[p2p-research] How Open Money Ought to Work

[Michel Bauwens]

Hi Ryan,

when you feel ready, I would like to present an overview of your ideas for
our blog,

Michel

On Fri, Mar 27, 2009 at 4:36 AM, marc fawzi <marc.fawzi at gmail.com> wrote:

>
> I understand all of that but still there is still one issue that I see (I
> maybe wrong, so you can clarify any misunderstanding I may have specific to
> this one issues):
>
> If I'm a non-profit restaurant that employs homeless people (in a
> transitional program to let them afford housing etc) and my city's policy
> goal is to eliminate homelessness and they have this local currency (for
> eliminating homelessness) that they assign a high exchange value to. If I,
> as a non-profit restaurant, start accepting this currency I will lose income
> and will be able to support less not more homeless people in my program.
> But if the currency goes the other way in its exchange value, i.e. if it has
> a very low exchange value for goods and services related to eliminating
> homelessness but has a very high redeemable value in cash then it would work
> for me. In this way the customer/buyer carries the cost of the incentive,
> not the non-profit.
>
> So this is a tactical issue, i.e. can be solved by reversing the exchange
> value model.
>
> But would it make sense to do that, i.e. create a currency for eliminating
> homelessness that has very low exchange value for goods and services
> (related to eliminating homelessness) and very high cash redemption value?
>
> Marc
>
>
>
>
>
> On Thu, Mar 26, 2009 at 1:52 PM, Ryan Lanham <rlanham1963 at gmail.com>wrote:
>
>> All the benefits you point to do in fact go to a "member."
>>
>> We might ask...Why would a person take an alternative arrangement instead
>> of legal tender?  Well, why would anyone every accept anything but the most
>> liquid form of legal tender available?  To an economist, they wouldn't.
>> That's the whole idea of trusted money.  But we know that people do in fact
>> barter, trade, etc. all the time.  Why do they do this?  In a word,
>> preferences.  In another couple of words, transaction costs.
>>
>> Another factor that comes into play in alternative currencies is
>> fungible.  Like a highly standardized commodity, a grain for instance, you
>> like to use instruments (coupons) that are substitutable for each other.
>> The thing that makes green dollars so great is that you don't worry which
>> green dollar you have, as long as it has the requisite stuff on it, you
>> accept it in exchange for all sorts of stuff.
>>
>> Membership expands the prospect of achieving fungibility of units AS WELL
>> AS liquidity of units.  Liquidity means you have options of use and trade
>> with an instrument (it's not just good for getting a discount on a
>> burger...it has transferable, tradeable value).  The system I suggest
>> emphasizes liquidity across alternative currencies and basic
>> commodities/services.
>>
>> The systems I describe also get past the challenge of currency creation
>> which is always a problem in scrip systems.  Who gets to create money and
>> how?
>>
>> If I lent you 1000 bay area bucks for a monthly payment of US$25 for 12
>> months, it would be fairly easy to establish a value of Bay Area Bucks in
>> terms of US dollars.  By making all such transactions transparent but
>> generally P2P, alternative currencies can be very trustworthy and easily
>> assessed as to their value in more general commodities or legal tender
>> currencies.  But it isn't a requirement.  Maybe I lent you 1000 BABs because
>> I want you to do OK and I want to help those businesses that benefit from
>> getting BABs on their terms.  In other terms, if I have a lot of tomatoes
>> from my garden, what do I care what a price per pound of tomatoes is at the
>> store?  I know I want this many Bay Area Bucks for one...and that scrip is
>> good to me because it advances Bay Area things--like the operations of a
>> community foundation, chamber of commerce, etc.  You could have scrip flea
>> markets, for example.
>>
>> Local exchange trading systems exist the world over.  Canada and France
>> are probably the two leaders.  There's lots of information on them.  What
>> does not yet exist, and what a fellow named Guillaume Lebleu is talking
>> about, is a capacity to encourage their operation, linkage and advancement
>> through a form of P2P advocacy.  Some of that has gone on here with Michel's
>> work and interest.  There is an Open Money Ning that can be found easily and
>> joined for free.  All these are vehicles as well as the individual local
>> currency systems in place now.
>>
>> In the localism movement that is an offshoot perhaps of the environmental
>> movement and P2P both, local exchange systems are a key component.  The way
>> to start is to start.  In my case, I am arranging health related providers
>> to consider how they can monetize their excess capacity in alterative
>> currency terms.  Certain sponsor organizations like a community foundation
>> or a chamber of commerce may sponsor this sort of thing as an advocacy
>> venture--social entrepreneurship.  You could do the same thing with people
>> who are out of work who trade services with other out of work people in some
>> standard scrip, or amongst those who need babysitting services, or who wish
>> to monetize excess garden produce or garage detritous, etc.  Anything can
>> work.  It's the dream that drives it.
>>
>> Ryan Lanham
>>
>>
>>
>> On Thu, Mar 26, 2009 at 1:30 PM, marc fawzi <marc.fawzi at gmail.com> wrote:
>>
>>> I find the idea of a contract (for acceptance of local currency) to be
>>> very interesting ....
>>>
>>> That's what carries it for me.. and it makes sense as a policy tool.
>>>
>>> But I still do not understand how in the absence of such a contract a
>>> seller would want to bear the cost of a broad social/environmental
>>> incentive, unless they are recognized for it and gain marketing/PR benefit
>>> from it somehow (which would make a contract almost essential as it verifies
>>> the seller's commitment in a formal and official manner not open to
>>> questioning and not open to seller applying their own rules on when to
>>> accept or reject local currency)
>>>
>>> If a seller does become a member and sign a contract then they get
>>> publicity and good will in return, so yes it makes sense but they have to
>>> get something out of it (PR and good will back from the community)
>>>
>>> This is very interesting!!!
>>>
>>> My next question would be how do we get started with this?
>>>
>>> Marc
>>>
>>>
>>> On Thu, Mar 26, 2009 at 11:08 AM, Ryan Lanham <rlanham1963 at gmail.com>wrote:
>>>
>>>> No seller has to accept anything they don't want to accept except legal
>>>> tender.
>>>>
>>>> The state issues its mandatory acceptance coupons (legal tender) so that
>>>> economic growth can occur.  That is their policy objective.
>>>>
>>>> The systems I describe allow anyone who wants to issue coupons the
>>>> capacity to achieve policy objectives.  It just doesn't allow them to make
>>>> the coupons mandatory for acceptance.  Call non-mandatory coupons, or
>>>> coupons that are mandatory only if a membership contract is undertaken,
>>>> alternative currencies, open currencies, local exchange currencies, etc.
>>>>  As with any P2P movement, the goal should be to allow free
>>>> participation in a transparent network (in this case, a currency
>>>> membership).  Numerous benefits can come from such participation:
>>>>
>>>> 1. I can gain assets (which are purchased with acquired alternative
>>>> currency at some price value)
>>>> 2. I can pursue local policy objectives (e.g. to get a better
>>>> environment, help local businesses, local farmers, etc.
>>>> 3. I can arbitrage the value of one coupon against the value of others
>>>> to change my policy objectives.
>>>> 4. I can achieve fungibility and liquidity for my currency with relative
>>>> ease within 1 day by trading at the network administrator's office.
>>>> 5. I can rapidly gain information (through the net) as to the values
>>>> realized for currency in issuance and in purchases.
>>>>
>>>> This is a powerful supplement to any other currency, whether it is
>>>> mandatory or not.
>>>>
>>>> What I describe is a range of systems that can be built in an
>>>> integrative open fashion to realize any number of instances of such
>>>> currencies.  All of them can be linked, and any of them can be
>>>> separate...link of Ning Ring, a Facebook group, etc.  It is the plumbing
>>>> behind P2P associations that is interesting.
>>>>
>>>> Ryan Lanham
>>>>
>>>>
>>>>
>>>>   On Thu, Mar 26, 2009 at 2:42 AM, marc fawzi <marc.fawzi at gmail.com>wrote:
>>>>
>>>>> So wouldn't this offload the cost of the incentive from the government
>>>>> or treasury (in case of tax credits) to the seller (who in the case of CO2
>>>>> reduction technology could be a hybrid car manufacturer) because the seller
>>>>> has to accept local currency at a higher exchange rate than they can sell it
>>>>> for...?
>>>>>
>>>>>
>>>>> On Wed, Mar 25, 2009 at 2:26 PM, Ryan Lanham <rlanham1963 at gmail.com>wrote:
>>>>>
>>>>>> Marc,
>>>>>>
>>>>>> First, no offense taken, no worries there, ever.  The economics and
>>>>>> especially the behavior economics of local currencies is pretty limited.
>>>>>> We're all shooting in the dark and trial and error is the most likely way to
>>>>>> gain knowledge.  That said, some theory of design is also worthwhile, and we
>>>>>> do no a lot about Paypal, Ebay, FX trading, etc.
>>>>>>
>>>>>> I've tried to use existing models that work.  People trust MyC4 or
>>>>>> Kiva models, the software is there and the means are understandable.  People
>>>>>> certainly trust Ebay.  The interfaces to both are simple and easy to
>>>>>> understand.
>>>>>>
>>>>>> Second, I think the basic questions of currency exchange are
>>>>>> fungibility and liquidity.  What can be exchanged for what, when and how.  I
>>>>>> started from a program that recognizes that currencies have value and can be
>>>>>> traded like anything else.  One ought to maximize that within reason.
>>>>>> It creates safeguards against inflation and other woes and it crates
>>>>>> incentives for good governance of LETSI systems.
>>>>>>
>>>>>> Third, the problem with fiat money is exactly that governments can
>>>>>> play games--print too much money, goof up exchange rates, etc.  In short,
>>>>>> they have monetary policy.  To minimize the local impact of such games and
>>>>>> to assure demand exists for local policy aims (e.g. keep the small
>>>>>> businesses going), localities need capacity to minimize the buffeting that
>>>>>> international markets can bring to local functions.
>>>>>>
>>>>>> Control is achieved when you can set the scale and scope of your
>>>>>> network and implement your own governance plan that promotes its own
>>>>>> objectives.  Bad plans will fail.  Good ones will endure.  A good currency
>>>>>> governance plan for a currency is one that assures availability, usability
>>>>>> and value preservation.  These ride on top of fungibility and liquidity.  I
>>>>>> like to think of the old trading stamp models.  By X get some S&H green
>>>>>> stamps.  What you get for your S&H green stamps is all important.  That's
>>>>>> where local policy can be made.  Yet there should always be a market in US$
>>>>>> for S&H green stamps.
>>>>>>
>>>>>> By floating local currencies and creating a liquid currency market,
>>>>>> exchanges between LETSI networks can be normalized without actual
>>>>>> distribution of goods and services across various LETSIs.
>>>>>>
>>>>>> Let's say Seattle cares about reducing carbon with its local
>>>>>> currency.  Therefore carbon reducing strategies trade at a premium to their
>>>>>> value in the rest of the world by allowing a local currency the local
>>>>>> currency to get high value for exchanges related to carbon reduction.  I can
>>>>>> arbitrage that value in another local currency I care about by having my
>>>>>> "central bank" in Seattle offer a good exchange of value of their currency
>>>>>> versus one that encourages, say, reducing homelessness in New Orleans.  All
>>>>>> this can be done without recourse to US dollars while still maintain
>>>>>> liquidity and fungibility throughout the whole system.
>>>>>>
>>>>>> Here's what I've been thinking about in the Cayman Islands.  A health
>>>>>> network.  Surplus health goods (e.g. health club services like training
>>>>>> sessions, sessions with a dietician, etc. can be traded for local
>>>>>> network scrip.  These can be exchanged at some floating rate for other types
>>>>>> of currency--both "real money" and other items--like coupons for dollars off
>>>>>> on certain types of healthy food.  Thus, a company can encourage healthier
>>>>>> workers by giving them health scrip which the company can buy for dollars.
>>>>>> People can then trade for really good value in health, or relatively modest
>>>>>> real cash values.  Those firms that offer good scrip value do so because
>>>>>> they want to encourage good health or use resources they have in quantities
>>>>>> greater than the local market can consume.  In another case, let's say a
>>>>>> philanthropist wanted to improve local health.  She could donate cash to a
>>>>>> group to purchase health scrip that would then be useable only
>>>>>> for health (or local business purchases or local conservation/green
>>>>>> enterprises, etc).
>>>>>>
>>>>>> This enables a location to have 4-5 different types of scrip and
>>>>>> accounts that are dedicated to a cause and yet fungible.  Churches could
>>>>>> join together in health and family networks but not in conservation, if they
>>>>>> were so inclined.  Yet conservation dollars could trade for real cash or
>>>>>> health cash with relative ease.  The central bank could standardize its
>>>>>> approaches to ppolicy by choosing the sort of governance they wanted to
>>>>>> emphasize.
>>>>>>
>>>>>> Hospitals and phyiscian groups might take Health bucks in partial
>>>>>> payment but not conservation bucks.  Yet I can trade conservation bucks for
>>>>>> health bucks if the central bank has incentives to push that.
>>>>>>
>>>>>> Incentives are essentially schemes of coupons--the alternative scrip
>>>>>> is really just a coupon.  Just as grocer create incentives for one sort of
>>>>>> consumption or another through a newspaper, the central bank can finance and
>>>>>> push various sorts of currency incentives--not JUST being local...but
>>>>>> anything they want from energy efficiency to curing social ills.  It's all
>>>>>> in the exchange rates.  Ride a bike to work, get 5 health dollars.  Each one
>>>>>> is only work 20 cents, but you can get $5 off on a prescription or a trainer
>>>>>> session at the gym.    The gym gets capacity use, exposure, etc.  Then gets
>>>>>> health dollars it can use as a local incentive for its employees.  And so it
>>>>>> goes.
>>>>>>
>>>>>> Ryan Lanham
>>>>>>
>>>>>>
>>>>>>
>>>>>>  On Wed, Mar 25, 2009 at 3:11 PM, marc fawzi <marc.fawzi at gmail.com>wrote:
>>>>>>
>>>>>>> How does this money differ in its basic nature from the existing
>>>>>>> money?
>>>>>>>
>>>>>>> What are its propositions? (or deductively provable benefits)
>>>>>>>
>>>>>>> How does it work with respect to supply-demand economics? Does it
>>>>>>> enforce scarcity by moving the price higher with demand? or does it move
>>>>>>> money into increased supply?
>>>>>>>
>>>>>>> There are more questions but I'm not sure I'm asking the right ones
>>>>>>> until I fully understand the context.
>>>>>>>
>>>>>>> It does sound like you've put a lot of thought into it. I'm just
>>>>>>> coming at it from my own context (the P2P Energy Economy) which addresses
>>>>>>> the above in a radical way (which may not be practical as what you're
>>>>>>> suggesting but it is radical and new so I guess I'm trying to bridge
>>>>>>> evolutionary to radical thinking by trying to understand thel aspects (if
>>>>>>> any) of what you're proposing that are a radical departure from the kind of
>>>>>>> economy and currency we have now.
>>>>>>>
>>>>>>> Marc
>>>>>>>
>>>>>>>
>>>>>>> 2009/3/25 Ryan Lanham <rlanham1963 at gmail.com>
>>>>>>>
>>>>>>>>   I've been thinking a long time about LETSIs and Open Money
>>>>>>>> lately.  I have a few thoughts on the execution of a larger scale scheme
>>>>>>>> than those typically handled in current LETSI frameworks.  I'll throw them
>>>>>>>> out here and welcome any feedback.
>>>>>>>>
>>>>>>>>
>>>>>>>>
>>>>>>>> 1.      Those who honor one or more types of local currency are
>>>>>>>> members of a LETSI network.  Think of the old credit card honored symbols on
>>>>>>>> retailer doors.
>>>>>>>>
>>>>>>>> 2.      A LETSI network, or more generally, the [exchange
>>>>>>>> network] (in my example below, the hypothetical Bay Area Bucks Network) is a
>>>>>>>> membership organization.
>>>>>>>>
>>>>>>>> 3.      Any person or organization making offers (or bids) in the
>>>>>>>> [exchange currency] requires [membership] in the exchange network (like
>>>>>>>> having an Ebay account).
>>>>>>>>
>>>>>>>> 4.      Scrip can be used by anyone whether or not they are a
>>>>>>>> member so long as it is used at a member organization.  Scrip is
>>>>>>>> essentially local legal tender as accepted by a member (e.g. for 50% of any
>>>>>>>> bill or for all purchases under $20 US etc.)
>>>>>>>>
>>>>>>>> 5.      To get currency without being a retail member, members
>>>>>>>> create an [ask bid]—like selling something on Ebay--for a good or service
>>>>>>>> (or loan) to attain exchange currency.
>>>>>>>>
>>>>>>>> 6.      When an ask bid is accepted or a [counter offer] is made
>>>>>>>> and agreed—like from an Ebay buyer member—a [contract] is recorded at the
>>>>>>>> network administrators at a given [exchange price] set in the network
>>>>>>>> currency.  The issuing person is the [asker], the one who accepts
>>>>>>>> the ask bid or sets a counter-office that is agreed is the [offerer].
>>>>>>>>
>>>>>>>> 7.      There is also meta-market of local currencies with
>>>>>>>> inter-currency pricing linked to other standards of value such as $US and to
>>>>>>>> each other.  This central exchange point is called the [grand market].
>>>>>>>>
>>>>>>>> 8.      The [network administrator] is an entity responsible
>>>>>>>> issuing currencies following a contract.  It could be a community
>>>>>>>> foundation, chamber of commerce, group of market makers, etc.  It
>>>>>>>> manages electronic account credit and debits and also trades scrip for
>>>>>>>> electronic account debits.
>>>>>>>>
>>>>>>>> 9.      All contracts require that the offerer complete
>>>>>>>> transaction comments within an agreed period based on the goods or services
>>>>>>>> specified in the ask bid.
>>>>>>>>
>>>>>>>> 10.  The network administrator can freeze accounts of those who do
>>>>>>>> not issue comments and/or investigate negative comments and resolve them as
>>>>>>>> appropriate in the membership provisions.
>>>>>>>>
>>>>>>>> 11.  The grand market set of exchange prices is set once per 24
>>>>>>>> hour period to simplify administration of the participating networks.  For
>>>>>>>> example, the Grand Market would publish that LETSI currency A is worth 0.2
>>>>>>>> US dollars or 1 garden fresh tomato, 20 aluminum cans, 1.4 units of LETSI Z
>>>>>>>> (etc.)
>>>>>>>>
>>>>>>>> 12.  Any participant in LETSI A could fulfill a contract be
>>>>>>>> delivery in kind quantities of specified items to the network administrator
>>>>>>>> (usually US$), but could be pounds of canned goods for a local food pantry,
>>>>>>>> etc.
>>>>>>>>
>>>>>>>> 13.  As an example, Say someone wanted to issue 1000 Bay Area Bucks
>>>>>>>> (a hypothetical network currency) to themselves in exchange for a large good
>>>>>>>> or service (an ask bid).
>>>>>>>>
>>>>>>>> 14.   There would be known ways to use those BAB units publicized
>>>>>>>> and supported by the network administrator (the catalogue) and the local
>>>>>>>> network would encourage advertising schemes.
>>>>>>>>
>>>>>>>> 15.  I would put my ask bid (1000 BAB) up for offer to participants
>>>>>>>> in the pool (the retailers, etc. would honor the bucks)...for, say 500 lbs
>>>>>>>> of concrete ready mix.  I might just as well ask to borrow 1000 BAB in
>>>>>>>> exchange for paying 20 US dollars every week for one year based on a
>>>>>>>> standard contract noted in the ask, or offer a coupon for 100 hamburgers of
>>>>>>>> a given type at my hamburger stand.  The list of asks would look very
>>>>>>>> similar to a micro credit site (e.g. Kiva or MyC4) or Ebay sales items, etc.
>>>>>>>>
>>>>>>>> 16.  The BABs would only be unlocked if (and only if) another
>>>>>>>> member accepted by confirmation online that the BABs I wanted for the good
>>>>>>>> or service were contractually agreed.
>>>>>>>>
>>>>>>>> 17.  The member offerer might offer fewer BABs (e.g. 640) for the
>>>>>>>> services or goods to the asker--in other words, there can be auctions.
>>>>>>>>
>>>>>>>> 18.  The asker then either choose to accept or decline an offer.
>>>>>>>>
>>>>>>>> 19.  Upon agreement, a contract is set (matched).
>>>>>>>>
>>>>>>>> 20.  The network administrator automatically issues network
>>>>>>>> currency to the account of the asking member.
>>>>>>>>
>>>>>>>> 21.  The asking member who now has a credit to an account can go to
>>>>>>>> a central facility to trade e-currency for scrip (essentially an ATM).
>>>>>>>>
>>>>>>>> 22.  The grand market allows movement of liquid commodities and
>>>>>>>> currencies between local exchanges at daily set rates.  E.g. BABs to US$,
>>>>>>>> ounces of silver, BABs to other LETSI currencies, etc.  The simplest model
>>>>>>>> would be US$ but a range of grand market trades would likely quickly arise.
>>>>>>>> A central foundation would manage the grand market.
>>>>>>>>
>>>>>>>> 23.  It would be straightforward to add charity or microcredit
>>>>>>>> systems to this framework where a special rate of scrip could be moved to a
>>>>>>>> charitable account, for example, in exchange for a credit card debit.
>>>>>>>>
>>>>>>>>
>>>>>>>> 24.  The key supporting systems would include the catalogue of
>>>>>>>> asks, the bank accounting system of e-accounts, the scrip tracking system,
>>>>>>>> the grand market system, and ancillary tools like charity systems,
>>>>>>>> microfinance systems, etc.  However, most things could be handled
>>>>>>>> as a variation on the central catalogue system.
>>>>>>>>
>>>>>>>>
>>>>>>>> Ryan Lanham
>>>>>>>>
>>>>>>>> _______________________________________________
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>>>>>>>> p2presearch at listcultures.org
>>>>>>>>
>>>>>>>> http://listcultures.org/mailman/listinfo/p2presearch_listcultures.org
>>>>>>>>
>>>>>>>>
>>>>>>>
>>>>>>
>>>>>
>>>>
>>>
>>
>
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