassroots and crypto-entrepreneurs started experimenting with various forms of money, playing with the rules determining the creation, distribution, and use of these new monies15. Sometimes driven by anarchist ideals, other times driven by a community ethos, these monetary experiments share the urge to re-claim money. How can the power to govern money be handed over to the people? The article looks at one such experiment, the Sarafu community cryptocurrencies being developed in Kenya, and considers its particular answer to that question: Chamas—a traditional institution governing communal economic and social life in many countries around the world—and its logic of mutualization and circulation can be the pillars of a decentralized monetary system for networked community economies.
The article analyzes the implementation of that answer, with a special focus on examining the locus of governance and decision-making in the Sarafu monetary system. To do this, the article’s first analytical move—and its first contribution—is to conceive money itself as a commons and to build on Ostrom’s distinction between resource units and resource system in common-pool resources. The distinction allows us to unfold the question on the governance of the money commons into two questions: (1) who gets to decide the rules governing the flow of monetary units? and (2) who gets to decide the rules governing the monetary system?
Operationalized through the dual analytical question, Ostrom’s distinction helped observe that in the Sarafu design of money chamas are certainly given a pivotal role in decisions concerning the flow of monetary units, yet they are sidestepped in regards the design of the monetary system. Anchoring the governance of the flow of money in the chamas is relatively direct and easy to implement; they simply have to run with Sarafu as they already do with the national money. In regards governance of the monetary system, however, the mutualizing logic of the chamas lost its ground to a systemic solution based on the logic of the market. The neoliberal ideals of the homo economicus, the self-regulating price mechanism, and the orthodox notion of money as representation of hard value slipped into the code. Monetary designs, that is, are not without ideological valences (Goodhart, 1998; Crotty, 2013; Desan, 2014). Now encroached into the code, those ideological composites are forced onto all communities implementing the Sarafu monetary model, with visible performative effects. The article’s second contribution is thus to the anthropology of money. Ethnographic observation suggested the introduction of homo economicus ideals through the monetary technology fostered new speculative profit-maximizing behaviors among community members.
The third and last contribution of this article is to highlight the contradiction between the democratic ideals common among many activist crypto-entrepreneurs (see Swartz, 2017) and the practical needs of coding a digital infrastructure. The need to code the governance rules of the monetary system previous to its implementation moves the center of decision-making from the chama onto the crypto-entrepreneur. Such erosion of community-based decision-making has to do with the entrepreneur’s global ambitions. Building a “public infrastructure” that “anyone in the world can use” necessarily requires finding a standardized solution that enables communities to trade among them. A common monetary language is needed, if you want, one that calculates the prices of currencies—the exchange rates—on the same parameters of value. In the engineering world of code, standardized rules translate into algorithms programmed ex-ante (Rozas et al., 2018), before communities are even given the opportunity to articulate their priorities and idiosyncrasies. And so, governing money with algorithmic formulas deprives the chama of the power to govern important aspects of the money they use. While the crypto promise of autopilot money governance—through algorithms and smart contracts—is alluring, it detracts money of the flexibility needed to adapt it to local social and economic changing circumstances. Governance through despotic algorithms may increase the efficiency of currency markets and may speed the scaling up of the new system. But this may be at the cost of eroding communal democracy and eliminating an entire mode of thinking about social coordination (on this, see also Morozov, 2019).
The story told in this article is, as it were, a contemporary version of “putting old wine into new bottles.” It is not enough to adopt ingenious and innovative blockchain technology. It is neither enough to involve communal institutions into making certain decisions. Above all, we need to move away from an orthodox, damaging and long-challenged, yet dominant science of economics that understands money as neutral, sees money’s value in the hard thing it represents, conceives humans as selfish profit-maximizers, and worships the self-regulating price mechanism. If we are serious about building democratic monies, we urgently need a “new meme for money” (Wray, 2012). In the spirit of Eleanor Ostrom, this article is written from the belief that communities hold the key to such a re-framing of money. Chamas do indeed show us an economic logic that is far from the texts taught in traditional university courses in economics. They show that there are economic rationalities that balance financial, social and communal concerns. They show us that individuals are conditional cooperators (Ostrom, 2000) and that communal democracy can be a stable ground for decision-making processes. Reaching out to chamas is, certainly, the most provocative innovation of the Sarafu money. Yet, in discussing the governance of money, the locus of monetary decision-making, we need to go beyond simple translations of those community institutions and seriously consider what active role chamas could play in both determining the flow of monetary units and, most importantly, in deciding the particular constitution of the monetary system. Ostrom’s unit-system distinction may come handy here as it can help us identify different levels of monetary coordination. In so doing, Ostrom’s conceptual tools can help us better design institutions for the democratic governance of these new money commons." (https://www.frontiersin.org/articles/10.3389/fbloc.2020.575851/full)
Response and Critique from Will Ruddick of Grassroots Economics
Will Ruddick :
"Overall, the assertions of the author are one-sided, false and misleading and much of her argument derives from speculative discussions and marketing materials. In some cases the author is talking about research conducted in 2019 by Grassroots Economics on floating exchange rates between villages - which was discontinued (even acknowledged by the author starting January 2020) while asserting these are things that are planned or in process based on dated marketing materials. She also asserts that we were or are planning to use the savings from vulnerable populations as reserves and endanger them. This is absolutely false and has never been the case or will be. The author’s various concerns about our future programs in 2021 are speculative and damning. I would suggest that she brings up these concerns from a more academic perspective with specific dates on when different trials were in practice, that weight pros and cons - rather than the current accusatory speculative paper.
The author also states that the originators of the Sarafu program are crypto-entreprenures when in fact we are a Kenyan non-profit foundation that has been doing these projects for years to help communities well before ever using blockchain and don’t even plan to use any specific blockchain technology in the future. Calling such a foundation ‘crypto’ or ‘entrepreneur’ is in fact derogatory and sets a negative precedent which is insinuating we are profit seeking or entrepreneurial. She also singles me out personally as a Sarafu or crypto-entrepreneur “informal conversations held with the crypto-entrepreneur “ - a term (which the author well knows) I would never use for myself as the founder of a non-profit - I’m neither dedicated to crypto or enterprise and have been doing this work without blockchain or any profit or entrepreneurial minded activities for over 10 years. The term Foundation, Non-profit Foundation, Founder of a non-profit foundation would all be accurate without a negative bias.
Google: “crypto-entrepreneur: a person who sets up a business or businesses, taking on financial risks in the hope of profit.”
Note that in working with communities it is our utmost goal that their wishes are respected and they are empowered. We are so happy to have gotten through 2020 and are near completing redeveloped infrastructure that will allow for communities to build their own currencies in 2021. The Sarafu system in 2020 was a stop-gap way we could enable communities to keep supporting each other while waiting for technical development -without reverting to the expensive paper currencies we used in years past. Note that we are using existing and developing new open source tools that can be used in many ways - the hope is to give as many options to users as possible so they can create their own community currencies. The way the paper is written doesn’t speak at all to why Sarafu exists in the first place as a stop gap.
Note that the number of people using Sarafu only jumped from a few hundred to 40,000+ this year. Really the Author does no work at all to describe the dates of various trial, number of users during these trials. Instead she generalizes it all into an extremely negative picture.
Below are various erroneous or false assertions by the author and responses:
* “In the Sarafu system in-the-making, a chama’s capacity to mutualize individual savings decides how many monetary units to issue.”
There is no intention to use group savings for reserves or as a determinant for the supply of CIC they issue. Commitments to redemption of vouchers (in the form of CICs) collateralized by a network token (with no monetary value) is the current aim. Creating a fiat exchange value for a network token has been speculated as a possibility as has enabling users to choose between various network tokens (even a stable coins) - these are capabilities we have been researching since 2018 and have yet to develop or make available. The author seems to be confused as to what is reality vs speculation and readers might be confused as well.
Rather than saying “In the making” which is false and negatively speculative - the author could speak toward her various worries such as basing a community currency on the savings of a chama (which is not our goal and never has happened).
* “With it, the locus of trust has moved from the rules and sanctions that constitute the chama onto the immobilized savings that make up the reserves. “
Again: No such savings currently or have ever been immobilized, taken or used for reserves of Sarafu or any CIC.
Not only is this claim wrong but in moving to past-tense the assertion is damning. In fact in the future we hope that communities will determine their CIC supply by making commitments toward their future production. Inorder to connect CICs together there are many possible choices that we want to allow users to make - such as 1:1 liquidity pools, creating their own common network tokens and so on. Making interfaces to all the possibilities is impossible so user feedback on which directions is of utmost importance.
* “The collective savings in conventional money become the reserve of the community cryptocurrency, which is translated one-to-one to reserve in Sarafu”
Again: No such savings currently or have ever been taken or used for reserves of Sarafu or any CIC.
Because this is open source technology - communities can technically do whatever they want in adjusting parameters - but note that Sarafu has never had any fiat or on-chain backing and there are currently no plans in that direction. Using donor funds to purchase crypto as an on-chain reserve or liquidity pool for CICs has been speculated. These would all be options of users interacting with open source tech and infrastructure.
* "Once savings have been set aside, smart contracts on the blockchain automate the leverage of group savings—all communities are automatically granted a 1–4 reserve ratio on their savings"
Again: No savings of chamas or users are set aside or used by Sarafu or any CIC. There is no connection to Kenyan Shillings of users whatsoever. We have speculated in the past about connecting Sarafu or other CICs to National Currency or stable coins in reserves that are geared for donor assistance and subject to regulatory environments. Even the numbers 1-4 reserve ratio are not in use since end 2019 and not planned to be in use.
This research paper seems to be a reaction to speculation and marketing materials - and in which case it should be structured differently. The author should feel free to bring out these topics without assuming what may be implemented - as that will continue to depend on the needs of the users.
* “The Sarafu monetary system in-the-making follows the fractional reserve banking model”
No, the model in 2019 briefly issued and freely distributes a network token (Sarafu with no connection to Kenyan Shillings or any fiat or stable coin) that can be used to connect chama created CICs together. There is no leverage or change in exchange rates between CICs planned in 2021. This may change depending on the regulatory environment.
Note that in 2019 we tried a non-fiat connected bonding curve model for 2 months in a few pilot communities. Also note that CIC technology is built on contracts where CIC issuers can determine the parameters that fit their situation.
Even in the speculative terms: Regardless of the connector weight from CICs to their reserve this should not be confused with the fractional reserve systems of typical banks - as the author asserts! There is no ‘reserve’ in any sense limiting the creation of Sarafu or CICs planned, nor has this ever happened.
I believe the author from her 2019 visit confused variable exchange rates between CICs and voluntary donors buying Sarafu after conversion from CICs - with on-chain reserves of national currency. Note that variable exchange rates have not been in effect since December 2019 and the trial of donors removing Sarafu from communities after a donation was ended in July 2020. At the very least - put in the dates of various trials and note that there are still donations going out to vulnerable populations based on Sarafu usage - but no exchange for Sarafu.
* “To overcome such limitation, the Sarafu crypto-entrepreneur collaborates with the Red Cross, which donation is funneled into the system’s reserves (Bornstein, 2019). While channeling donations through reserves against which chamas are allowed to redeem their Sarafu savings is an improvement of extant cash transfer programs14, it, however, effectively hands the issuance decision over to external actors.”
The author is quoting speculative marketing materials which never were implemented. There are no funds from Red Cross or any source that have been used as a or funneled into an on-chain reserve. Note that donor funds are currently given to recipients without exchange for Sarafu, or for capacity building in communities and no Sarafu is being removed from communities in exchange for Kenyan Shillings. Trials of Sarafu being removed from communities after a donation have been tried and were discontinued as of July 2020.
The author confuses donors voluntarily exchanging Sarafu for their donations and on-chain reserve mechanisms. There is no reserve in funds of any sort for Sarafu and never has been.
Note that there are several other technical ways that donor funds could be linked to a CIC - such as SDG Indexing or independent liquidity pools similar to UniSwap. Also note that even the blockchain technology used may change drastically in the next year such that any such speculation is hard to foresee. Moving to HoloChain for instance would create much easier ways to bridge between various ledgers.
Again calling Grassroots Economics Foundation or myself crypto-entrepreneurs is offensive, incorrect and in no way adds to the paper. Simply using non-profit foundation would be more accurate and not lump us in with explicitly crypo-entreprenures.
* “Two, democracy is pushed back because it is the engineers, the crypto-entrepreneur, the tech-savvy, that think the algorithm, decide reserve ratios, and code it into the smart contract.”
When communities are able to create their own CIC the goal is that they have full control over all aspects that are not explicitly regulated. Note that the reserve ratio between a CIC and its reserve (a network token) is theorized to be 100% or use limited 1:1 liquidity pools - hence there are no changes to exchange rates. This has also yet to be implemented - note that the current Sarafu system is a single basic income style token to keep the previous exchange systems alive while we re-engineered the ability for communities to make their own currencies again.
The accusation that we have or are planning to ‘push back democracy’ and decide things on the behalf of communities is completely revolting. Rather than ‘pushing back democracy’ - how about “doing our best to develop non-profit infrastructure so that users can make their own decisions?” Note that the current system since the start of 2020 has been a stop gap while we rebuild software. There are a lot of interesting research topics about the usage of Sarafu as a form of UBI that could be covered - but seems to be completely lost in the author’s paper. THe paper assumes that various decisions were malicious by not stating the reasons behind them.
* “During a field visit in November 2019, Yazid, a rural villager, explained how he consulted exchange rates to decide when to redeem his Sarafu savings to Kenyan shillings.”
Isolated attempts of Sarafu to Kenyan Shilling exchange as well as variable exchange rates were tried in several communities and discontinued in favor of using aid funds for capacity building based on CIC circulation. The author is well aware that these trials ended in December 2019 and should at least mention that. Simply stating that we’ve tried to work with communities with many forms of community currency over ten years.
Note that variable exchange rates for certain types of community currency to fiat connections may be useful and desired by communities, while 1:1 exchange rates between communities in limited liquidity pools can potentially co-exist. There is no discussion at all of when share-like instruments might be useful.
* “When a user of a currency buys from a user of another currency, the Sarafu reserves in her currency move to those of the selling community currency. In this way, the community currency of the buyer weakens relative to the community currency of the seller.”
The author was referring to the 2019 trial that was discontinued, future iterations planned for 2021 will involve a 100% target reserve ratio - meaning the CICs will be 1:1 - hence there is no ‘weakening’. But the hope that communities can make such decisions on their own. Note that the on-chain reserve is a non-fiat connected or valued network token.
Also note that having variables exchange rate connections to other tokens is a way of creating share-like structures as media of exchange - whether or when such structures are appropriate is a great discussion topic. Creating speculative markets isn’t necessarily a bad thing where the speculation helps support a commons. Sadly this paper seems extremely one sided in such discussion.
At the very least say when the trials of different methods started and stopped and the reasons why.
* “The datasets presented in this article are not readily available because No personal contact information is to be shared outside the research team. All other data, concerning transactions (without identifying those involved in the transaction) is openly available. Requests to access the datasets should be directed to http://cic-dashboard-frontend-webpage.s3-website.eu-central-1.amazonaws.com/.”
Note that there datasets for transactions in the 2019 period and 2020 mentioned in this research are not available at the site given but rather http://grassecon.org/research
* “The result: The undermining of community decision processes, the engendering of speculative behavior, and the favoring of economic value and financial gain over social obligation and personal relations.”
While claiming to have done extensive research - it is apparent that Barinaga’s result is based on a single field visit in 2019 at a site where we were researching for several months, fluctuating exchange rates between villages and cash rewards. The author doesn’t state what community decision process was undermined by such research.
Note again that we’ve been working for the entire year of 2020 to redesign the technology to allow for individual communitie to make their own currencies - as we’ve been doing with paper vouchers without blockchain since 2010.
Also note that “financial gain over social obligation” is the type of dichotomy that we are trying to break down with community currencies; that ‘Financial’ gain can be tied into social obligation through the creation of currency commons. These are all wonderful topics of discussion that sadly get glossed over in this paper.
* “or by villagers of rural Mombasa”
Mombasa is not rural. Perhaps the author means Kwale or a dozen other rural counties where we work to support vulnerable populations?
* “the Sarafu entrepreneur uses the connected water glasses metaphor to clarify the idea: “It’s like water glasses connected to each other. “
Again the author seems to be referring to me in a derogatory way - I and Grassroots Economics Foundation are not entrepreneurs, crypto, sarafu or otherwise here. As a non-profit founder insinuating that I or the organization is entrepreneurial is a way of questioning our intentions to help others and is harmful. If the author wants to claim that any non-profit foundation that deals with technology or blockchain is a ‘crypto-entrepreneur’ - I would disagree - but she might do so directly in an academic argument rather than labeling.
Given the author is quoting me from “Fieldnotes from June 2019, corroborated in an email exchange on August 23, 2019.” she might need to have some follow-up discussions to fully understand the various share-like structures vs pool-like structures. Note that connecting CICs together need not involve any bonding curve or fiat currencies - the liquidity-pool technology is extremely adjustable to both needs for continuous liquidity or static liquidity." ()