Digital community currencies for global challenges

Video content: https://www.youtube.com/watch?v=9u6gSa5r_nA

‘Local solutions to solve global problems’ is a slogan that seems to explain the growth of community currency projects around the world. There are more than ten thousand community currency projects and many new ones arise each year. Most of them are founded on digital platforms. Professor Eduardo Diniz of FGV’s São Paulo School of Business Administration and Professor Eric van Heck of Rotterdam School of Management, Erasmus University (RSM) wanted to know how community currencies could be best described and classified based on their digital platform characteristics.

Community currencies facilitate local transactions or exchanges within groups with common needs, and they can have business, societal or sustainable uses.

Many community currencies started after the financial crisis of 2008, although some have a far longer history. Take for example WIR, a Swiss community currency created in 1934, in response to the scarcity of money caused by the Great Depression. In 1995, the Fureai Kippu community currency was established in Japan to provide credit for the care of elderly people. The credits can be exchanged for services in the community. In Brazil, Banco Palmas, a community bank with a social mission, was established in 1998 in a poor community at a time when unemployment was very high. 

Developments

A range of developments following the 2008 financial crisis combined to deepen the impact of community currencies. Firstly, access to mobile phones continued to increase. In many developing countries and poor areas of developed countries, mobile phones are more prevalent than bank accounts. Banco Palmas controls a money platform that uses a smart phone app for a large reach into poor neighbourhoods. 

Secondly, blockchain technology emerged, with the potential to secure financial transactions on digital platforms and disrupt traditional payment systems. First created to support Bitcoin, blockchain is now used in hundreds of different cryptocurrencies, such as Eurocat in Europe or Auroracoin in Iceland. 

Thirdly, community currencies flourish in contexts where needs and goals are shared, and where the system benefits both the individual and the group. For example, currencies that stimulate to share energy or lower energy consumption. Some community currencies, such as the E-portemonnee project in Belgium, are designed to encourage reduced household energy consumption.

Platform design issues

Although developments since 2008 hold great promise for the impact of community currencies, the design of those projects is key to their success as ‘local solutions for global problems’. Platforms must be resilient to change, and scalable to accommodate growth. Five design issues are critical factors for success.

The first design issue relates to the purpose of the currency. Currencies have three classical and sometimes concurrent functions: to be a means of exchange, to store value, and to serve as a unit of account. In response to insecurity or instability, people are more likely to save their traditional currency rather than spend it. By contrast, community currencies usually continue to circulate, because there may be little benefit in storing their units of account (energy, hours, zero balance).

The second issue relates to community governance, including decision-making processes, the relationship between community interests and administration, as well as the functioning and future direction of the currency. Shared or centralised decision-making processes have to be in line with community expectations.

The third issue relates to the platform architecture of the community currency. While there are advantages to traditional payment platforms, such as plastic card systems, mobile and blockchain technologies provide new opportunities to develop cheap and easy-to-access solutions with superior reach into poor or developing communities.

Characteristics of transactions

The fourth issue relates to the characteristics of transactions that the currency will enable. Some platforms offer only transactions among peers within a community, such as business to business (B2B) or peer to peer (P2P) transactions. Multi-sided platforms, such as business to consumers (B2C), involve several groups of users, usually both not-for-profit and profit related.

The fifth issue relates to the virtual dimension of the currency. Face-to-face transactions improve trust and friendship in communities, but are necessarily small in scale and geographically limited. Totally virtual transactions can have a much wider reach and invite more participants, but would not contribute to community bonds. Thus, the degree of virtuality may impact the social cohesion of the community itself.

Global challenges

Dealing with these five key issues and aligning the platform accordingly, will improve the design and implementation of community currencies around the world. Professors Diniz and van Heck strongly believe that community currencies will help people overcome many global challenges, such as transitioning to renewable energy, ensuring sufficient access to food and water for everyone, and providing universal and affordable health care. Community currencies have the potential to strengthen local regions and economies. When linked to global currencies, local community currencies may exert a stabilising influence on the world economy and shrink the widening income gap between the rich and the poor.

Read the article here Eduardo H. Diniz, Erica S. Siqueira & Eric van Heck (2018) Taxonomy of digital community currency platforms, Information Technology for Development.

Rotterdam School of Management, Erasmus University (RSM) is one of Europe’s top 10 business schools. RSM provides ground-breaking research and education furthering excellence in all aspects of management and is based in the international port city of Rotterdam – a vital nexus of business, logistics and trade. RSM’s primary focus is on developing business leaders with international careers who can become a force for positive change by carrying their innovative mindset into a sustainable future. Our first-class range of bachelor, master, MBA, PhD and executive programmes encourage them to become critical, creative, caring and collaborative thinkers and doers. Study information and activities for future students, executives and alumni are also organised from the RSM office in Chengdu, China. www.rsm.nl

For more information about RSM or this release, please contact Ivo Martijn, Media Officer for RSM, on +31 10 408 2028 or by email at martijn@rsm.nl.

Share this article: