A multi-currency future
Speech to the European Finance Convention, Paris,
23 November 2000
If you want a nail in a peculiar shape, or a weird kind of screwdriver, then you can't go wrong in Lordship Lane. The south London suburb of east Dulwich may be unexpectedly trendy, but it still has an absolute plethora of small DIY shops.
They've been there since anyone can remember, and most are staffed by ancient enthusiasts who know absolutely everything anyone could possibly want to know about plastering, emulsion and brass screws.
They and their shops are, unfortunately, an endangered species. A plan to build a Homebase DIY superstore on one of the last remaining bits of green nearby will probably strip Lordship Lane of this particular speciality. And although the balance sheets of owners Sainsbury's will probably show a big boost, we locals will have lost something too.
The question is this. Why don't these aspects of wealth show up in the figures? If money is supposed to reflect people's preferences, why doesn't it reflect the preferences of the locals?
There are lots of reasons, of course, but one is that the yardstick the global players use - an international currency like the pound - doesn't measure fine mesh local wealth like that. And thereby lies the problem: because the pound is all we've got.
Whatever your attitude to the euro, we need to think about this. Because despite all the advantages of a single European currency, there are three major disadvantages of big currencies. And we need to face up to all of them if the euro is to succeed for everyone.
The first of these is the issue of feedback. The information that relative values of currencies gives us all as they change.
Of course, if there is no role for fluctuating currency values, we needn't worry about this. We can relax and let the currency traders do what they dare. But what if there is? Let me read a brief passage from the radical economist Jane Jacobs - author of the trenchant Death and Life of the Great American Cities…
"Imagine a group of people who are all properly equipped with diaphragms and lungs, but share only one single brainstem breathing centre," she writes.
"In this goofy arrangement, through breathing they would receive consolidated feedback on the carbon dioxide level of the whole group, without discriminating among the individuals producing it... But suppose some of these people were sleeping, while others were playing tennis... Worse yet, suppose some were swimming and diving, and for some reason, such as the breaking of the surf, had no control over the timing of these submersions... In such an arrangement, feedback control would be working perfectly on its own terms, but the results would be devastating."
Currencies rising and falling in value provide us with a self-regulating feedback that lets disadvantaged areas lower their relative value. Different currencies, different interest rates, suit different cities and communities - just as they suit different sectors.
This is of course also true of national currencies, but the distortion is bound to be bigger for multinational currencies like the euro. Hong Kong and Singapore had their own money, says Jane Jacobs. Detroit didn't.
Then there's the problem of complexity. In a modern economy - even in a modern city - there's really more than one economy at work. And big currencies don't suit them all very accurately.
Take the sheer diversity of London, where I live. We all of us - from nurses to currency traders - have to get by using the one currency, the value of which is decided by tens of thousands of youthful traders in Wall Street and the City.
That's fine for the international economy, the financial services sector. But there's another economy in London - or Paris or Berlin - which feeds off the pickings from the rich table above it, but isn't necessarily part of it. This is the economy of the rest of us - those businesses and aspects of life so distant from financial services as to be almost untouched by it.
The international economy brings in executives from all over the world, whose employers will pay their housing expenses no matter what - forcing up the value of London homes beyond anywhere else in the country, and pricing London services beyond the other economy.
That's why London struggles to employ nurses or teachers or bus drivers because they can't afford to live there, so the basic services suffer. We can all see the symptoms - expensive theme bars, yuppie online travel agents, but no local shops.
Worse, London's rich economy threatens to drive out the poor economy completely. You can see the same thing happen in offshore financial centres where financial services have priced everything else into oblivion. In places like Jersey, it's the cuckoo in the nest.
Jersey's offshore status has made it rich after all, and yet there isn't any longer a Jersey agriculture sector to speak of, and the tourist sector is well past its prime. Why? Because nobody but bankers can afford to live and work there.
But there's a third economy in London too, and it's also threatened because we don't see it. The third economy isn't really an economy at all: it makes up the crucial human transactions that build families and neighbourhoods, look after old people, without which nothing we can do can be successful.
Economists are starting to call this 'social capital' and market forces don't apply here - people don't after all bid for food at the dinner table. Yet without it, the police can't catch criminals, doctors can't heal, children can't be educated and the other economies can't work.
The futurist Alvin Toffler asks executives what it would cost their business in hard cash if their new recruits had never been toilet-trained. That's business without social capital.
This social economy doesn't appear in the GDP, so politicians assume it's inexhaustible, so they ignore it. The problem is that single currencies - whether they are the pound, the dollar or the euro - don't measure the needs and assets in these other economies very accurately. And that's the third issue we have to tackle.
What they miss out gets ignored. Then it gets forgotten. If the euro zone is going to succeed economically and socially, for everyone, it's going to have to grasp this nettle.
One way it can do that is to experiment with parallel currencies that underpin those different sectors. Not instead of the euro - but as well as the euro, to give those other economies a fighting chance.
Now. I'm aware that parallel currencies have tended to seem a little fringe until now. That is at least until the deputy governor of the Bank of England last year hailed the new private internet currencies as an alternative to central banks.
He had to go to Wyoming to say it, and he may be right. The point is that, thanks to the internet, almost any asset is now transferable electronically. It can be precious metals, as anyone with an account on e-gold.com will know. It can be spare hotel rooms. But at a local level, it can also be people's time.
Take three examples:
- Loyalty points programmes like beenz and air miles are playing an increasing role in our lives. The latest loyalty card from Boots has space on it for more than 20 different loyalty currencies. And in case you didn't think this is money: until recently Northwest Airlines used to pay their entire worldwide PR account in frequent flyer points.
- Second, international barter is getting increasingly sophisticated, involving some of the biggest companies in the world, and increasingly using electronic barter currencies like trade dollars. And when each local exchange can't immediately find what they need, they use an international currency called universal to barter it from elsewhere.
- Third, if you have one of the dual-track HeroCards in Minneapolis, you can buy products at the Mall of America - the biggest mall in the USA - partly in dollars and partly in a local currency based on time, earned by helping out in the local community, tutoring in schools or giving lifts to the elderly.
There are getting on for 2,000 local currencies in circulation around the world. They range from the European funded Scottish Organisational Currency System based in Perth, to the highly successful printed currency Ithaca hours in upstate New York, backed by local banks and the chamber of commerce.
These aren't all internet cureencies. Some are on smartcards. Some are just printed tokens. But business is issuing them. The voluntary sector is issuing them. And they're doing so, I think, because multiple currencies measure better than a single one. If one big currency just can't see some of the assets that are under our noses, many currencies can.
Barter currencies can recognise warehouses of otherwise unsellable purple toothpaste, or nearly-out-of-date hotel rooms, and exchange them.
Local currencies can recognise the skills of local people and bring them together with the jobs that need doing. Big currencies can do that on a continent-wide basis. But they sometimes find it hard in communities which are, for whatever reason, running out of cash.
Time currencies like time dollars in the USA or time banks in the UK, can recognise people's wasted time - often old people's time - the caring volunteer time that the market ignores. They can also recognise those things we throw away as having value, even if they have no value in the conventional market. Like the five million perfectly good computers put into landfill in the UK every year.
By using time as a kind of money, they can bind all that together and direct that unmeasured resource at that equally unmeasured, unrecognised weight of human need in our cities - often loneliness, often the need just for someone to keep an eye out for neighbours. Big currencies lose all that, but we still need it.
We have become used to being short of resources, so it's easy to forget just how much surplus capacity there is out there. Currencies are simply information systems to direct surplus towards need.
So let's take London again. I believe the city needs needs not just one, but two other currencies. One to boost the local economy - let's call it the thames. That doesn't seep away to international markets, so the global corporations don't want it, but can provide low or no interest credit for small or micro-businesses across the city.
The other a time currency to support the social economy. And that's where the new London Time Bank comes in. It is already running locally, in housing estates or community centres or doctors surgeries. Each local time bank allows people to earn time credits for helping out in schools or hospitals, or all those community-building activities that we need done but couldn't ever pay for. And they allow people to spend them on what they need - either help for themselves or shortly, recycled computers.
In America and Japan, currencies like this have revitalised neighbourhoods, driven gangs out of gangland and kept whole districts of retired people healthy and living at home.
So what can be done to make sure the euro-zone provides for the needs of all its citizens? The answer is - make sure there's a range of currencies circulating that underpin different aspects of people's lives. Providing no interest loans to small business. Keeping buying power circulating locally. Keeping the social economy healthy.
The models are there. SEL in France, time dollars in the USA, Wir in Switzerland. We need them all.
We know that if the European dream is going to work, we're not going to create one identikit place, the same from Athens to Aberdeen. We're going to provide the framework that allows cities and regions to be more themselves.
All I'm saying is that it's the same with money. The success of the euro depends on it being successful for everyone.
So it's a paradox. It means embracing the euro, but also the coming multi-currency world.