There is a profound debate underway regarding the future of money. The inflationary depreciation of government-issued fiat money, the replacement of paper currency with Central Bank sponsored digital equivalents, and the emergence of crypto-currency and non-fungible asset tokens have upended established notions of financial settlement and the role of banks as essential intermediaries. Most citizens are utterly lost in this transition; simply equating as they do the physical Dollar or Euro currency in their hand with real money, and failing to understand why Central Banks would hoard a ‘barbarous relic’ like gold in a world of freely floating exchange rates. Weimar Germany, Argentina, Zimbabwe, and Turkey today have all transferred wealth from citizens to government by rapidly inflating their money supply and sequestering the high-powered fiat money for government use.
Oddly enough, a Citizen in the 18th and even 19th century would be more comfortable with all the changes in our money than are we. They understood that anything commonly agreed and trusted could serve as a medium of account and valuation (the traditional definition of money), and many commodities have over time and place. They also understood that anything commonly agreed and trusted could serve as a token denominated in that underlying value, and thus be used in any financial transaction. Finally, they understood that the token represented a debt incurred as the result of supplying some good or service for which there was nothing bartered in return.
Banks served as clearinghouses that netted all the debts from and to each party together, thus continually rationalizing and reducing the net debt and credits of all participants. The government was but one of the participants, although its version of money and tokens became generally accepted since the government was the largest provider of services and collector of taxes, all of which transactions it could mandate be conducted using its version of currency. The Citizen of this time was trading simultaneously with government coinage, local bank scrip, merchant promissory notes, and bullion – the value of each changing along with trust in the issuer.
David Graeber provides a wonderful overview of this history in his book ‘Debt: the First 5,000 Years’. He traces the use of debt tallies back to the earliest civilization and explains the role of temples, banks and government in rationalising that debt. It becomes abundantly clear how counter-party risk must be addressed if the trade is to be anything but local. He makes the interesting argument that capitalism cannot last forever because debt cannot grow forever, and points out the ways in which government policy perpetuates the system by preferring some debt holders over others.
This entire subject is glossed over in economic development work, yet is equally applicable to first-world industry consortia and frontier economy social support programs. The use of non-currency digital tallies of commercial trade residuals opens up opportunities both for a limited opt-out from unjust government monetary policy and for addressing liquidity issues in trade within networks of trusted communities and their industries.
The Somaliland shilling provides a contemporary example of a centrally managed bank-sponsored currency that circulates in a semi-autonomous region independent of the official nation of Somalia. Its peg to the US Dollar keeps it more stable and useful for commerce and foreign investment than the Somali Shilling issued by the Central Bank of Somalia. This unofficial money has been the basis for the Somaliland economy since 1994.
There are numerous examples of cooperative arrangements (for example indigenous and religious communities, Israeli Kibbutzim) in which assets created or earned by members are held centrally, and distributed based on agreed needs or investment opportunities. All members of the group enjoy the benefits of shared infrastructure, services, and luxuries financed with the shared assets. Each person’s contributions and share of any distribution are recorded on tallies, without being compensated with money or currency tokens.
The Somaliland example applies to broadly-distributed commercial arrangements in which counter-parties are not necessarily known or trusted, and in which a transactional medium other than letters of credit is preferred. The currency is partnered with some form of formalised judicial system that can adjudicate and legally sanction financial disputes. Cooperative arrangements are best used within communities that live and work together in a close relationship so that any disputes are settled by mutual agreement supported by expulsion or shunning.
Partnering digital debt/credit with mobile payment systems opens up new possibilities for distributing social service benefits, collecting fees, and settling commercial transactions. It lowers the costs of using intermediaries like Western Union and New York banks, speeds cash settlement, and facilitates non-bank community finance among members. Above all, it allows economic relationships to exist on their own merit without being dependent on central government monetary policy.