Attributes of Complementary Currencies and their

Application on a Specific Case

Thesis

By

Pavel Jiránek

Submitted in Partial fulfillment

Of the Requirements for the degree of

Bachelor of Science

In

Business Administration

State University of New York

Empire State College

2016

Reader: Tanweer Ali

“We don’t need money. We need the things that money can buy.”

Bernard Lietaer

Acknowledgment

Greatest thanks to my parents, who always support me in everything I do.

(Except some of my stupid ideas which would get me in trouble)

Table of Contents

I. Introduction

II. Money and its creation

a. History of money and the myths surrounding it

b. What is money?

c. Creation of money

III. Complementary Currency

a. Fundamentals

i. Why we need CCs

b. History

c. Time banks

d. Mutual learning

e. LETS

IV. Advantages and limitations of CC

a. Advantages

i. Economical

ii. Social

b. Limitations

V. Incentives in the Czech Republic

a. Complementary currencies in the Czech Republic

b. Introduction to penitentiary environment in the Czech Republic

VI. Practical Use Case – a CC system in penitentiary

a. Description of the penitentiary

b. Description of the scheme

c. Considerations & assumptions

VII. Conclusion Abstract

Complementary currencies have been evolving significantly in past decades in various forms.

Even though most people perceive complementary currencies only in their modern, digital form, there are several different ways in which complementary currencies may operate. Moreover, there are several advantages as well as disadvantages of using a complementary currency in comparison to a conventional financial system. Recent trends and analysis suggest that, in some cases, complementary currency systems can eventually become common supplements to regular financial environment. As a specific use case to prove the advantageous potential of complementary currency systems, this thesis develops and describes a complementary currency scheme in a penitentiary in the Czech Republic.

Research Questions:

1) Do complementary currencies have the capability of substituting conventional financial systems? 2) Would a complementary currency system, which is set up in a penitentiary in the Czech Republic represent a feasible application of CC schemes?

I. Introduction

What is money? How did it develop? Where does it come from? At first glance, these questions might seem to be very trivial and basic. However, it may be argued, and an extensive research support this claim (NFEC, 2015), that a significant portion of our society would not be able to answer them properly. In other words, the majority of today’s population is “financially illiterate”. Here, it is suitable to use the analogy of a fish swimming in the water, cited from the professor of economy, Bernard Lietaer: “Fish is born in the water, it lives in the water and it dies in the water. However, it has no idea what water actually is”

(Lietaer, 2011). Most people function the same way with money; they enter the world and learn only as much as they need to survive in the financial machinery. It must be admitted, however, that this is somewhat expected because most people are simply not interested or do not care about the mechanics. (Un)fortunately, in our world, it is money and the mechanics behind it, what determines and influences whole lot of things in our lives as well as in the functioning of entire nations. Therefore, it is very important that people are aware of at least the basics so they can foresee the outcomes of bad financial decisions – be it their own decisions or decisions of the governmental and financial institutions. As history has proven, the opposite creates an environment which is favorable for financial crises, which are generally caused precisely by the bad financial decisions. Some experts go even further than that when analyzing different causes of a financial crisis. As professor Lietaer proposed in his

Pop-tech speech, even though it is quite efficient, it is the settled monetary monoculture which causes destructive instability (Lietaer, 2011). On the other hand, understanding the

- 5 -

fundamentals and mechanics well will allow a person to foresee different trends and either make profit of them or to at least to hedge him/herself against the risks.

So what are the answers to those questions from the first line? Even though this paper will explore the fundamental mechanics of money in the following chapters, let’s settle one essential attribute of any kind of money now: using money in trade requires mutual trust and good reputation between the interested parties. Simply put, one must trust you that if you pay him/her with a bill or a coin or any other kind of money, he/she will be able to retrieve the value out of it later in time. This gets us to the point of this thesis and to what Mr. Lietaer talked about: the monetary monoculture in which we learned to live is not so vital for a society to function as some might think. Generally, we only learned to accept it as it is and we follow regulations which are set by the governmental and financial institutions. However, as a matter of fact, complementary currencies (= a currency that is used to supplement a national/conventional currency and whose purpose is to protect or stimulate the particular economy/community) have been around for a long time. Think of the air-miles system of your favorite airline company. That is a complementary currency system. Or your reward/membership card in your favorite business which provides you with discounts. That is a complementary currency system. Besides these two examples, there have been many others in various fields throughout the course of our modern history. However, sometimes they are simply not thought of as complementary currency systems. Moreover, both of the above- mentioned examples represent the essential attribute of any payment method – they require mutual trust and good reputation in order to work.

- 6 -

Living in the 21st century, we also have one great element which will allow us to take the phenomenon of complementary currencies to the next level; and that is technology. It can be argued that the technology which we have nowadays (along with the rapid rate of development) will allow significant improvement in the stability and functioning of the complementary currency systems. Also thanks to technology, the knowledge and understanding of complementary currencies in general can be expanded among large numbers of people. Moreover, with the recent history (the Financial Crisis in 2008) in mind, public’s trust in the conventional banking system as well as governmental and financial institutions are at deep low. As the advertising expert Paul Kemp-Robertson cited a scientific survey during his TED talk, “45% of 25-34 year olds in the US would be comfortable with using an independently issued or branded currency” (Kemp, 2013). Simply put, approaching the third decade of the 21st century, we are more ready to start fully leveraging the potential of complementary currencies than ever before.

In this paper, the author will introduce an alternative view on history of money, its creation and its fundamental mechanics. Then, the concept of complementary currencies in general will be presented with categorical examples. Only after laying this solid foundation, the paper will shift its focus specifically on fundamentals and practices of complementary currencies, as well as its advantages and disadvantages when compared to conventional national currencies.

By developing a specific use case at the end of the paper, the author will answer the main research question: do complementary currencies have the capability of substituting conventional financial systems?

- 7 -

Complementary currencies have been spreading significantly in recent past in various forms.

There are several advantages as well as disadvantages of using a complementary currency system in comparison to a conventional financial system. However, it can be argued that the advantages outweigh the disadvantages; especially with the technological advancements of our era. Moreover, recent trends suggest that, in some specific cases, complementary currency systems will eventually become common supplements to conventional financial environment.

II. Money and its Creation

Before the thesis about complementary currencies can be developed it is truly essential to lay

out and explain the foundation of money; the history of it, its underlying concepts and the

mechanics behind its creation. Without such understanding, it would be quite difficult to

comprehend the topic of complementary currencies. Moreover, this chapter is going to

challenge some settled views and perceptions regarding money.

a. History of money

Let’s start with the history of money. Most likely everyone, who had studied

economics before, surely heard the story of money slowly evolving out of barter;

i.e. exchanging goods or services for other goods or services without using money

as the medium of exchange. As a matter of fact, most of the economic textbooks

that describe the same story. This general approach to the history of money has

- 8 -

evolved since 1776, when the famous economist Adam Smith brought the discipline

of economics into being and described this “money evolution” as the way bills and

coins were created. Summing up this wide-spread theory, first there was barter,

where two or more people were exchanging goods and services between each other.

After some time, it was figured, that such “economical” setting is inefficient as it

faces two major problems; these are so-called “double coincidence of wants”1 and

the “fair rate of exchange” for different products2. Therefore, people started to use

precious metals as a medium of exchange which eliminated the two major problems

and from which coins and bills emerged later on. Only then the perception of credit

and other financial instruments were developed and started to be used. This is the

story which has been generally accepted by the majority of people. The reasons are

obvious; as David Graeber describes it in his book Debt: The First 5,000 Years,

some of it is just the nature of the evidence, as coins are easily preserved in the

archeological record (Graeber, 2011). In other words, historical coins survive

thousands of years, unlike other possible mediums of exchange. Another reason

would be the direct convenience of the story; it makes rational and logical sense and

it is quite simple to comprehend and accept. However, there is no historical

evidence that the development of money took this course: “No example of a barter

economy, pure and simple, has ever been described, let alone the mergence from it

of money; all available ethnography suggests that there never has been such a thing”

(Humphrey, 1985). Moreover, nobody has ever found a society anywhere in which

barter would be the normal means of exchange. Therefore, Graeber argues, the

1 In order for the exchange/trade to take place, two people must meet at the same place, at the same time and they must agree on what they demand/offer. This is a significant complication for the trade itself. 2 This problem considers the “fairness” of the exchange, i.e. how much of iron is worth of half of a cow.

- 9 -

general perception of money development is a myth which evolved on the basis of

Adam Smith’s claims and was consecutively accepted by other economists and textbook writers.

The alternative explanation of the historical development of money considers credit

(debt) as the initial medium of exchange. In this view, in a given economy/community, people were trading via leveraging debt. For example: in a small village, a tailor would need three loaves of bread. However, the baker does not need any clothing from the tailor. At least not right at the moment. This is what the traditional view describes as the “double coincidence of wants” problem. And, as was previously said, this problem prevents the trade from taking place. On the other hand, a debt obligation is what will allow it. In other words, the baker will give the tailor three loaves of bread and will record a credit from the tailor. This brings us back to the essential attribute of exchange from the Introduction and that is the mutual trust between the parties. In a community, where those two know each other well and tailor’s reputation is at stake, the baker has quite a high chance that the tailor will re-pay his debt eventually. Otherwise, he would be denied credit from the baker and probably from other villagers in the future, which would greatly complicate his functioning within the community. So, this credit granting eliminates the double coincidence of wants issue. However, there is still the problem with the fair rate of exchange, which is where a credit recording system fills the gap. Such system could be represented by a wooden stick which would be used to record one’s credit. In our example, the tailor would record (mark) his stick with an agreed amount of units of debt (one mark equals one unit of debt) and give it to the baker.

- 10 -

This would represent the exchange rate for different products. Moreover, if the tailor is a trusted person, this stick can later become a tradable instrument among the community (Ali, 2014). The later development then substituted objects like wooden sticks with contracts written on paper, and those eventually became money (bills) as we know it nowadays. As Professor Ali explains in his article Money as Metaphor, the credit system, be it wooden sticks or paper contracts, is not only more logical than pure barter, but unlike the traditional view, there has been evidence found:

“There is indeed a wealth of information about credit systems much more recently than ancient times, for instance the system of tallies in medieval Europe” (Ali,

2014).

The credit point of view does not disprove the existence of barter, though; barter have surely existed throughout our history, but it was probably practiced between strangers who were more likely not going to see each other ever again. That is the opposite from what Adam Smith claimed when he described barter as a system placed in a friendly community.

To sum up this chapter, it is important to realize that the development of money has probably taken quite a different route than many people have believed.

Consequently, this changes the understanding and perception of trade as we know it.

In Mr. Graeber’s words:

In fact, our standard account of monetary history is precisely backwards.

We did not begin with barter, discover money, and then eventually

- 11 -

develop credit systems. It happened precisely the other way around. What

we now call virtual money came first. Coins came much later, and their

use spread only unevenly, never completely replacing credit systems.

Barter, in turn, appears to be largely a kind of accidental byproduct of

the use of coinage or paper money: historically, it has mainly been what

people who are used to cash transactions do when for one reason or

another they have no access to currency.

(Graeber, 2011).

b. What is money?

Now that the probable history of money has been revealed, we can come back to the

question; what is money? Nowadays, we use it for many different functions. Also,

there are many sciences surrounding it along with whole lot of instruments which

can be utilized. It is not only a simple medium of exchange which smooths out

trade, as some perceive it. Moreover, as it was explained in the previous sub-

chapter, money has most likely developed on the basis of credit rather than coming

out of simple barter. Exploring what money is nowadays, this sub-chapter is going

to expand on this concept.

When thinking about the basic functions of money which are being utilized today,

most people will probably state the following: medium of exchange, unit of account,

store of value and means of transferring wealth. All of these are obvious and used in

everyday life. However, as Professor Ali explains, there are other two functions

- 12 -

which are usually not stated in the textbooks, neither are generally perceived as being core functions. Nonetheless, they leverage the “money as a credit” concept.

These are 1) Means of settling debt and 2) Instrument of official policy (Ali, 2015).

Let’s examine each of these in greater detail:

1) Means of settling debt

Since money was described as a representation of credit, it is reasonable to

speak of this function of money as the means of settling debt instead of just

the means of payment. In other words, the term “means of payment” would

describe plain barter which would be using a medium of exchange which

posseses some kind of value (in this case paper money or coins) to

eliminate the two basic problems described earlier. Indeed, in common

transactions of daily life, money is used this way. However, stepping back

and trying to understand the mechanics in a broad way, the picture is not as

bleak. When looking at an economy from the extensive picture and not

focusing only on a personal level, we will see, that money in the circulation

is indeed a representation of a credit – credit of the government to the

economy. This leads us to point 2);

2) Instrument of official policy

Coming back to the example of the baker and the tailor trading between

each other when the tailor’s reputation determined the tradability of his

credit (be it a wood-stick or a paper contract), we can expand it to the

governmental level. Let’s say that the tailor becomes a village major and he

- 13 -

will need the villagers to pay for his living as well as administrative and

operating expenses as he is not producing anything tangible which would

benefit the community, although he is serving the city. On the other hand,

he posseses something else, and that is the creditworthiness, meaning that

his credit has become tradable within the community. Moreover, his credit

now becomes a credit of the city hall to the citizens of the city. It is so

widely spread and recognized that it is used as money within the

community, i.e. people earn it, and use it for trade but mainly, they pay

taxes with it. As a matter of fact, there is historical evidence of such

systems from ancient Greece, where soldiers of the country were paid in

government-issued tokens (credits). Soldiers could then use these tokens to

purchase goods, because the merchants in the community were willing to

accept these tokens as they could pay taxes with them (Ali, 2014). Even

though this is quite simplified approach, that is how governments and

central banks control official fiscal policies nowadays. As Professor Ali

describes in his article, the view of taxes being what drives money is called

Chartalism and is associated with Georg Knapp who promulgated his ideas

in the early part of the twentieth century. “From a Chartalist perspective,”

Ali continues, “money is a government debt” (Ali, 2014).

Once again, this is a very simplified explanation and the problematic is much more complex. However, for the purpose of this thesis, it is important to understand that trade is not necessarily based on money being a valuable piece of paper which is used as a medium of exchange or representation of value, but rather on money being

- 14 -

a representation of credit, i.e. settling debt between the parties. Furthermore, the

trust between interested parties (= creditworthiness) is an essential and key notion to

comprehend before diving into the subject of complementary currencies.

c. Creation of money

By now, the reader should have at least a broad idea about what are the fundamental

concepts of money, what are its main functions and what is needed for a trade to

take place. However, there is still one question remaining; where does money come

from? Many people still believe that it is the national governments who create

money (Lietaer, 2011) by simply printing it and “dropping” it into the economy.

And even though, as was described in the previous chapter, it is the national

governments who have big influence on money supply through its policies, it is the

banking sector that creates money through providing loans to individuals,

businesses and governments. The reason why this is so often confused is the medial

publicity of the term “quantitative easing”, i.e. money being created for the

governments by the banking system when it incurs debt by issuing bonds which it

then sells or buys back. However, in the end, it is the baking sector who does create

money. This subchapter describes the process.

First of all, it must be stated, that most of the money supply nowadays is not “hard”

cash, i.e. paper money and coins, but it is electronic (or digital) money which is only

partially backed by physical reserves: “Bills represent only a very small percentage

of the amount of money in circulation […] The vast majority of the money that

- 15 -

changes hands in the world is on the computers and ledgers, not in actual notes and coins.” (Hallsmith, 2011). This information will help to understand the process of money creation. When an individual (or a business) goes to a bank and gets a loan, two things happen simultaneously: 1) the bank records an asset (represented by the provided loan) on its balance sheet and 2) a deposit is created in the individual’s bank account (bank’s liability to the individual). This deposit represents brand new money which was literally just created out of nothing; in other words, there is a digital entry to the book-keeping of the bank but new cash is not necessarily printed.

The only requirement for the bank, in order not to create too much new money and to cause inflation in the economy, is to respect the “required reserve ratio”. This ratio obligates the bank to back at least part of this newly created money with cash reserves. Consequently, when this person/business spends the “newly-created money” in a store which has an account at different bank, the money gets multiplied through the process called “fractional-reserve banking”. The table bellow provides example of this process:

Bank Deposit Loan Held Reserves (30%) A 1 000 € 700 € 300 € B 700 € 490 € 210 € C 490 € 343 € 147 € D 343 € 240 € 103 € E 240 € 168 € 72 € F 168 € 118 € 50 € G 118 € 82 € 35 € H 82 € 58 € 25 € I 58 € 40 € 17 € J 40 € 0 € 40 € 3 239 € 2 239 € 1 000 €

- 16 -

Source: Author’s calculation

In the above example, the individual/business A got a loan of 1,000€ = deposit in

her/his bank account. As this money is being continuously spent and lent again (10

banks being involved in this specific example), it gets multiplied further and further.

In other words, as we can see above, with the required reserve ratio of 30%3, out of

the initial 1,000€ deposit, there was 3,239€ newly (one might say artificially)

created.

The aim of this chapter was to not only provide a simplified explanation of the

process of money creation, but also to promote the idea, that even though we are

used to the monetary monoculture, it is not as resolutely irreplaceable as one might

think. Moreover, the way most of the national financial systems function nowadays

is predominantly digital and therefore, one might argue that even though it is often

strictly regulated by the governments and settled with the societies, it is from big

part, virtual.

III. Complementary currencies

By now it should be understood that money is nothing more than simple “discourse, a social

construction, a collective agreement to accept a certain form of measurement, store of value,

unit of exchange” (North, 2014) and a means to settle debt. Therefore, within a community,

the conventional (nationalized) money system can be complemented a complementary

3 30% required reserve ratio is rather unrealistic. Usually, the central banks set it around 2-3%. 30% was chosen only for the simplification of the example.

- 17 -

currency scheme. However, in order for this to work, it must be presumed and accepted that money is not only a thing created by the financial institutions (i.e. the banking system and its loan granting as it was explained in the previous chapter), but it can emerge and be leveraged within almost any kind of community as well. Moreover, such money/currency does not have to be necessarily paper bills or coins. Coming back to the principle of money as a credit where one person owes to the other, such currency can be simple time credit or skill credit.

By leveraging such complementary currency scheme, instead of the bank-created money which is officially approved by the national governments, such community possesses much more control over its economical life.

Moreover, Petr North expands on the critique of conventional monetary systems when comparing it with the complementary currencies within small communities: “Global money can too easily flow from poorer to richer places, condemning less favored regions to structural poverty, or to crises like those in contemporary Ireland, Spain, Portugal and

Greece” (North, 2014). A complementary currency scheme within a community can be then seen as a safeguard against external shocks and crises. On the other hand, it must be admitted that such community then cannot have big ambitions of international trade as its complementary currency can be hardly exchanged with other currencies. Therefore, in many cases, complementary currencies serve “only” as a complement and not as a full substitute to national financial systems. Still, the main goal of complementary currencies is to provide the community with independence and power over its functioning and economics. Therefore, in some rare cases, it is reasonable to develop a sophisticated complementary currency system within a closed economy which in a certain way substitutes the regular monetary system; as will be shown in the use case in the last chapter of this paper.

- 18 -

a) Fundamentals

According to Gwendolyn Hallsmith, a complementary currency is “an agreement to

use something other than legal tender (i.e., national, or bank debt money) as a

medium of exchange, with the purpose to link unmet needs with otherwise unused

resources.” (Hallsmith, 2011). The second part of the definition is truly fundamental

for any complementary currency, and that is to fill in the gap after the conventional

financial systems. Moreover, most of the convectional financial systems are

designed with the one-size-fits-all approach. Therefore, within a specific

community, there might be important resources, which are, however, unexploited.

When speaking about complementary currencies, the resources being considered

“unexploited” are most often human resources, a.k.a. the members of the

community. Furthermore, complementary currencies can be adjusted to meet these

specific needs of such community. More specifically there are several goals that are

common to the vast majority of all complementary currencies: to increase financial

stability and independence of the community, to leverage unused resources, to

revitalize the community and mainly, to strengthen it.

i. Why we need Complementary Currencies?

Indeed, one might argue that in most cases, there is nothing wrong with the

regular monetary systems. It is not hurting anyone (usually) and there are

ways how to support and accommodate local communities and those in

- 19 -

need. However, “as long as there is grinding poverty next to extreme wealth, financial crises that destroy livelihoods and ruin lives, and needs being unmet even though we have the skills and resources to meet them”, there is still big gap that needs to be filled (North, 2014). And complementary currencies are the tool that is capable of doing just that.

Following, there are just three examples of what is commonly wrong with the conventional financial systems and how a complementary currency scheme can provide a solution:

1) Money rewards people in unfair ways; this is a concern which must

have creeped in most people’s minds before. Why is it that the

conventional financial systems value some people so highly, even if

their work does not bring real value/happiness to the society? Petr

North provides a great example of “the bankers who developed the

complex financial vehicles that regularly get us into financial crises”

(North, 2014). On the other hand, there are people who might be highly

skilled, working physically hard or even diligently caring for others,

yet, they are rewarded very poorly. The solution, North proposes, is a

complementary currency which rewards people fairly for the work they

do. This can be seen in Time Banking, which will be discussed in

following chapters. Of course, such solution can hardly be developed

on a large national scale. However, it can work greatly for smaller

communities.

2) Generally, we value money too highly; the bottom line is: money

should be a tool, not the end itself. However, often, people chase

- 20 -

money just for the means of it. They substitute money for happiness. It

may be argued that this is very dull and short-sighted satisfaction. Still,

we are on a “consumption treadmill” which forces us to hunt for money

so we can spend more and more, while forgetting real values in life.

Therefore, we need a “more convivial form of money that helps us live

at the pace we want to, earning the living we want to” (North, 2014).

3) Money leaves the communities; When money is spent in big chain

stores, most of it leaves the community, instead of circulating locally

and providing local people with living; something what is called the

“local multiplier”. The obvious possible contra argument is that if

money leaves one community, it flows to the other, which benefits

from it. However, generally, money does not flow where it is most

needed, but where it makes most profit to its holders. This then creates

great instability and imbalance (North, 2014). Once again,

complementary currency, which can be circulated only locally,

provides a solution to this problem. Moreover, the community can

decide when and to whom (inside or outside of the community) provide

financial help, when necessary, by converting the complementary

currency to the national currency. But the freedom of choice is the

essential element, which a complementary currency provides.

Now, that we understand what complementary currencies are and why they might be necessary for the better functioning of a community, lets explore its history as well as some of its specific applications.

- 21 -

b) History

Even though there were some examples throughout history when a complementary

currency scheme developed within an isolated community or when a community

upraised and decided to develop its own currency to “revolt” against the use of

conventional monetary system, these examples amount to a small number of cases.

In the majority of cases, complementary currencies developed because of a crisis in

the conventional monetary system, trade depression, war or because of a simple

shortage of regular currency. Rachael Tibbett confirms this in her book Alternative

currencies: A challenge to globalization?: “Examples from wartime include the

special government issues of Greenbacks during the American Civil War, the

Bradbury ‘Treasury Notes’ and Kriegsgeld issued by Britain and Germany,

respectively, during the First World War” (Tibbett, 1997).

Furthermore, over the course of history, three kinds of complementary currencies

have developed. Generally speaking, these are token currencies, scrip money and

currency relying purely on credit:

Firstly, a token currency is a currency which is issued privately and is associated to

a specific good. Looking back to the period of the US Civil War in the nineteenth

century, probably the most “verifiable of unaccounted monies is the token currency

issued by transportation companies, by bridge, ferry, and toll road companies, and

- 22 -

by municipal enterprises” (Timberlake, 1981). In his article “The Significance of

Unaccounted Currencies”, Richard Timberlake provides a great example of the

Monroe Railroad and Banking Company of Georgia, which issued one-dollar notes that entitled the bearer to ride 12 miles, two-dollar notes to ride 25 miles, and three- dollar notes to ride 37 miles (Timberlake, 1981).

Secondly, there is the scrip money. Unlike the token money, scrip money could be redeemed for a range of goods and services. Therefore, scrip money could function along with the official currency as an alternative medium of exchange. As an example, Timberlake described an iron company which issued scrip money: “in

1847 by the Ozark Iron Company’s store somewhere in Arkansas offered to ‘Pay to the bearer $5 in Merchandise at our [sic] cash prices” (Timberlake, 1981).

Such scrip money which were issued by different companies in the industrial sphere were usually redeemable only at the local store which was in some way connected with the company. This is something similar to the system of company meal tickets, which are issued and provided to the employees by many companies even nowadays. Back in the 19th century, however, the purpose of scrip money was to serve as a medium of exchange between paydays. One could compare it to a bridge loan. As Timberlake explains, at the pay day, the amount of scrip money was counted and deducted from the worker’s salary (Timberlake, 1981).

Thirdly, there are the complementary currencies relying purely on the concept of credit without using a medium of exchange. This is a similar scenario to the story of the baker and the tailor from the beginning of the paper. In such a system, two or

- 23 -

more people leverage debt obligation when they “pay” each other with the promise

of doing a service or providing a good to the other sometime in the future. The

mutual credit currency system therefore represents a certain amount of service/work

or a value of a good that can be transferred. As Timberlake states, there was a high

growth in the number of societies that embraced mutual credit complementary

currencies in the second half of the 20th century (Timberlake, 1981). Moreover, the

historical credit base complementary currency systems laid the foundation for its

modern adaptations, such as time banks or mutual learning platforms.

c) Time banking

Time banking has its origins in Japan, where Teruko Mizushima founded the first

time bank in 1973. However, the idea had been developing in her mind since 1940s,

when she first realized the problem of aging population. Her solution was supposed

to allow people to work (in other words to accumulate hour credits) when they were

young and capable so they can receive help when they needed it in old age. As Jill

Miller describes in her work on Mrs. Mizushima: “She based her bank on the simple

concept that each hour of time given as services to others could earn reciprocal

hours of services for the giver at some stage in the future” (Miller, 2008). Later,

specifically in the 1990s, the movement of time banking took off in the United

States. And according to the US time banking pioneer Edgar Cahn, the concept

remained pretty much the same as the initial Japanese one: “When they［members

of the scheme］spend an hour on an activity that helps others, they receive one time

- 24 -

credit. When they need help from others, they can use the time credits that they have accumulated” (Cahn, 2015). The latest development of time banking is known from the United Kingdom, where it was adopted from the American model in the late

1990s. Again, the concept remains the same: “Each hour of service given earns a time credit, and a broker finds participants to meet others’ requests for help, and keeps track of the exchange of time credits” (Seyfang, 2004).

Whether it is in Japan, the United States or the United Kingdom, time banking, sometime also referred to as “time trade”, is there to fill the gap after the regular monetary systems; just like any complementary currency should. Additionally, the goals of a time bank are to rebuild the mutual trust between members of a community, as well as to strengthen the community as a whole. Such system also aims to enable individuals and communities to become more self-sufficient as well as to insulate themselves from the vagaries of politics through 5 core principles of time banking. These are:

1) We are all assets: Every member of a community is an asset capable of

producing something valuable for others

2) Some work is beyond price: It needs to be distinguished between different kinds

of work. For example, raising healthy children or revitalizing neighborhoods

cannot be measured with a monetary price

3) Helping works better as a two-way street: aka the reciprocity in helping. The

focus must be shifted from providing one-way service to mutual helping, which

improves the common environment

- 25 -

4) We need each other: Social networks are necessary for a community to function

well, because they are stronger than individuals. Communities are built on

strong social networks

5) Every human being matters: In other words, every human being must be

respected: “Respect underlies freedom of speech, freedom of religion, and

everything we value” (Hallsmith, 2011).

Since the specific use case at the end of this paper will describe the use and functioning of a complementary currency system within a prison environment/community, here is a real-world example of time banking system in a prison in Gloucestershire, UK:

The project is called “Fair Share” and it was founded in January 1998 with the aim to explore ways of using a time-based complementary currency (time banking) to rebuild communities. In the official words of the organization:

The initial aims of the project encircled the notion of keeping prisoners

engaged with their family in their pre-existing communities through the

process of contributing to the family unit through the use of time credits

even whilst serving time in Prison. Time banking had already established

itself as a fantastic way to engage the local community; extending the

principles to the nearby prison was the next logical step in order to

develop its potential as a tool for community engagement.

(Community T.B., 2013)

- 26 -

To explain how the program works, lets examine the project from its beginnings.

Initially, a bicycle shop was created within the penitentiary. In this shop, the

inmates were able to learn (under the supervision of tutors and guards) new skills

through repairing, servicing or even making brand new bikes for the community.

For each hour a prisoner worked within the bicycle shop, he/she was compensated

with one time credit. He/she then had the option to spend this time credit by

donating it to his/her family, allowing the family to receive 1 hour of help for each

credit from other members of the community (the local time bank already

functioned in the local town) or for extra visit with the family itself (Community

T.B., 2013). However, since the beginnings, there have been many other projects

through which the inmates could earn time credits.

Even though the program has faced several challenges, such as some of the

prisoners not wanting to participate for various reasons, as well as some institutional

barriers, after nearly 20 years, the program is considered to be highly successful.

Currently, the Fair Share runs eight time banks in several towns in south England

with great references from the prisoners but also from the members of the

community (Community T.B., 2013).

d) Mutual learning

Another field that leverages the concept of complementary currencies in nowadays

world is the system of mutual learning. Mutual learning, defined as the process in

which students, as well as ordinary people, teach each other (sometimes also

- 27 -

referred to as “learning through teaching”) has its origins in France at the beginning of 19th century. As Bernard Blandin states: “The number of young children attending this type of schools rose from 165 thousand in 1815 to 1,1 million by the end of 1820” (Blandin, 2012). The reason why this type of schooling was spreading so quickly was plain cost cutting. The increasing number of students after the

French Revolution meant that the need for more teachers increased as well.

However, a well-educated and experienced teacher also meant a high cost for the schooling institution. Trained students, so called “moniteurs”, on the other hand, were capable of helping younger students and represented no additional cost for the institution.

One of the surprises, Blandin explains, that emerged from the large-scale experiment of the systems of mutual learning in the 19th century France was that this type of schooling was not only much cheaper, but turned out to be very efficient in time: the curriculum, which was designed for 5–6 years of study, was completed on the average in 2–3 years by the students (Blandin, 2012).

Thanks to technological advancements and globalization, mutual learning has moved to whole new level in its modern form. No more it is used only within one type of institution or a community but it can also be functioning globally via the internet. Moreover, it has expanded from a purely educational scheme to other fields and interests: “it could be people who know something that others find of interest, ranging from a language or playing a musical instrument to hobbies as sailing or mushroom hunting, etc. In a business context, entry level employees could be

- 28 -

trained by more seasoned employees, etc.” (Blandin, 2012). In other words, nowadays, the potential of mutual learning is nearly boundless.

So how does the concept of mutual learning relate to the topic of complementary currencies? In the 21st century, there are online platforms that allow different people to connect and to make a mutual deal. Using an example, such a deal could represent an hour of tutoring in a given subject over a web camera. If the other person does not have anything to offer to the first person directly, the reward is then represented as a credit unit in behalf of the tutor. He/she then can use this unit to

“buy” teaching/tutoring services from other people on the platform. This is something similar to what we saw in the concept of time banks in the previous sub- chapter. However, mutual learning systems are designed more specifically on actual learning and advancement of education than providing a service of any kind.

In his Proposal for the Brazilian educational system, Professor Lietaer introduced one other specific example of how to leverage the concept of complementary currencies, denominated in mutual learning credits. In this example, these credits are called Sabers. Even though the name of this credit unit originates in Portugal

(meaning “to know” in Portuguese), it was originally designed for the Brazilian government (Lietaer, 2006). The way such a system would work goes like this: the learning currency units (in this case the Sabers) would be allocated to the lowest level of learners, which in most conventional school systems are students around 6-

7 years of age. These kids would receive the currency for free, however with the condition, that they will choose a tutor who will mentor them; this would be a

- 29 -

student of around 10 years of age. The learning currency units are transferred to the older student in compensation for the hours spent mentoring. The 10-year-old can do the same thing with a 12-year-old and the latter with a 15-year-old, and so on.

Naturally, though, this process cannot go endlessly. Therefore, at the end of the chain, Lietaer continues, the institution (most likely a university) would be able to exchange the learning currency units for conventional money through an educational fund with some kind of a discount, to compensate the fact, that most of the costs at a university are fixed and the marginal cost of an additional student has little impact on those expenses (Lietaer, 2006). Such a process would cut costs dramatically and boost up the educational system. Again, that is exactly what a complementary currency should be doing: helping a community by filling the gap which is left behind a conventional monetary system.

Graphical representation of the Saber allocation system (Hallsmith, 2011)

- 30 -

e) LETS

The previous subchapter addressed, among other things, time banks and mutual

learning schemes. As was shown, the very beginnings of both of these schemes can

be traced many, many decades back. However, in modern days, namely in the

1990s, they have also developed into something called “LETS”, or Local Exchange

Trading Systems.

According to Peter North, LETS scheme is: “a network of people who agree to

share their skills with each other by means of a local currency that they have created

and agreed to use” (North, 2010). The definition is often expanded by terms such as

“locally initiated”, “community based” and “non-profit enterprise”. All in all, the

point of having a LETS scheme is the same as the complementary currencies

described above. In the words of the UK Local Exchange Trading and

Complementary Currencies Development Agency:

LETS offer equal opportunities to all - whether employed or

unemployed, financially secure or on low income, black or white, able

or disabled. LETS use a system of community credits, so that direct

exchanges do not have to be made. People earn LETS credits by

providing a service, and can then spend the credits on whatever is

- 31 -

offered by others on the scheme: for example childcare, transport, food,

home repairs or the hire of tools and equipment (LETS UK, 2016).

The origins of the very first LETS scheme can be traced to 1983, in Courtenay,

British Columbia, where Michael Linton created the so called Comox Valley

LETSystem. Eventually, this system grew to about 500 members, creating a significant body (nowadays, some LETS have only about 50-100 members, while others include 300-500 people). Later in the 1980s and in the 1990s the LETS schemes spread around the world to countries such as Australia, New Zealand and mainly the United Kingdom. Besides the UK, LETS schemes were also established in Germany and France before spreading out to other EU countries (North, 2010).

Moreover, North explains, there are several LETS schemes in the world which are

20+ years old and still functioning well. These are, for example: North London

LETS, Sheffield, Ashley, and Brighton LETS; all in the UK (North, 2010). As a matter of fact, the LETS trend is very strong in the United Kingdom. One might even argue that it is the strongest in the world.

Generally speaking, the way a LETS scheme works is very similar to what was described in previous chapters when talking about time banking or mutual learning systems. The reason is simple: both of these are pedestals for LETS schemes.

Simply put, a group of interested people get together and first they create the LETS currency (they give it a name and create the IT infrastructure and security measures). Then a directory of supply side (things people can offer) and demand side (things people want to have done) is created. This directory is being

- 32 -

continuously updated as new members enter the scheme and supply and demand sides develop. This directory also involves a contact database so the network can communicate easily. Moreover, the LETS currency is “created as credits move from one account to another so new members may spend before they earn” (LETS UK,

2016). It is also important to note that the sum of all accounts in the scheme is always zero. Also, over a reasonable amount of time, “everyone is expected to personally balance the credits they spend with those they earn, so their personal account balance also hovers around zero” (North, 2010). There are no interests paid or charged to any accounts, because that would go against the fundamentals of

LETS.

The trading itself within a LETS scheme is then quite straight forward: when a person, let’s call him Joe needs a haircut, he submits the request into the LETS system (demand side). Another person from the community, let’s call her Amber, is notified by the system, because she previously declared her services as a hairdresser. Therefore, Joe is connected with Amber, who cut’s his hair and Amber earns credit to her LETS account. She then can spend it elsewhere in the community

(within the LETS scheme). On the other hand, Joe now has the obligation to pay off his debt to the community by providing his services. This way, the LETS currency can circle around. Once again, coming back to the beginning of this paper, when the example of the baker and the tailor was discussed, mutual trust and public reputation play an essential role in any LETS scheme. If Joe will accumulate too much debt and is known for never paying it back to the community, the rest will

- 33 -

naturally stop providing services to him = grant him debt. This will drive Joe out of

the LETS scheme, and his functioning within the community will be aggravated.

IV. Advantages and limitations of CC

At this point, the reader should have a clear understanding of the alternative concept of money on which complementary currencies are founded. Moreover, the very fundamentals and basic concepts of complementary currencies have been introduced and explained.

Therefore, it is time to start analyzing the characteristics and attributes of complementary currencies themselves. In other words, what are the advantages of a complementary currency over a conventional currency? In contrast, what are the limitations and risks, which a community leveraging a complementary currency faces? This chapter introduces answers to these analytical questions.

a) Advantages

Starting on the more positive note; so far, this paper was written in the spirit of the

advantages and great potential of complementary currencies, thus, let’s explore this

point of view in more detail first.

- 34 -

The advantages of any complementary currency can be divided on two parts: the economical ones and the community (social) ones. However, it must be understood that these two are strongly interlinked with each other and are influenced mutually:

i. Economical

The economical advantage of a complementary currency, which is most

likely cited the most often, is the stimulation of a local economy. For

example, by creating a new complementary currency, the total amount of

money in the local economy increases. Though one might argue this will

lead to an immediate effect of inflation, this is not always the case, as

complementary currencies focus on different and unused resources within

the economy. In other words, the complementary currency will allow the

members of the economy to purchase/leverage resources, which they could

not purchase/leverage before with the conventional money. This will

consequently result in the increase of purchasing power that the members

of the community possess. On the supply side, more people have the

opportunity to offer their goods and services as the demand rises.

Moreover, leveraging a complementary currency, local business

development is encouraged. This is strongly connected to the usage of

previously unused resources. For example: “Rather than relying solely on a

- 35 -

high interest commercial loan, entrepreneurs are able to procure at least

part of the goods and services they need for startup simply by making a

commitment to supplying the products/services of their labor to the

community sometime in the future” (Salverda, 2015). Further, the

avoidance of high interest rates by leveraging a complementary currency

provides great opportunities not only for SMBs but also for regular people

who now can afford to leverage credit on regular basis.

One other economical advantage, which was already touched upon before,

is the “local multiplier”. As mentioned above, the local multiplier effect is

a phenomena describing a situation when the local money does not leave

the local community and rather stays inside of it, stimulating it and creating

even more wealth. Also, the local multiplier effect increases the liquidity of

money within the local economy, as more resources are then available.

ii. Social

Besides the economical advantages, complementary currencies also have a

great influence on the social aspects of a community. As mentioned by many

experts on complementary currencies, the social improvements caused by

complementary currencies are often far more important than the economical

consequences. Some even argue, that the economical improvements are

based precisely on the social improvements: “In an indirect way, it may be

- 36 -

exactly these social benefits which determine economic success over the

long run” (Salverda, 2015).

Firstly, complementary currencies generally strengthen the community. In

other words, people start to recognize the skills and abilities of other

members of the community. Suddenly, the inter-personal relationships stop

being based on wealth and tend to be based on humanity instead. Here we

can recall the 5 core principles of time banking which are based on

respecting others and allowing everyone to contribute to the community. The

ever-present focus on money creation and possession is no more so

significant with complementary currencies. Indeed, this may sound as some

socialist/communist ideal. However, the core aim of any complementary

currency is to strengthen the local community and not to scale the scheme

over the whole country; after all, that would not be possible anyways. With

that being said, since complementary currencies keep the resources (money)

within the economy, the members of the community no more have to

migrate to urban areas (a very strong trend in past couple of decades4) ,

because they seek a decent employment and better pay.

However, it is not always only about the salary. Since complementary

currencies leverage the unused resources, members of the community have

the opportunity to find a job they “like to do” instead of a job they “must

do”: “By providing a new market for goods and services, the participants in

4 http://www.forbes.com/sites/danielrunde/2015/02/24/urbanization-development-opportunity/#3086cb996277

- 37 -

the system offer what they want, rather than being forced to perform work

that they would prefer not to do if they had the choice” (Salverda, 2015).

Lastly, complementary currencies have the amazing power of discouraging

environmentally destructive activities. The explanation is simple: the

monetary value of goods and services is suppressed, along with the profit

making based on interest rates. In such a setting, there is no incentive to cut

down a tree today in order to begin accumulating interest from its sale in

upcoming times. Moreover, in this system, future units of local currency are

worth more than those exchanged today (Salverda, 2015).

b) Limitations

Based on the arguments mentioned above, complementary currencies surely seem

appealing and capable of solving whole lot of problems within communities.

However, there are, naturally, limitations and drawbacks of implementing a

complementary currency scheme within a community.

The first possible drawback, which most likely comes to a lot of people’s mind is

the refusal of members to participate. That is exactly what the initiators of the Fair

Share program (see page 26) faced at the beginnings of the project. It must be

admitted, however, that in their case it was somewhat easier to deal with this

problem, since the participants of the project were inmates with limited rights. In a

totally free community, on the other hand, it might be slightly more complicated to

- 38 -

get people involved in such scheme. Mainly, the lack of knowledge of complementary currencies and their processes may discourage many people from involvement. Therefore, it is very important that the members of a community are well aware of the fundamentals and practices in such a scheme so any doubts are reduced.

Even if enough people are gathered and the scheme/system is started, there is no guarantee that it will catch on. The members may be using it for a while without seeing any obvious benefits and results and therefore be discouraged to continue to participate. Though, it must be understood that complementary currency schemes usually take longer periods of time before they “settle” and before people get used to it. After all, it changes not only the functioning within the community but also the mind-sets of the members.

Besides the initial overhead expenses for setting up the whole system, the community implementing a complementary currency scheme usually faces another problem, and that is the significant complication in book keeping of businesses. In most cases, businesses within a community using complementary currency scheme function in both systems; the conventional one with the conventional money, and in the complementary system with the complementary currency. This greatly complicates the way such a business keeps its accounting and other finance books.

For a large company, this might be a minor problem, but for small entrepreneurs, this can be a real pain, preventing them from getting involved with such scheme.

- 39 -

Not only that a complementary currency system can cause significant complication

of book keeping of small businesses, but it also fails to meet some of the official

national fiscal policies. In other words, with the vast majority of the complementary

currencies, it is not possible to pay taxes to the national government, as there is no

use for them anywhere outside of the local economy which issued them. Therefore,

not only businesses, but also individuals may find this as yet another complication

when using the complementary currency system. Moreover, this partially answers

the first of the two research questions; complementary currencies cannot fully

substitute the conventional currencies, because they fail to meet some of the

national fiscal policies.

Speaking of the relationship with the official governmental policies and institutions,

there is one more problem with complementary currencies; and that is the lack of

governmental insurance of it. Again, in the vast majority of cases, national

governments do not back complementary currencies, like they do with most

conventional currencies. For example, the European Union has set up the Deposit

Guarantee Schemes, which “are designed to insure citizens against bank insolvency

and thereby limit the possibility of systemic bank runs, which they largely did in the

last crisis”5.

This means, that no matter the cause of failure of the bank, the European Union

will, to a certain extent, refurbish the savings of the citizens. Unfortunately, this

does not generally hold for the complementary currency systems. If the system

5 http://ec.europa.eu/epsc/publications/series/5p_edis_en.htm

- 40 -

collapses, be it for a reason of fraud or it simply dissolves, there is no guarantee, that the members of the scheme will regain their value, which they have gained/stored in it.

It is apparent that the whole idea behind the concept of complementary currencies is to bring the community together and somewhat protect it from the negative influences coming from the outside world. One might correctly argue that this is against the current trend of ever-present integration and globalization. However, the question is if integration is really the right direction of healthy progress. Indeed, it might be beneficial in some cases, though, it can be harmful in other. European

Union is a great example of this: the benefits of free movement and other conveniences are undeniable, but there are arguments being made that individual countries would be better off on its own.

Connected to the encasement of a community which leverages a complementary currency scheme is the problem with international trade. As mentioned above, complementary currencies are usually unusable in international trade, because they cannot be exchanged anywhere else besides from the community that issued them.

If such a community wishes to trade product of its complementary currency scheme with the outside world, it has to convert the complementary currency to the conventional, internationally recognized currency. Some CCs are backed by the conventional currencies since their establishment and the conversion is therefore simpler. In any case, it must be admitted that this adds an extra barrier to

- 41 -

international, or even inter-community trade. On the other hand, it is the cost of

having the protective barrier, which defends the community from outside shocks.

And lastly, even if everything goes well and the community manages to implement

and run the complementary currency scheme, there is the so important question:

What is the time horizon in which such scheme will function? Is it expected to run

forever? After all, one of the main purposes is to stimulate the local economy. Can

the trend of stimulated growth last forever though? If not, what happens with the

last holders of the currency? Will they be able to sell/convert it to the conventional

currency? These questions can get very complicated and tricky. Therefore, they

must have a clear answer at the beginnings of any complementary scheme.

Otherwise, they can bring a great set of complications to the community later in

time.

V. Incentives in the Czech Republic

Up to this point, the core fundamentals and attributes of complementary currency schemes were introduced and explained. Moreover, the advantages as well as disadvantages of such schemes were presented. But before this thesis can proceed to its final stage, that is the hypothetical, though specific use case of a penitentiary leveraging a complementary currency system in the Czech Republic, it is important to analyze the local environment and attitudes.

a) Complementary currencies in the Czech Republic

- 42 -

Speaking of the complementary currency systems in the Czech Republic, the extensity of this trend is arguably insignificant. According to RozLETSe Czech

Republic, there are only few LETS systems in the Czech Republic which are functioning today. There are also several smaller groups of CC enthusiasts who are spread around the country, though the number of members in these groups generally amount to low tens. The total amount of people leveraging a LETS scheme in the

Czech Republic is then in the low hundreds (RozLETSe, 2015). This is indeed very insignificant compared with countries with long and strong LETS tradition, such as the United Kingdom. On the other hand, it is apparent that Czechs are not repulsive to such systems. Arguably, the main reason why such systems are not spread more extensively is that the trend has simply not penetrated the country just yet.

Moreover, though the financial literacy of Czechs is relatively better than financial literacy in many countries in the world (NFEC, 2015), the knowledge about complementary currency systems is very slim. It must be admitted, nonetheless, that

Czechs are looking for ways how to leverage alternative currencies. For example, the virtual currency Bitcoin is becoming well-known in the Czech Republic and is being used on a regular basis. Though Bitcoin is not a true complementary currency in the sense which this paper examines them, this proves, that there is a will to leverage alternative currencies. Therefore, it is arguably a matter of time until the trend of complementary currency schemes penetrates and spreads significantly in the Czech Republic. It can be also argued that there are many instances in the Czech

Republic where such complementary currency scheme would be beneficial. And because this paper will introduce the use case of a complementary currency scheme

- 43 -

in a prison in the Czech Republic, the next sub-chapter, therefore, introduces the

environment and incentives in the penitentiary system in this country.

b. Introduction to penitentiary environment in the Czech Republic

According to the Prison Service of the Czech Republic6, there is currently 35

penitentiaries with around 20 000 inmates in them in the country. Moreover, the

penitentiary system in the Czech Republic is somewhat specific. Since it was

significantly reshaped in the year 1989, it does not have such a strong tradition as,

for example some penitentiary systems in the United States of America. Not only

does the Czech system not have such a long lasting tradition, it also lacks some

other important characteristics; for instance, more regular and extensive working or

education programs. However, the newly proposed legislative conception aims to

change this. This sub-chapter introduces the main incentives of this penitentiary

conception, as well as its main points/goals which set solid base for a possible

implementation and utilization of a complementary currency system.

The main goal of the new Penitentiary Conception Strategy 2025 is to reduce the

current 70% recidivism to below the level of 50% by the end of the planned period.

This is supposed to be done through specialized education and working programs

for the inmates. According to the Czech News Agency, 44% of the people

imprisoned in the Czech penitentiaries have only an elementary education.

Moreover, other 38% of the inmates finished at only a lower-level high school

6 http://www.vscr.cz/generalni-reditelstvi-19/informacni-servis/rychla-fakta/

- 44 -

programs (CAN, 2016). Considering the fact, that besides the low level of education, the inmates usually do not have much of working experience, it is often very difficult for them to re-enter the society/community and to become its valuable contributors again. Consequently, the recidivism is at such a high rate. Naturally, such programs are not suitable for everyone; for example, criminals with serious charges who refuse to co-operate are not the primary target group of this conception strategy. However, as the Czech Minister of Justice, Robert Pelikán, explained, there are still a lot of people who got into the penitentiary system because of some

“unfortunate” set of events. These individuals are then willing to partake in such programs as it is primarily to their own benefit (CAN, 2016).

Firstly, speaking of the educational programs, the proposed conception suggests, that each prison should have entry interviews, which would evaluate the abilities and desires of each incoming person. Based on this interview, an individual plan should be set up. At the same time, however, these plans should meet the current needs of the “outside” society. For example, if there is a shortage of a manually skilled workforce in the society, there should be an effort to create education/training plans, which would produce such workers. Besides these specialized education systems, there should also be optional educational courses available for the inmates, for example language or computer courses.

Secondly, regarding the working programs, the new conception suggest that the inmates should be allowed/encouraged to work, while serving their sentence. This should be done through participation on government-ordered projects, such as

- 45 -

construction of public roads etc., but also within each penitentiary itself. This could

be done through creating, for example, prison fields, bakery or manufactory shops7.

This is very similar to the successful Fair Share model that was introduced on page

26 of this paper. All in all, such working programs allow the inmates not only to get

used to a set working schedule and pattern but it also teaches them discipline,

improves their skills and gives them the chance to earn money to either repay their

debts or even to save up so their return to the regular life is smoother.

This new penitentiary conception is indeed very admirable. It aims to improve the

chances of the inmates to re-enter the normal life as well as it wants to disburden the

society as a whole since the inmates will be contributing while they are imprisoned.

However, it is more of an encouraging strategic plan than a specific guideline. It

does not provide the particular prisons with a specific manual on how to approach

the issue. In other words, it does not have a specific tool that could be implemented

in order to meet this strategic plan. On the other hand, it can be argued, that a

tailored complementary currency scheme could easily serve as such tool for

particular institutions; much like we saw it in the Fair Share program in the United

Kingdom.

VI. Practical Use Case – a CC system in penitentiary

7 http://zpravy.idnes.cz/vice-prace-penez-a-vzdelani-pro-vezne-ds4-/domaci.aspx?c=A160124_205932_domaci_rych

- 46 -

Undoubtedly, it is essentially important to understand the theory. However, theory becomes redundant if it cannot be applied in practice. So, even though most of this paper, until this point, proposed and explained the theory behind complementary currencies, now it is time to consider its application in to to the real world. The author of this paper comes from the

Czech Republic and he has gained education there, so it is reasonable to apply the theory into the Czech environment as he is most familiar with it. Moreover, drawing from own inspiration, as well as from the inspiration of similar projects from other countries (see Fair

Share program on page 26), the author believes, that the prison environment in the Czech

Republic is very suitable for the application of a complementary currency system.

As described in the previous chapter, there were significant, and mostly positive new incentives in the Czech prison system. Namely, it is the current Penitentiary Conception

Strategy, which aims to improve the overall quality of the system. The primary goal is to improve the chances of re-embodiment of the inmates to the normal society and therefore, to decrease the rate of recidivism. This is to be done through implementing new, and extending the current working as well as educational programs, which would be available to the inmates. A complementary currency system applied in a penitentiary could then serve as the tool, which would integrate the programs and continuously aid the process.

a. Description of the penitentiary

Like with most of new concepts that are to be implemented, it is quite usual, that a

pilot project is launched first. The scope of this thesis does not allow to

elaborate/implement the concept of complementary currencies to the entire prison

- 47 -

system of the Czech Republic, anyways. Therefore, one prison, which meets the

standards of prisons in the Czech Republic, was selected. This one prison, with an

implemented complementary currency scheme will serve as a representative unit for

the other prisons in the system and it will show: 1) if the concept is reasonable for a

particular penitentiary and 2) if there is potential to expand this concept into the

other prisons in the Czech Republic and if it could even integrate the whole system

altogether.

According to the Prison Service of the Czech Republic8, there are four kinds of

prisons in the country. They range from the low level security prisons to ones with

the maximum level security. After analyzing the successful Fair Share program

from the United Kingdom, it is reasonable to replicate its approach, and to

implement the pilot project of complementary currency system into a prison with

the low security setting. The reasons are quite simple: in the Czech Republic, this

kind of prisons hold inmates, who were prosecuted for “soft” crimes and crimes

committed in untidiness8. Moreover, such people usually are not recidivists and they

generally have the motivation to improve their current situation. Their movement

inside of the prison is not strictly limited, and most importantly, it is somewhat a

common practice, that the inmates occasionally participate on working programs

outside of the prison. The director of the prison can also grant the inmates an option

to visit either their family, church or to visit cultural and sport events, when he/she

considers it suitable8. Arguably, this kind of prison environment is almost a perfect

set up for the implementation of a complementary currency scheme, which will only

8 http://www.vscr.cz/generalni-reditelstvi-27/information-service/-1418/

- 48 -

make it more efficient. After all, such prison environment is very similar to what

could be seen in the Fair Share program.

To sum it up, at the beginning of the use case, we have the platform = a prison with

low level of security, where the inmates are quite free to move around and

communicate with each other, as well as they generally have the motivation to

improve their current life situation. Moreover, there are some possibilities of how to

do so through the working and educational programs. Now let’s start describing the

complementary currency system itself, which is to be implemented into this

platform.

b. Description of the scheme

First of all, goals and objectives of the complementary currency system must be

stated. It should be made clear that the complementary currency system is a

supportive tool to the Penitentiary Conception Strategy. Therefore, the primary goal

of the complementary system is to make the process more efficient and manageable;

in other words, to help to improve the situation of inmates, and therefore, to

contribute to the community. Again, this is the primary goal of any complementary

currency system. Also, the complementary currency scheme will bring some side

advantages, which will be described later.

i. Working programs

- 49 -

As stated by the Prison Service of the Czech Republic9, there already are

some working programs, which the inmates can participate in. Through

these programs, the inmates can earn certain amount of money, which is

consequently used to either pay off their debts or/and it is put into a savings

account. Though this initiative is good, it does not fulfill the potential.

The complementary currency scheme will work with the newly created

currency, which will be issued by the penitentiary itself. Let’s call it

“Ancora”. Thanks to the new Penitentiary Conception Strategy, there

should be much stronger co-operation between the penitentiary and the

state institutions ordering construction works. Therefore, there will be

many more opportunities for the inmates to work on these projects and

consequently to earn money - Ancoras. However, the process changes

slightly with the complementary currency scheme. So, let’s explore this

process in more detail. When, for example, the Czech Ministry of

Transport orders a road construction and the penitentiary accepts the offer,

the inmates have the chance, under the supervision of the guards, to work

on it. However, the inmates will not earn Czech Korunas as until now but

they will acquire the Ancoras. What benefits will this bring? Well first of

all, for the prison itself, it will increase the cash flow buffer. In other

words, the prison will receive Czech Korunas directly from the institution

paying for the work that has been done. Then, it will convert part of the

Ancora currency with the fixed exchange rate 1:1 (to avoid complications

9 http://www.vscr.cz/generalni-reditelstvi-19/informacni-servis/rychla-fakta/

- 50 -

with fluctuating exchange rates) to pay the inmates. Just like it was being done until now, part of the money earned by an inmate, will be automatically deducted from the wage to pay the debts of the inmate (if there are any). Since the inmates receive Ancoras, which they can use for different purposes (those will be described later), and they will not be able to convert the Ancoras back to the Czech Korunas until they serve their whole sentence, this will mean extra free capital for the prison institution.

One could think of this as a zero-interest loan. Naturally, the institution cannot and should not partake in risky investments. However, this extra capital should be used for improving the facility etc. Although, this is up to the management of the penitentiary.

The inmates, on the other hand, will have the chance to use the earned

Ancoras to buy extra goods and services such as to obtain the let-out passes/attendance on cultural events from the institution. The “extra goods” are represented by the prison cafeteria which will provide different kinds of

“extra” meals and foods. Besides the spending on extra goods and activities, the inmate can save up Ancoras in his/her account, which is handled by the back-end system. This will work just like a bank account, with the difference, that there will be no interest rate on the savings. There are three main purposes for using Ancora in the penitentiary over the

Koruna:

1) To teach and improve financial literacy of the inmates through;

2) simulating activities such as in a real-world economy.

- 51 -

3) One may argue that this could be done also with the conventional system using the Koruna. However, the third aim is to isolate the penitentiary from the outside world and, consequently, mitigate the black market inside of the prison. Since the Ancora has literally no value for the outside world, this should be a significant burden for illegal trade coming from the outside (be it drugs, cigarettes etc.). In other words, inmates will be cut off from

Koruna cash. Naturally, the black market will most likely not be eliminated completely. However, the complementary currency scheme should mitigate it significantly.

Also, regarding the work programs, the new Penitentiary Conception

Strategy encourages prisons to start “in-house” projects. This could mean an opening of a local bakery, bike or furniture shops. The inmates will be employed in these shops and they will learn, under the supervision of tutors and trainers, new skills, while they create some value. Again, they will earn

Ancoras. There is also a possibility of allowing the already skilled inmates to provide services to other inmates, on their own (for example a hair- dresser), but this option can get quite risky and complicated to manage, so it should be up to the management of the penitentiary if they consider it to be suitable or not.

ii. Educational programs

One of the main initiatives in the new Penitentiary Conception Strategy is the development of more extensive educational programs, some of which

- 52 -

will be mandatory and the others being optional. The underlying goal behind this initiative is to decrease the level of recidivism in the Czech

Republic which is generally caused by the low educational level of the inmates. As described above, the entry interview will decide in which of the programs should the particular inmate participate to reach at least the basic level of education (for example a manufacture indenture or a high school diploma). These programs will be mandatory for the inmates and are supposed to be subsidized by the state. Moreover, the plan is to also have optional courses for the inmates; be it a foreign language course, IT course or a manufacturing course. The funding of such courses, however, is highly unassured. In other words, one might argue that such programs would be an

“unnecessary burden” for the budget of the state.

There is a win-win solution to this problem, though. Since these optional educational programs are not mandatory (i.e. the inmates are expected to want to participate in them), why not let them pay for the courses at least partially? Specifically speaking, the two sources of funding could meet halfway: the program would be partially subsidized by the state and the rest would be covered by the accumulated Ancoras of the inmates. The ideal scenario considers an inmate to have, besides the natural motivation to learn new things, even greater motivation to study, since he/she has to pay for the course. Once again, this will simulate the mechanics of the outside world and therefore will teach the inmates the “normal functioning” in a society.

- 53 -

c. Considerations and assumptions

The scope of this thesis does not allow the above described scheme to be as

extensive and detailed as would be necessary for it to be applied immediately to a

real penitentiary. It is rather a starting point, on which a particular penitentiary

should build and evolve. There have been many assumptions and considerations

made for the sake of simplicity. This subchapter describes at least some of them.

Firstly, it can be argued, that the fundamentals of complementary currency schemes

are something currently unknown to the vast majority of the prison directors.

Therefore, there might be initial resistance against implementing such a scheme into

their penitentiaries. Besides the considerable initial set-up costs, which include

creating the IT infrastructure, hiring new employees and solving quite complicated

legal issues, there is the natural uncertainty about the overall outcome of the project.

However, all it takes for the complementary currency scheme to be integrated over

different penitentiaries and to be successful on a broader scale, is the one prison

which will agree to run the pilot project. Once this is successful, it will serve as an

example/proof of success for other penitentiaries and the expansion can take place.

Secondly, even if one prison will agree to run the pilot project, there is still the risk

of refusal by the inmates, just like it happened in the Fair Share program (UK). For

example, even though the inmates of such low-security prison are assumed to be

motivated and willing to improve their current life situation (i.e. to participate in

- 54 -

working and educational programs), they will just might as well refuse to co-

operate. The main reason for this is simple: laziness. In other words, it is always

easier to reconcile with the “standard” and not to work for anything “extra”.

However, that is exactly the reason why the low-security prison, which holds people

who still have some meaning in life, was chosen. It is more than probable that there

will be some inmates who will simply not participate in the scheme; however,

overall, the author believes that the majority will find it beneficial for themselves.

Lastly, there is the question regarding the expansion to other prisons after the pilot

project is successful: are all prisons suitable for such schemes? This is very difficult

to answer, because each penitentiary is different in the sense of its inner mechanics

(e.g. are the inmates allowed to work?) as well as in the nature of the inmates

themselves. For example, the Ancora complementary currency system would be

hardly implemented in a prison with “hard-core” criminals who lack the motivation

to improve their situation. The idea is rather to show the beneficial potential of the

Ancora complementary currency scheme for at least some of the types of

penitentiaries and then, the possible integration can follow. In other words, once the

pilot project prooves to be successful in one low-security prison, other low-security

prisons can implement the scheme (with their specific adjustments) as well. After

that, the schemes could be integrated and the prisons could co-operate on its

improving.

VII. Conclusion

- 55 -

It is essentially important that people living in nowadays world have at least a fundamental understanding of the mechanics behind money as well as of basic finance. This will greatly simplify one’s functioning in the financial machinery. Therefore, at its beginning, this paper challenged the conventional understanding of how money came to being and rather introduced an alternative view. The concept of “money as a debt” represents not only much more probably the description of how money was created but also a much more precise description of the money mechanics nowadays. Most importantly, it lays a foundation for the concept of complementary currencies, which are the main topic of this paper. As was seen in the history of complementary currency schemes, “money as a debt” is an absolutely possible, let alone necessary concept. Moreover, there were many successful complementary currency schemes (mainly in the UK), which proved their advantageous potential. Generally, the greatest advantage of a complementary currency scheme is its ability to harness and strengthen the community and its members; and that is done on two sides of the matter, the social but also on the economical. Naturally, there are some drawbacks to leveraging a complementary currency scheme. However, it can be argued, that the advantages of a well- designed and well-implemented scheme outweigh the disadvantages.

Moreover, this paper introduced the Use Case, which implemented a hypothetical complementary currency scheme into a penitentiary in the Czech Republic. For this to be possible, the environment of the prison system as well as the perception of complementary currency schemes in the Czech Republic had to be analyzed. Fortunately, the findings shown that there are great incentives in the Czech prison system as well as there is a potential for

- 56 -

improvement in the perception of complementary currency systems in the Czech Republic.

Also, through the Use Case, the author aimed to answer the two research questions:

Firstly; Do complementary currencies have the capability of substituting conventional financial systems?

After researching the fundamentals of complementary currencies as well as its

real-world applications, the conclusion is that do not have the capability of fully

substituting the conventional financial systems. There are several reasons for it: 1)

the very nature of complementary currency schemes is to provide a community

with “only a supportive” tool to stimulate its economy as well as to enrich its

social bonds. Therefore 2) complementary currency schemes work primarily in

closed communities and thus are not scalable. 3) Complementary currencies have

no value for international trade, which is the cost of defending the closed economy

from external shocks. 4) With most of the complementary currencies it is

impossible to pay taxes.

All in all, complementary currency schemes are not designed to substitute the

conventional financial systems; they are designed to complement it – just like the

name suggests.

And secondly; Would a complementary currency system, which is set up in a penitentiary in the Czech Republic represent a feasible application of CC schemes?

The Use Case presented at the end of the paper shows, that there is a great

potential for the practical implementation of a complementary currency system in

penitentiaries in the Czech Republic. This is significantly encouraged by the

current positive incentives introduced by the Czech prison system. However, the

actual feasibility of such project cannot be fully proven until there is an actual

- 57 -

application of the scheme in the real penitentiary. In other words, the potential is

clearly visible, as well as the possible benefits which it would bring, though these

cannot be practically demonstrated until the scheme is implemented.

To conclude, complementary currency schemes are rewarding tools, which have the power to

improve the situation of a community and its members. After all, this has been proven many

times throughout their history. Moreover, there is still a lot of potential for their

improvements and expansion to new fields. The Ancora complementary currency scheme in

the Czech penitentiary system is only one of many examples.

Works Cited

Ali, T. (2014). Money as Metaphor. On the Horizon, 4. Retrieved April, 2015. Print

Ali, T. (2015, February 17). “What is Money?” - Lecture presented at International Money and

Banking, UNYP, Prague.

Blandin, B., & Lietaer, B. (2012). Mutual learning: A systemic increase in learning efficiency to

prepare for the challenges of the twenty-first century. A FAUSTIAN EXCHANGE,

25. Retrieved January 6, 2016.

Cahn, E. S., & Gray, C. (2015). The Time Bank Solution. Stanford Social Innovation Review,

13(3), 41-45.

CNA/ČTK. (2016, January 07). Nová koncepce vězeňství stojí na vzdělávání a zaměstnání

vězňů. Retrieved March 17, 2016, from http://www.ceskenoviny.cz/zpravy/nova-

koncepce-vezenstvi-stoji-na-vzdelavani-a-zamestnani-veznu/1300148

Community Time Banks, Fair Shares. "Time Banking In Prisons." (2013). Web. 10 Sept. 2015.

www.fairshares.org.uk/files/1413/.../Time_banking_and_prisons.docx

- 58 -

Graeber, D. (2011). “The Myth of Barter”. In Debt: The first 5,000 years (pp. 21-41). Brooklyn:

Melville House.

Hallsmith, G., & Lietaer, B. A. (2011). Creating wealth: Growing local economies with local

currencies. Gabriola Island, BC: New Society.

Humphrey, C. (1985). Barter and Economic Disintegration (Vol. 20). University of Cambridge.

Print.

Miller, J. (2008). Intersections:Teruko Mizushima: Pioneer Trader in Time as a Currency.

Retrieved January 5, 2016, from http://intersections.anu.edu.au/issue17/miller.htm

LETS Link UK: Homepage. (n.d.). Retrieved February 17, 2016, from

http://www.letslinkuk.net/index.htm

Lietaer, B. (2006). A Proposal for a Brazilian Education Complementary Currency. International

Journal of Community Currency Research, 10. Retrieved January 6, 2016, from ESC.

Lietaer, B. (2011). "Bernard Lietaer - PopTech-2011." YouTube, 7007. Web. 6 Sept. 2015.

https://www.youtube.com/watch?v=LHhoWU_L2S4

North, P. (2010). Local money: How to make it happen in your community. Totnes: Transition

Books.

North, P. (2014). “Ten Square Miles Surrounded By Reality? Materialising Alternative

Economies Using Local Currencies.” Antipode, 46(1), 246-265.

doi:10.1111/anti.12039

NFEC. (2015). “Financial Literacy Statistics, Research and Surveys”. National Financial

Educators Council, from http://www.financialeducatorscouncil.org/financial-literacy-

statistics/

RozLETSe. (2015). LETS skupiny v ČR. Retrieved March 17, 2016, from

https://www.rozletse.cz/index.php/lets-v-cr

- 59 -

Salverda, & Powell. (2015). Appropriate Economics, Community Exchange: International Help

Desk on Local Currency Systems. Retrieved February 24, 2016, from

http://www.complementarycurrency.org/helpdesk/benefits.html

Seyfang, G. (2004). Time banks: Rewarding community self-help in the inner city? Retrieved

January 5, 2016, from

http://www.complementarycurrency.org/ccLibrary/materials/time_banks_rewarding_

community_self_help.pdf

Tibbett, R. (1997). “Alternative Currencies: A Challenge to Globalisation?” New Political

Economy. Print.

Timberlake, R. (1981). “The Significance of Unaccounted Currencies.” The Journal of Economic

History. 853-66. Print.

- 60 -

Bibliography

Ali, T. (2014). Money as Metaphor. On the Horizon, 4. Retrieved April, 2015. Print

Ali, T. (2015, February 17). “What is Money?” - Lecture presented at International Money and

Banking, UNYP, Prague.

Ali, R., Barrdear, J., Clews, R., & Southgate, J. (2014). “The economics of digital currencies.” -

Bank Of England Quarterly Bulletin, 54(3), 276-286.

Anderson, W. L., & Anderson, S. D. (2015). “Cyber Currency Education.” Cyber Currency

Education. Franklin Business & Law Journal, 2015(2), 60-69.

Blanc, J., & Fare, M. (2013). UNDERSTANDING THE ROLE OF GOVERNMENTS AND

ADMINISTRATIONS IN THE IMPLEMENTATION OF COMMUNITY AND

COMPLEMENTARY CURRENCIES [Abstract]. Ciriec. Retrieved January, 2016,

from

http://eds.a.ebscohost.com.library.esc.edu/eds/pdfviewer/pdfviewer?sid=77497a02-

9a97-4b0b-b129-a0f07b4048e9@sessionmgr4003&vid=5&hid=4102

Blandin, B., & Lietaer, B. (2012). Mutual learning: A systemic increase in learning efficiency to

prepare for the challenges of the twenty-first century. A FAUSTIAN EXCHANGE,

25. Retrieved January 6, 2016.

Brown, L. H., & Stinneford, R. S. (2015). “Current Developments in Bank Deposits and Payment

Systems”. Business Lawyer, 70(2), 597-603.

Cahn, E. S., & Gray, C. (2015). The Time Bank Solution. Stanford Social Innovation Review,

13(3), 41-45.

- 61 -

CNA/ČTK. (2016, January 07). Nová koncepce vězeňství stojí na vzdělávání a zaměstnání

vězňů. Retrieved March 17, 2016, from http://www.ceskenoviny.cz/zpravy/nova-

koncepce-vezenstvi-stoji-na-vzdelavani-a-zamestnani-veznu/1300148

Community Time Banks, Fair Shares. "Time Banking In Prisons." (2013). Web. 10 Sept. 2015.

www.fairshares.org.uk/files/1413/.../Time_banking_and_prisons.docx

Dodgson, M., Gann, D., Wladawsky-Berger, I., Sultan, N., & George, G. (2015, April).

“MANAGING DIGITAL MONEY.” Academy of Management Journal. pp. 325-333.

doi:10.5465/amj.2015.4002.

Esteban, F., Alós, R., Jódar, P., & Miguélez, F. (2014). “'Ex-inmates' Job Placement. A

Qualitative Approach.” Revista Española De Investigaciones Sociologicas, (145),

181-203. doi:10.5477/cis/reis.145.181

Graeber, D. (2011). “The Myth of Barter”. In Debt: The first 5,000 years (pp. 21-41). Brooklyn:

Melville House.

Hallsmith, G., & Lietaer, B. A. (2011). Creating wealth: Growing local economies with local

currencies. Gabriola Island, BC: New Society.

Humphrey, C. (1985). Barter and Economic Disintegration (Vol. 20). University of Cambridge.

Print.

LETS Link UK: Homepage. (n.d.). Retrieved February 17, 2016, from

http://www.letslinkuk.net/index.htm

Lietaer, B. (2006). A Proposal for a Brazilian Education Complementary Currency. International

Journal of Community Currency Research, 10. Retrieved January 6, 2016, from ESC.

Lietaer, B. (2011). "Bernard Lietaer - PopTech-2011." YouTube, 7007. Web. 6 Sept. 2015.

https://www.youtube.com/watch?v=LHhoWU_L2S4

- 62 -

Lietaer, B. (2012). "Bernard Lietaer - The Potential of Complementary Currencies." YouTube.

YouTube, 1 June 2012. Web. 8 Oct. 2015.

https://www.youtube.com/watch?v=5Zoud9tFEmw

Martin, T. M., Jefferson, A. M., & Bandyopadhyay, M. (2014). “Sensing prison climates:

Governance, survival, and transition.” Focaal, 2014(68), 3-17.

doi:10.3167/fcl.2014.680101

Miller, J. (2008). Intersections:Teruko Mizushima: Pioneer Trader in Time as a Currency.

Retrieved January 5, 2016, from http://intersections.anu.edu.au/issue17/miller.htm

North, P. (2010). Local money: How to make it happen in your community. Totnes: Transition

Books.

North, P. (2012). "Money as Anti-capitalist Praxis." Scape Goat Journal. Web. 1 Oct. 2015.

http://www.scapegoatjournal.org/docs/04/04_North_MoneyAsAnticapitalistPraxis.pd

f

North, P. (2014). “Ten Square Miles Surrounded By Reality? Materialising Alternative

Economies Using Local Currencies.” Antipode, 46(1), 246-265.

doi:10.1111/anti.12039

Philippopoulos, A., Varthalitis, P., & Vassilatos, V. (2015). “Optimal fiscal and monetary policy

action in a closed economy” - Economic Modelling, 48(Special Issue on Current

Challenges on Macroeconomic Analysis and International Finance Modelling), 175-

188. doi:10.1016/j.econmod.2014.10.045

Rozhentsova, E. V. (2012). “ALTERNATIVE INTERNATIONAL CURRENCIES.” Ekonomski

Anali / Economic Annals, 57(194), 31-39. doi:10.2298/EKA1294031R

RozLETSe. (2015). LETS skupiny v ČR. Retrieved March 17, 2016, from

https://www.rozletse.cz/index.php/lets-v-cr

- 63 -

Salverda, & Powell. (2015). Appropriate Economics, Community Exchange: International Help

Desk on Local Currency Systems. Retrieved February 24, 2016, from

http://www.complementarycurrency.org/helpdesk/benefits.html

Seyfang, G. (2004). Time banks: Rewarding community self-help in the inner city? Retrieved

January 5, 2016, from

http://www.complementarycurrency.org/ccLibrary/materials/time_banks_rewarding_

community_self_help.pdf

Teitelbaum, D. E., Elders, M., & Alavian, R. P. (2012). “Issues for payments in virtual

economies.” Journal Of Payments Strategy & Systems, 5(4), 373-389.

Tibbett, R. (1997). “Alternative Currencies: A Challenge to Globalisation?” New Political

Economy. Print.

Timberlake, R. (1981). “The Significance of Unaccounted Currencies.” The Journal of Economic

History. 853-66. Print.

Valek, L., & Tarasova, O. (2014). “Intercultural Learning and Communication in Time Bank

Environment”. Procedia - Social And Behavioral Sciences, 152(ERPA International

Congress on Education, ERPA Congress 2014, 6-8 June 2014, Istanbul, Turkey),

958-962. doi:10.1016/j.sbspro.2014.09.350

- 64 -