Over the past year, I’ve been exploring the many examples out there of communities forming peer-to-peer networks in order to rebuild local economies, resilience and trust. These range from gift economies to barter groups, from loyalty programs to mutual credit systems. The latter, mutual credit systems, is the focus of this post.
The oldest mutual credit system still in operation today (of which I am aware) is the WIR, based in Switzerland, which was created in 1934 due to currency shortages after the stock market crash of 1929. The WIR is managed by the WIR-bank, a cooperative owned by the businesses using it. They currently have about 75,000 Swiss businesses as members, representing about 25% of all businesses in the country.
It’s essentially just a bookkeeping system that enables transactions to happen, and is generated directly among the businesses. So, business A sells a good or service and receives a WIR Credit, while Business B, the buyer, gets a corresponding debit. Business A can go use their Credit elsewhere, while Businesss B has to eventually sell a good or service to offset the debit and remain in good standing with the community of business members. No interest is charged, and the ledger always balanced to zero. It’s been observed over the years that during times of recession, participation in the WIR system increases, meaning the financial needs of businesses continue to be met uninterrupted despite what’s going on in the global economy.
I thought this was a pretty cool thing, both in terms of creating a mechanism for businesses to engage in trade without the use of traditional money, and as a complementary currency that acts as a “spontaneous counter-cyclical shock-absorber for the Swiss economy,” in the words of Bernard Lietaer.
I wondered if there was anything similar going on in the US, and was excited to discover the Vermont Businesses for Social Responsibility Marketplace, an “innovative peer-to-peer mutual credit system embedded within the largest green business association in the US.” Businesses pool the credit they issue to each other into a common marketplace where local goods and services are bought and sold, credit lines are issued to willing entrepreneurs, and the cost of doing business is lowered by consolidating expenses and buying power. They currently have 160 businesses actively trading, with a goal of getting 1000 Vermont businesses as members by 2015.
I reached out to its founder, Amy Kirschner, to find out more about how it works.
<I’m also happy to say that Amy will be joining us at the Contact Summit in NYC next month! AND she has also agreed to come up to my town of Beacon and share what she’s doing with our community so that a Hudson Valley Sustainable Exchange might be born. yay!>
How did you get the VBSR Marketplace off the ground?
It’s been a long and winding road. I took a workshop class in grad school about 10 years ago focused on helping a local currency, Burlington Bread. Eventually I joined its Board and became its Director. During my term as Director we made the difficult choice to close down the currency for a number of reasons. Those who want to learn more about these reasons can find them here.
During the time Burlington Bread was winding down, just before I became Director, our idea for saving it centered around changing it from a paper currency into a LETS style mutual credit system. We did not succeed with this plan but I came to appreciate the elegance and simplicity of mutual credit as a form of exchange. I was also involved at the same time in the launch of another mutual credit system – a local Time Bank – that also shut down. After these experiences, when I decided to create a new mutual credit system, I had some experience in what not to do and an appreciation for the significant amount of skill, thought and organization required.
I began Vermont Sustainable Exchange in 2007 with the goal of creating a WIR-style business mutual credit system for the state of Vermont. I spent over two years planning and developing the idea before partnering with Vermont Businesses for Social Responsibility, a statewide business association,and launching the Marketplace as a member benefit for their 1200+ members.
The Marketplace was launched in January 2010. It took five months of meetings with VBSR members, explaining the benefits, and signing businesses up before we had our first transaction. Since then we have moved past the proof-of-concept phase and are ready to take it to scale. There are 160 businesses using the system and there have been enough trades of various types so that I can provide real-life stories about how people use the system, which I find to be much more powerful than abstract examples. The goal is 1000 businesses using the Marketplace in Vermont by 2015.
If transactions using Trade Dollars are no different than a cash sale, why not just use cash?
For the simple reason that a lot of small businesses don’t have cash or prefer not to spend it. The economy has slowed down enough for many small businesses so while they still have capacity for more products and services, they are conserving what cash is coming in as a hedge against future uncertainty. They are delaying projects and expansions. Trade Credits allow them to pay for expansion and growth with new customers and new income.
At a deeper level, cash is inadequate for many of the most important transactions that we do—the ones with people we care about. For instance, if my neighbor gives me a ride to the airport, I wouldn’t pay them cash like I would a cab driver. I would buy them a beer next time we’re at a restaurant together. The gift economy and direct barters are great at these small, daily transactions. But it’s difficult to run a sophisticated local economy in that way. A local trade system can bridge the gap between a formal and decreasing cash economy and an informal barter /gift economy.
There are several mutual credit systems and schemes out there, like Cyclos or Community Forge, but your system is powered by GETS. How did you decide upon that?
I chose to go with a system that was already working for commercial barter systems. One of the critical reasons is that it has a function that allows me to convert my records into the electronic file that I need for IRS reporting. I’m not aware of other community systems that have this capability. Also, I don’t have a tech person, nor am I a tech person, so getting something off the shelf was best for me to start up.
Can individuals use the VBSR Marketplace too, or is it just for businesses?
Yes, individuals can use the Marketplace. In Vermont, most of our businesses are small and many of them are sole-proprietors. VBSR has many student members and I am also encouraging them to use the Marketplace.
What happens if a company somehow does more sales in the marketplace via trade dollars than they do in the ‘real world’? Where is the money supposed to come from to pay taxes on it, if it must be reported as if it is cash?
I have not yet run into this problem. But there are several reasons why I believe this problem may not develop.
Before a business starts trading I tell them specifically that the Marketplace does not compete with their existing cash business. Our goal is to bring our member new, incremental sales from people who previously weren’t buying from them, not to convert their cash customers to trade.
Our members also get to choose the percentage of each transaction they would like to do in cash and in trade dollars. So for every new sale we are bringing them, they can choose to get cash to cover hard costs. The seller covers materials costs they are paying in cash and the buyer saves a lot of cash.
In trades where 100% Trade Credits are used and sales tax needs to be charged, we tell people to be prepared to pay that tax in cash at the point of sale. We don’t manage sales tax through the system, it is up to each individual business to report sales tax as normal.
Why would people use the marketplace instead of avoiding tax implications via a TimeBank?
I encourage people to use both. I also belong to a Time Bank (Onion River Exchange).
The reason that I don’t believe that only trading in a Time Bank is feasible is because Time Banking is viewed by the IRS as charitable and businesses can only participate in a limited manner. They can offer use of their meeting room for One Hour in a Time Bank which they can redeem for a limited selection of services. But businesses can’t earn Time Dollars for their regular goods and services and when they redeem their Time Dollars it will mostly be for services, not products. If a restaurant wants to offer a one-time cooking class to Time Bank members and redeem the Dollars earned for lawn-mowing services from their neighbor, it could be a great transaction with personal and economic benefits for all parties. But most businesses expenses, such as business cards, catering, advertising, and others would require a business mutual credit system with its inherent tax reporting.
There are a lot of resource-sharing sites cropping up now and platforms for matching wants and haves. What makes VBSR different/interesting/special?
The Marketplace is complementary to many of those systems and in the future I hope we achieve interoperability with them. None of us should become isolated islands of economic activity. I live in a small enough place, our state population is just over 600,000, where it’s difficult to become too specialized. I see many of the very specific resource-sharing systems in urban areas where they have a much bigger potential participant base. Within the Marketplace, I have seen requests for carshares, crowd-sourced delivery systems, skill shares, tool shares, housing rental, garden shares, etc. So people are getting ideas from resource-sharing world and lacking a specific community geographically, bringing it into the mutual credit system.
We’ve also embedded in an already existing network which increases access, decreases marketing needs, and thrives in an environment where people already know, trust, and want to do business with each other. I think this model could easily work for resource-sharing systems as well and they can borrow that inspiration from us.
Can corporations participate? Or do you know if such an exchange network exists at the enterprise level?
Any person or business can participate in business mutual credit. system The IRS defines these systems as ‘third party record keepers’ and requires them to issue 1099Bs for annual sales. For the most part, commercial barter systems follow these requirements while community systems do not. Therefore, the commercial barter industry can do much larger trade transactions than community exchanges. Most local currencies and LETS systems fly under the radar.
What are the steps you would recommend local communities or regions take if they wanted to get a similar marketplace started?
I’m a kinestetic person so my answers will be action-oriented.
1. Start a Time Bank.
You can have some success with limited resources and people. You really could do it starting tomorrow. It will help you identify people who get the idea and map the landscape for doing larger projects and transactions. You will learn how a mutual credit system operates from the inside and hopefully this knowledge will guide you to a path of least resistance in building business systems that can handle more volume.
The Marketplace and Time Banks are the same concept operating on different levels. It’s taken me years to become a skilled manager of a mutual credit system properly and nearly all of it was trial and error. A Time Bank is lower-risk and lower-cost environment to practice and build skills. You’re not going to start doing six figure deals in mutual credit without a well-established personal reputation and a skill set that you have to build for yourself.
2. Find the already existing sharing economy system that’s right for you and start being a good participant.
Ask questions of the administration and see if you like the answers. Think about how you would treat your participants— Are they customers or partners? How could these resource-sharing systems merge with mutual credit for a mutually beneficial relationship?
3. Try direct bartering if you never have before.
Knowing what works and doesn’t work in this space is important.
4. Map the underutilized capacity and unmet needs in your economy.
This is great because you are inventorying what people would offer and want in a non-invasive way. You don’t have to talk about the failing economy or explain how the Federal Reserve works. People and businesses know what they have and they know what they want. Then you can present concrete examples of how mutual credit systems can help people. Real life examples of what’s possible in a trade network are more powerful than abstract examples.
5. Identify your allies.
Are there existing trust networks you can partner with? Can you embed this idea in their network in a mutually beneficial relationship?
6. Develop a clear sense of what you want to accomplish and design the currency that meets that need.
There are many mechanisms that make resources flow in certain ways. You can have positive interest rates, negative interest rates, mutual credit systems, energy backed currencies, and reputation currencies among many other choices. You can build a network of interrelated systems instead of just one.
7. Find examples of communities that have tried many different forms of resource exchange and learn from them.
Some good resources are:
- P2P Foundation
- International Journal of Community Currency Research
- Complementary Currency Resource Center
- Lifeblood Design
Thank you Amy for an enlightening interview!
If you’d like to meet Amy and other currency innovators, come to the Contact Summit in NYC this month on Oct 20! Or, if you live in upstate NY, join us in Beacon for a smaller workshop on Community Stimulus Oct 22, featuring Amy of the VBSR Marketplace, Caroline Woolard of OurGoods, Matthew Slater of Community Forge, and Guillaume Lebleu of Bernal Bucks.
Jeff Mowatt (@peoplecentred) said:
A local currency may feature in the creation of localised economies, but should not be considered as the only dimension. A sharing and people-centered local economy is one in which it might well help, with a hyperlocal information source to locate local suppliers and potential customers.
Jeff Mowatt (@peoplecentred) said:
I should also mention the concept of the guarantee society proposed by Chris Cook, which we discussed several years ago on what was then the Omidyar Network. In this arrangement credit is represented as ‘time to pay’
Dan Robles said:
Hi Venessa; It is interesting to observe many of these dynamics in fast motion. For example; during the Mexican Peso devaluation when the currency was losing value every day, people emptied out WalMart buying whatever was on the shelf even if they did not need the item. Most observers would suggest that these items became part of the barter economy but instead, many people immediately turned around and gifted the items to their friends and family. Devaluation was the tax on holding cash and gifting was the hedge. In fact, time is the obvious currency when played in fast motion. Pesos/Hour becomes Hours/Peso
Yes, go Venessa and collaborators!
Recently, on Bernard Lietaer’s site:
More… (needs Flash)
Amy Kirschner said:
Hi CoCreatr. Thanks for the link to C3. I had heard of it and look forward to exploring it in more depth to see if we could make it work as an extension to what we are doing in Vermont.
Nitin Gadia said:
Amy – fantastic!!.
I’m involved with a group starting a “Community of Practice” around complementary currencies around all kinds. There is not a really strong central online source of information around complementary currencies, with all of the initiatives linked in a community. We are currently revamping this site (http://complementarycurrency.org). What I’ve found is that community currencies (timebanks, hours) and business currencies (barter, etc) are often two completely separate communities that hardly talk to one another. Neither is looking at the big picture, that all must be created – barter does not realize the power of mutual credit, and community currencies are not realizing that we have to trade more than rides and peanut-butter jelly sandwiches.
Furthermore, while all of this is enabled by the information revolution, many people do not understand the fundamentals behind what makes it powerful. We need to build a free, open source option that does all of the same things as GETS, and has accounting services, likely building on Community Forge.
I am in the process of writing a pamphlet of sorts about complementary currencies, to distribute to people in the initial effort to start a complementary currency initiative. I’ve helped start a currency platform (timebank, HOURS, LETS) using community forge (ames.communityforge.net) that we will pick up once the effort is launched.
Your work is very inspiring. I’ll likely be attempting to get in touch with you sooner or later to whatever extent you’re able and willing 🙂
Amy Kirschner said:
Thank you for the comment. Are you working with Stephen D? He’s great! I’m looking forward to the revamp although I have used it for many years in it’s current form and still recommend it as one of the best places to go for this information.
No, barter and time banks don’t ‘talk’ now mostly because of the IRS taxation guideline. I think a reputation currency (thank you, Arthur Brock) could bridge this in a way that doesn’t interfere with this. The reputation can be fed into each system to help introduce new people into either. Also the reputation of someone in the Time Bank could be a factor in determining how much credit they are issued in a b2b mutual credit system.
Please keep me up to date on your work. I look forward to continuing the conversation.
amy (at) vbsrmarket.com
Nitin Gadia said:
Amy – Great, will do. Indeed, I’m on the team with Stephen DeMeulenaere and Art Brock… and it will be designed very well by Art to utilize reputation currencies so that the noise becomes self-ordered and productive, and people become personally invested in the community.
Here’s the info we put online, check out the overview:
Those are really interesting ideas about reputation with different currencies. I know that they use some kind of credit score with the WIR in evaluating loans and credit lines in Switzerland. Perhaps eventually that will be an open currency as well 🙂
Come to think of it, the business community and community currency community don’t talk because they are really apples and oranges… but they should be more aware of each other, because it is all a part of the same movement. For one, they can really just use the same software. With Community Forge, you can readily create different currencies, as we have in our demo. There’s a lot that needs to be added so that barter businesses can use it.
I’ll email you soon 🙂
Mike Riddell (@mikeriddell62) said:
“Come to think of it, the business community and community currency community don’t talk because they are really apples and oranges… but they should be more aware of each other, because it is all a part of the same movement.”
This couldn’t be further from the truth with what we’re doing in the Uk. Our currency is only ever issued to individuals when they contribute time to their local community (as measured via time-bank hours). Thus our currency is backed by contribution so that individuals can record and evidence the amount they give to their community. This “CV” identifies those that deserve to be rewarded by businesses looking to amplify their social responsibility credentials or those with spare capacity (like cinema seats) that wish to recycle it positively.
Being digital, the currency is easy to transfer between account balances and is obviously more sustainable than ‘money’ which is only ever lent into existence.
Nitin Gadia said:
by the way – if you mind me asking, how much do you pay for GETS? I’m wondering if a deal could be worked out with people who use GETS to raise money for developing a free version, likely building on Community F, and save everyone money. Efforts around that often tend to start with conversations online like here if we want to start one 😉
Recently Timebanks USA decided to convert to an opensource system that Art and I believe Matthew Slater were involved in. At some point they realized they were making people pay tremendous amounts of money for something that would inevitably be opensource anyway, and the barrier of entry would make things difficult. As I said earlier, I was able to just install one, and use it right away. If we make this opensource, the power of the software could easily and quickly far exceed any proprietary option.
Peter Rosen said:
Tried to message you on Facebook Your CONTACT Event sounds right up my Alley. I think I met Angel years ago thru Edith @ 110th st. I produce interactive theater & LIVING GALLERY events, featuring a networking games for creative people and audiences that may be suitable for your upcoming event?
Additionally I am a visionary Artist who’s dream is manifesting a network of CREATIVITY CAFE venues designed to extract the best humanity has to offer & empower out of box thinking ( creative problem solving) for helping transform communities and people in them via educational entertainment; propelling them towards success, abundant health and soulful satisfaction.
I would like to pitch my project as part of your competition and participate @ your conference by producing an interactive art event …as a demonstration of how a community’s Creativity Cafe can open minds, connect hearts, and suggest possibilities in a “venue of the future” catering to creative people, their audiences and their needs!
Can you please forward details of your show and if you’d like to explore possibilities for my involvement?
I normally hail from Maui HAwaii, but currently I am in the NYC area for the next foreseeable while.
Peter H Rosen
Various @ creativity dot net
Venessa Miemis said:
unfortunately registration for the bazaar/competition is already closed – Contact is only a week away! there are still a few tickets available, you can find out more at http://contactcon.com/
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