Social Currencies

This concept covers two separate meanings: 1) as a synonym for complementary local currencies; 2) as a reputation marker

Complementary Social Currencies

Description

Marusa Vasconcelos Freire:

"Use of social currencies is not a new phenomenon (DeMeulenaere, 2000) and has been tolerated by central banks in various countries, with the argument that they promote development of local economies (Lietaer, 2001; Rösl, 2006; Schraven, 2001). Brazil too, like other countries, has had various experiences with social currencies (Melo & Magalhães, 2006; Soares, 2006; Silva, 2005).

The concept of social currencies tends to be immediately associated with currencies produced by society2, in contrast to the concept of legal tender3 – an established national currency whose monopolized issue in Brazil (as is generally the case in most other jurisdictions) rests with the Central Bank of Brazil (art. 164 of the Federal Constitution)4. Hence, it is no coincidence that historically, social currencies have been at the center of a deep controversy among economists.

One extreme of economic thought regards the currency as an institutional element wholly subordinated to central controls established by monetary authorities, and that such controls must be the exclusive realm of central banks, that administer the money supply based on what is known as monetary policy (Lopes & Rosseti, 2005). On the other hand, another extreme of economic thought argues that the money supply need not be subordinated to central control, given that it is generated by the needs of the economy itself; and that, consequently, the Central Bank is incapable of controlling the money supply, which is a variable determined by society, that creates and destroys the currency, in accordance with its immediate needs and convenience (Lopes & Rosseti, 2005).

The truth of the matter is that, in all social circumstances and at any point in history, when the monetary authorities cease to issue sufficient currency to fulfill the needs of business, companies begin to issue various forms of credit securities (Lopes & Rosseti, 2005). This, in turn, results in:

(a) creation of one or of many monetary systems, in parallel to the official currency;

(b) a perception that parallel currencies are alternatives to national currencies;

(c) discussions as to the need to rethink the role of the centralized monetary system, in favor of the development of local economies (Solomon, 1996; Swann & Witt, 1995; Douthwaite, 2006)." (http://www.uea.ac.uk/env/ijccr/pdfs/IJCCRvol13(2009)pp76-94Freire.pdf)

Discussion

Refers to the context in Brazil:

"A review of the specialized literature, however, shows that social currencies are payment instruments or systems, created and administered by their users, by means of non-profit associations, on the basis of economic relations built upon cooperation and solidarity of the participants of certain communities, regardless of exercise of any form of financial intermediation activity (MTE, 2006).

From an economic standpoint, social currencies are considered a “market mechanism”, and thus, an institution of the economic order (art. 170, of the Federal Constitution) capable of fulfilling some of the functions of the social welfare system. From a social standpoint, social currencies are considered as an alternative means of promoting access to goods and services that would otherwise be inaccessible to their users, thereby constituting an institution of the social order that complements the official currency, at the basis of which lies the fruits of labor, and that aims to instill well being and social justice (art. 193, of the Federal Constitution).

From a functional standpoint, social currencies constitute a new way of promoting integration of people into the labor market (art. 203, III, of the Federal Constitution). Their use, even when stemming from public policies for combating poverty and promoting local development, is not to be confused with other programs for allocation of resources and income transfers from the richer to the poorer segments of the population (MTE, 2006), which should be perceived as a form of social welfare that should be provided by the State to those in need, regardless of whether or not they contribute toward social security (art. 203, of the Federal Constitution).

From a legal standpoint, social currencies promote access to social rights (art. 6, of the Federal Constitution) by means of a contractual agreement signed by members of a given community, grouped by regional or sectoral criteria. Social currencies are considered as personalized or customized currencies (or forms of money), in that they are legally-structured instruments or systems that advance the purposes and aims aspired to by participants of the social groups that use them (Lietaer & Hallsmith, 2006). Though they submit to the legal disciplines of Law of Contracts and Law of Obligations (one of the components of private law elements of the civil law system), social currencies have neither the status of legal tender, nor full settlement value assured by law. No one is (nor can be) obliged to accept a social currency or to participate in a social currency system. Like any other economic or social activity, social currency systems are subject to normative rules in situations foreseen in Law (art. 5 and art. 170, of the Federal Constitution).

Despite implications of higher costs and higher risks for the holders of social currencies, in relation to the official currency, the use of social currencies has multiplied as a reaction of local communities to the globalization process (Rösl, 2006). This phenomenon is associated to the fact that, when the official currency proves incapable of facilitating all potential exchanges within a local economy, a complementary currency may alleviate the problem (Schraven, 2001). Thus, even with higher transaction costs than those associated with use of the official currency, there is nonetheless an incentive for people to use social currencies in their day-to-day transactions in local economies (Schraven, 2001).

By adopting as a reference the classification of alternative forms of wealth used in the quantitative theory of money approach developed by Milton Friedman, according to which total wealth is also comprised of human wealth, and not only of material wealth – money, variable-income securities, fixed income securities, physical goods, property and other material assets (Lopes & Rosseti, 2005) – it is possible to define social currencies as non financial wealth, related to application of human wealth in the production process and in the process of circulation and distribution of physical goods and services produced by human labor." (http://www.uea.ac.uk/env/ijccr/pdfs/IJCCRvol13(2009)pp76-94Freire.pdf)

How They Work

Marusa Vasconcelos Freire:

"By complementing lawful fiat money, the issuing of which is underwritten and monopolized by the State, and which has the status of legal tender and full settlement value assured by law (Lopes & Rosseti, 2005), and private banking money (bank deposits), created by commercial banks, which account for a major portion of the means of payment employed in accordance with the conventional concept of money used in almost all countries (Lopes & Rosseti, 2005), social currencies can present significant variability of form and of denomination, depending upon the specific purposes for which they were created.

In dealing with legal business compacted by a collective group of people, who are subject of individual rights, the three essential elements for establishment and functioning of a social currency system are: people; choices; and rules. To be valid, capable agents, a determined or determinable legitimate purpose, and a form prescribed or not forbidden by Law are required (art. 104 of Law 10.406/02).

Based upon the concept of freedom to contract and, in principle, established according to standards that govern atypical contracts (arts. 421 and others of Law 10.406/02) it is not possible to speak of one ideal model for a ground and sound functioning of social currency systems. The ideal design for a ground and sound functioning of the system depends upon a series of variable circumstances of fact and of law, conditioned by social realities of the context in which the social currency is implanted and, particularly, by the way in which the local population makes its livelihood (Lietaer, 2001; Schraven, 2001).

In practice, all models for a ground and sound functioning of social currency systems have some characteristics that are advantageous in certain situations, but that may be perceived as being not advantageous in others (Lietaer, 2001).

Nonetheless, theoretically, most models of social currency systems share certain common characteristics:

(a) They function legally in over 35 countries: social currency systems tend to be established where constitutional, legal, and regulatory standards allow space for private enterprise; or where there are gaps in financial, banking, and monetary regulation or legislation (DeMeulenaere, 2000; Lietaer, 2001; Schraven, 2001).

(b) Social currencies are issued to associate members that have accounts in the social currency system, and are known as participants.

(c) They are controlled by the participants by means of representative organizations.

(d) Social currencies circulate only in a given or limited geographic or sectoral area defined by the associates or participants of the system, and can only be used or spent and accepted within said areas.

(e) Social currencies do not fulfill all functions of the legal tender currency, but rather, only those associated with the goals of the particular system.

(f) The essential characteristic of social currencies is (or ought to be) reciprocity, whereby the costs and benefits of the system are (or ought to be) fairly distributed among the participants, coordinators, and managers of the system, in accordance with the level of participation of each, so that no one benefits (or appropriates) unforeseen advantages at the cost of the labor of others.

(g) Since they are complementary, transactions in social currency generally function (or ought to function) in a counter-cyclical manner, both in relation to monetary policy, and to employment levels in the formal economy. Thus, when the official money supply expands, transactions in social currency decline; and when the official money supply declines, transactions in social currency expand. Likewise, when the level of employment in the formal economy expands, transactions in social currency decline; and when the level of employment in the formal economy declines, transactions in social currency expand.

Aside from these common characteristics, the functioning of social currency systems depends upon logistical and operational aspects that contribute toward economic efficiency of the system (Lietaer & Hallsmith, 2006), and which are established by basic contractual clauses of the legal framework that differentiate the various social currency systems." (http://www.uea.ac.uk/env/ijccr/pdfs/IJCCRvol13(2009)pp76-94Freire.pdf)

Source

• SOCIAL ECONOMY AND CENTRAL BANKS: LEGAL AND REGULATORY ISSUES ON SOCIAL CURRENCIES (SOCIAL MONEY) AS A PUBLIC POLICY INSTRUMENT CONSISTENT WITH MONETARY POLICY. Marusa Vasconcelos Freire. International Journal of Community Currency Research Vol 13 (2009) pp.76 - 94

URL = http://www.uea.ac.uk/env/ijccr/pdfs/IJCCRvol13(2009)pp76-94Freire.pdf

Reputation Currencies

A social currency is the reputation score an individual or entity acquires in a particular social network that credibly reflects their value in that network. (John H. Clippinger at http://onthecommons.org/node/723)

See also the related material on Reputation and Identity

Description

John H. Clippinger at http://onthecommons.org/node/723

"A social currency is the reputation score an individual or entity acquires in a particular social network that credibly reflects their value in that network. For example, like a monetary currency, the value of a social currency may be set by the demand that an individual in a given social network can command, as in some kind of supply and demand calculation. Yet the calculation may also reflect a more subtle calculation of value based upon peer ratings of performance that cannot be captured in measures of supply and demand.

Different social networks have their own social currencies reflecting their reputation and membership rules. Highly proficient members of these networks - those who know how to truck, barter and exchange - can accumulate their own form of social capital - i.e., favors, obligations, goodwill. In many cases, they can convert one social currency into currencies in other social networks. For example, success in sports is often convertible to success in politics, business and entertainment. Likewise, social currencies accumulated in a business network are generally convertible into the currencies of social standing and political credibility. The more open and diverse a society is, the greater possibility for social mobility - something rarely possible in closed, traditional societies.

Social currencies can play an important role in the ability of a society to navigate between chaos and order, and between innovation and stagnation. One of the enduring insights from evolutionary biology is that the more innovative and adaptive self-organizing networks are, the more able they are to straddle the poles of excessive order and excessive disorder. They can stay in this "sweet spot," and be are maximally responsive to the novelty of their environment." (http://onthecommons.org/node/723)

More Information

See the related material on Reputation and Identity