As
usual the king chokes when the people decide to apply the privilege
of creating money and credit. In this case there is now enough
precedent around the world to win through. Better, it is also part
of a global monetarization of the poor that continues to gather
momentum.
We
have posted many times already on validity of pushing the power of
credit creation downstream to the communities. Here we have clear
working field demonstrations as will as a range of governance options
been experimented with.
In
fact sheer success of both this and microlending is spreading rapidly
throughout the poor and establishing wealth in the economic base
which will naturally eliminate poverty. Sporadic ill considered
resistance is no surprise but it is been overcome.
The
Crime of Alleviating Poverty: A Local Community Currency Battles the
Central Bank of Kenya
By Ellen
Brown
Global
Research, July 01, 2013
Former
Peace Corps volunteer Will Ruddick and several residents of
Bangladesh, Kenya, face a potential seven years in prison after
developing a cost-effective way to alleviate poverty in Africa’s
poorest slums. Their solution: a complementary currency issued
and backed by the local community. The Central Bank of Kenya
has now initiated charges of forgery.
Complementary
currencies can help eradicate poverty.
Proving
that may be difficult in complex economies, due to the high number of
factors influencing outcomes. But
in an African slum with little of the national currency available,
supplying residents with an alternative currency has a positive
effect that is obvious, immediate and incontrovertible.
This
was demonstrated when Will Ruddick, an American physicist,
economist and former Peace Corps volunteer, introduced a
complementary currency into a Kenyan slum called Bangladesh, near the
coastal city of Mombasa. Will’s local development organization,
Koru-Kenya, worked with over one
hundred small business owners in Bangladesh, who agreed to give each
other the equivalent of 400 shillings (about €3.5 or $4.60) in
mutual credit in the form of business vouchers called Bangla-Pesa.
Half of the vouchers would be available for spending on each others’
products and services, and half would be spent into the community on
public projects such as waste collection and health services.
Allocation decisions were democratic and transparent, and the new
currency was backed entirely by the community’s own resources and
insured by a system of group guarantors, not by the Kenyan government
or a development agency.
The
project was launched on May 11, 2013. The immediate effect was
an increase in sales of 22%. That meant increasing incomes and
purchasing power by 22%. These exchanges were of goods and
services that without the additional currency would have been thrown
away or gone to waste, not because they were unmarketable but because
potential customers did not have the money to buy them.
Introducing Bangla-Pesa worked to move the economy forward at full
capacity, connecting the community to its own resources when the only
things lacking were those slips of paper called “money.” A
compelling video on the project is here.
The
successful Kenyan experiment quickly earned endorsements from
the United Nations, The
Hague and the
International Reciprocal Trade Association. Indeed,
no other poverty alleviation or local governance program can compete
with the cost-effectiveness of this approach, which is easily
replicable in poor communities across Africa.
The plan was to expand it to other villages in a democratic
grassroots fashion so that it could provide a local medium of
exchange for people throughout the continent. This would be done via
mobile phones with a system provided byCommunity
Forge, an organization based in Geneva that supports the
development of community currencies worldwide.
But
that plan was unexpectedly interrupted on May 29th, when Will and
five other project participants were arrested by Kenyan police and
thrown in jail. Besides Will, who is married to a Kenyan aid worker
and is a new father, the others include local community business
owners who are parents and grandpa
The
police at first accused the group of plotting a terrorist overthrow
of the government, claiming that Bangla-Pesa was linked to the MRC, a
terrorist secessionist group. When that link was easily disproven,
the Central Bank of Kenya was called in and charges of forgery were
formally placed. Will and his fellow suspects have been released for
now on a bail of EUR 5,000 and await trial on July 17th. If
convicted, they face seven years in a Kenyan prison.
Despite
these perilous circumstances, Will remains optimistic. “The
exciting thing,” he says, “is that these systems really do show a
means of poverty reduction – and my hope is that after this case
we’ll be allowed to spread them to slums across Kenya. There have
been years of precedent for Complementary Currencies as a solution to
poverty, and today there is no doubting it.”
Successful
Precedents from Switzerland to Brazil
Complementary
currencies are endorsed by many governments worldwide. The oldest and
largest is the WIR system in Switzerland, an exchange system among
60,000 businesses – a
full 20% of all Swiss businesses. This currency has been
demonstrated to have a counter-cyclical effect, helping to stabilize
the Swiss economy by providing additional liquidity and lending
capacity when conventional credit for small businesses is scarce.
Brazil
is a global leader in using the complementary currency approach for
poverty alleviation. Interestingly, its experience began in much the
same way as Kenya’s: Brazil’s most successful community currency,
called “Palmas”, was nearly strangled at birth by the Brazilian
Central Bank. How it went
from criminal suspect to official state policy is told by Margrit
Kennedy and co-authors in People Money:
After
issuing the first Palmas currency in 2003, local organiser Joaquim
Melo was arrested on suspicion of running a money laundering
operation in an unregistered bank. The Central Bank started
proceedings against him, saying that the bank was issuing false
money. The defendants called on expert witnesses, including the
Dutch development organisation Stro, to support their case. Finally,
the judge agreed that it was a constitutional right of people to have
access to finance and that the Central Bank was doing nothing for the
poor areas benefiting from the local currencies. He ruled in favour
of Banco Palmas.
What
happens next shows the power of dialogue. The Central Bank
created a reflection group and invited Joaquim to join in a
conversation about how to help poor people. Banco Palmas started the
Palmas Institute to share its methodology with other communities and,
in 2005, the government’s secretary for “solidarity economy”
created a partnership with the Institute to finance dissemination.
Support for community development banks issuing new currency is now
state policy.
The
Legal Debate: Mutual Credit or Counterfeiting?
If
the Kenyan court follows the example of Brazil, this could be the
beginning of a promising new approach to poverty reduction in Africa.
The Bangla-Pesa is backed by local resources, and the villagers were
very happy to have it in order to move their products and buy the
surplus of others within their community.
Viewed
as a case of counterfeiting, however, there is historical precedent
for harsh punishment. In the mid-eighteenth century, when the Bank of
England was privately owned and had the exclusive right to issue the
national currency, counterfeiting Bank of England Notes was made a
crime punishable
by death. That was the era of Charles Dickens’ Tale of Two
Cities and Bleak House, when supplementing the national currency
might have helped relieve mass poverty; but it was in the interest of
the Bank to control the market for currency and keep it scarce, in
order to ensure a steady demand for loans. When there is
insufficient money in the system to cover the needs of exchange,
people must borrow from banks at interest, ensuring the banks a
handsome profit.
The
converse is also true: when sufficient money is supplied to cover the
needs of exchange, debt levels and poverty are dramatically reduced.
In
this case, the physical Bangla-Pesa voucher looks nothing like the
national currency, as it would need to in order to sustain a charge
of forgery. The intent of complementary currencies, as their name
implies, is not to imitate or compete with the national currency but
to complement it, allowing for increased sales within the local
community of existing goods and services that would otherwise go
unsold. Today, the Bank of England itself acknowledges
this role of complementary currencies.
The
Bangla-Pesa experience demonstrates what policymakers often overlook:
gross domestic product is measured in goods and services sold, not
goods and services produced; and for goods to be sold, purchasers
must have the money to buy them. Provide consumers with excess money
to spend, and GDP will go up. (In Kenya, where nearly half the
population lives in poverty and mass unemployment, increases in GDP
reflect extractive practices rather than local conditions.)
The
common perception is that increasing the medium of exchange will
merely devalue the currency and increase prices, but the data show
that this does not happen so long as merchandise and services remain
unsold or workers remain unemployed. Adding liquidity in those
circumstances drives up sales, productivity and employment rather
than prices.
This
was demonstrated in a larger experiment in Argentina, when the
country suffered a major banking crisis in 1995. Lack of
confidence in the peso and capital flight ended in a full-scale run
on the banks, which closed their doors. When the national currency
became unavailable, peopleresponded by creating their own. Community
currencies at the local level evolved into the Global Exchange
Network (Red Global de Trueque or RGT), which went on to become the
largest national community currency network in the world. The
model spread throughout Central and South America, growing to seven
million members and a circulation valued at millions of U.S. dollars
per year. At the local government level, provinces short of the
national currency also resorted to issuing their own money, paying
their employees with paper receipts called “Debt-Cancelling Bonds”
that were in currency units equivalent to the Argentine Peso.
Although
these various measures increased the currency in circulation, prices
did not inflate. To the contrary, studies found that in
provinces in which the national money supply was supplemented with
local currencies, prices
actually declined compared to other Argentine provinces.
Local exchange systems allowed goods and services to be traded that
would not otherwise have found a market.
This
salutary effect was also observed in Bangladesh. “With
Bangla-Pesa,” says Ruddick, “we’ve seen that a circulating
community-backed interest-free credit is a low-cost, effective way to
increase local liquidity and decrease poverty.”
The
defendants just need to prove that in court. A crowd-funding campaign
is being used to raise the money urgently needed for their defense.
The link for contributions is here.
To sign a petition begun by a delegation at The Hague supporting the
Bangla-Pesa, click here.
Jamie
Brown contributed to this article.
Ellen
Brown is an attorney, president of the Public Banking Institute,
and author of twelve books, including Web
of Debt and the recently-published sequel The
Public Bank Solution. Her websites are
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