Bernard Lietaer is the author of the forthcoming Of Human Wealth and The Future of Money (London: Random House, 2001), and has been studying monetary systems for over 25 years. While at the Central Bank in Belgium, he co-designed and implemented the convergence mechanism to the Euro, the European single currency system. He is the co-founder and chair of the ACCESS Foundation, (www.accessfoundation.org), an educational nonprofit that educates the public about best practices in the domain of complementary currencies. He is currently a Fellow at the Center for Sustainable Resource Development at UC-Berkeley.
This interview, conducted by Green America Editor Tracy Fernandez Rysavy, complements "Re-examining the Structure of Money," a piece that appears in the Spring 2009 issue of the Green American, From Greed to Green.
TRACY FERNANDEZ RYSAVY: Green America’s executive director Alisa Gravitz told me that you long ago predicted our current economic downturn and have been saying it’s going to last at least ten years.
BERNARD LIETAER: I’m not the only one saying that now. There have been a handful of people in the States who were predicting this. Paul Volcker was one. Nouriel Rubini at New York University. I was one of the early ones—I first wrote this in 1999, predicting that before 2010, we’d actually hit the wall.
Rubini said this recession is going to be long, deep, and brutal. Nobel Prizewinner Joseph Stiglitz, the ex-head economist at World Bank who’s currently at Columbia University, said that in the beginning of a recession, the debate between economists is whether it’s going to be a "V"—deep and short—or a "U"—not as deep but longer, as in three to four years. He says this one could possibly be in the form of an "L"—hitting the ground and staying there.
TRACY: Why did you see this coming, when very few people didn’t?
BERNARD: This problem is structural, and it is being treated as if it were a cyclical problem, or a managerial problem, in that things were badly managed. The kinds of solutions the federal government is doing, like dropping interest rates, saving the banks, saving some key businesses and doing big projects—all these things have been tried for 18 years in Japan. 18 years. And Japan is now where they were then, 18 years ago [when the country entered its own banking and economic crisis].
When I say the problem is structural … let me give you a metaphor. Let’s assume I give you a car. And I say "By the way, that car doesn’t have any brakes, and the steering wheel doesn’t work one time out of two." Then I tell you to drive it across the Rockies.
Guess what? You’re going to have an accident! That’s pretty certain.
Now I come back to you and say, "What a bad driver you are!" And, "Oh, gee, they really didn’t do a good job on those maps. They didn’t warn you about that curve where you crashed."
What we’re doing with the regulations to "fix" the economic crisis is akin to saying that the way to prevent an accident in the car I gave you is to make better maps. Nobody is saying the car is the problem, i.e. the system you’re driving is the problem.
Our money system is structurally brittle. It doesn’t matter if you put a very clever guy or a stupid guy at the wheel. The clever guy will take a half hour to have an accident, and the stupid guy will take ten minutes.
I know the structure of money systems. If you have a professional look at the car, they can tell you, "Don’t drive that thing." That’s what I’m saying about the current money system: Don’t drive that thing. It will get into an accident.
TRACY: What is wrong with our monetary system today? Why shouldn’t people "drive that thing?"
BERNARD: Basically, for any complex to be sustainable needs to have a balance between two factors: resilience and efficiency. These two factors can be calculated from the structure of the network that is involved in a complex system. A resilient, efficient system needs to be diverse and interconnected. On the other hand, diversity and interconnectivity decrease efficiency. Therefore, the key is an appropriate balance between efficiency and resilience.
This is more understandable in ecosystems. One animal that can eat only one plant is going to get more easily on trouble than a more omnivorous one. If that plant gets in trouble, the animal will become extinct. If he eats 50 types of plants, when one plant gets in trouble, he can just eat some of the others.
The same thing is true for whatever eats that animal. It’s a chain of the appropriate levels of diversity and interconnections—which are the key to sustainability. We have know been able to measure quantitatively the conditions under which any complex flow network will be sustainable as a function of these two structural variables of diversity and interconnections.
Our economy is precisely a complex flow network where money circulates, similar to biomass circulating in a natural ecosystem. When you apply what we learn from ecosystems to money systems, it’s clear that our current money system is a monoculture, and that creates problems. Just imagine that you plant one type of plant on the whole planet and eradicate everything else. It’s very predictable that one day, that crop will get in trouble. We don’t know have to know from what—whether a new microbe or climate change or whatever. It is structurally brittle..
Look at any financial institution, at any bank. They’re all photocopies of each other. There’s no diversity of institutions and even less diversity of currency. Therefore, just as you say its very logical that an ecosystem like this will collapse, it’s very predictable a monetary system like this will collapse, too. And it hasn’t finished collapsing, by the way.
TRACY: What’s next?
BERNARD: A dollar crash. Paul Volcker has said that there’s a 75 percent chance for "a dollar hard landing." He probably wouldn’t say that today, because now he’s in a different role again [as Chair of President Obama’s Economic Advisory Board].
TRACY: You’ve also said our current money system, automatically builds in a scarcity factor. Can you explain that?
BERNARD: To understand the reason how scarcity is created, one has to understand the way money is created. Money is created through bank debt. When you go for a mortgage through a bank, they give you $100,000 to buy a house and basically send you out into the world to bring back $200,000 in the next twenty years. The first $100,000 is principal, and the second is interest.
When the banks create the money, they don’t create the interest. They send you into the world to compete with everybody else to get the second $100,000 that never was created and bring it back to them. So if we’re in a world with zero-growth population, goods, services, and money, the problem would be obvious. You would feel it. The way we do not feel it is that there is growth in population, there is growth in production, and growth in money. So basically what you’re doing when paying interest is pay someone else’s principal . Fundamentally, everybody has to compete against everybody else. If you don’t succeed, you lose your house or whatever other collateral was used to obtain your loan.
I have a story that I call the "11th Round Parable." I learned the story in Australia, so I’m setting it in the Australian Outback, in a little village where people don’t know about money. Every week they gather, and people bring hams, chickens, and eggs and barter and bargain with each other.
Then one day, a gentleman comes with a very fancy hat and very shiny shoes, and he observes the market. At one point, he sees a farmer trying to carry 12 chickens around the market to exchange them for a ham—and the farmer is obviously having trouble doing that. So the man starts laughing.
The wife of the farmer says, "Hey, stranger, do you know a better way of getting around with the chickens?"
And the man says, "I don’t know about chickens, but I know a better way of doing all this."
"Oh, really," she says. "What would that be?"
"See that tree in the corner?" he asks. "I’m going to sit under that tree. One of you bring me a big cow skin, and I will prepare something. Bring every family together, and I will explain it to you."
He goes to the tree, and they bring him the skin. He cuts nine little rounds in that skin and puts a fancy little seal in each of those rounds. He gives ten rounds for every family. One round is equal in value to a chicken. So now the villagers can carry those rounds instead of the chickens.
Then he says, "I’ll come back next year and sit under the same tree. I want everyone to bring 11 rounds. The 11th round is the token of appreciation for the improvement that I’ve made possible in your community."
The farmer’s lady asks, "Where will the 11th round come from?"
He says, "You’ll see, you’ll see, you’ll see. Don’t worry."
Do you know what’s going to happen?
TRACY: Some people will have enough, and others will be left with fewer than 11.
BERNARD: What has to happen is on average, one of ten families has to go bankrupt to provide the 11th round to someone else. We’ve created a negative-sum game. And the next time the harvest is ready, not everyone will participate to help a neighbor in trouble to get his harvest in before a storm.
That’s how scarcity is created and how competition is generated.
TRACY: How can complementary currencies help solve these problems?
BERNARD: Complementary currencies work in addition to existing money, rather than replacing existing, official money. There are whole different families of complementary currencies. One of them is local currencies. One is regional currencies. Another is functional currencies. Another is social-purpose currencies.
Today, conventional money is supposed to be doing everything. By adding in complementary currencies, you actually get different types of things and different outcomes from different complementary currencies.
If you want to create or bolster a local economy, you can use local currencies to stimulate that kind of outcome. A local currency has been proven effective only for up to 300-500 families, within a particular part of town.
If you want to help mitigate unemployment, I would recommend regional currencies. Regional currencies could work for a million people. The purpose there is to create a sense of regional pride and to encourage economic development on a regional level. We have a number of regional currencies operational in Europe. There are 64 projects in Germany, of which 28 are operational and the rest are in process of launch. There are six projects in France that are now in pilot stage..
There are also social-purpose currencies. There is one in Japan that people use to trade elderly care. The Time Dollar system in America is another.
Global currencies can be complementary as well. The Terra is one such example (see www.terratrc.org).
TRACY: On a bigger level, you’ve been saying that the Terra and Business-to-Business or B2B currencies could help us navigate this economic crisis we’re in. How do you get people to start accepting them?
BERNARD: The Terra is a subset of Business-to-Business (B2B), and I would recommend implementing first a B2B when it comes to addressing this crisis. Being optimistic, it would take at least three to five years for the Terra to make a difference. The B2B could be operational in three to six months.
The prototype of a successful B2B is the WIR system in Switzerland, which has been proven to help keep the country’s economy and employment more stable than all its neighbors since it was started in 1934.
The B2B keeps the businesses interconnected and trading with each other without borrowing money from the banks, which is the real bottleneck. Because the money is not anymore available from the banks as it used to be, period.
TRACY: How could we start a B2B currency this quickly? And how could we get it to be a national movement in the US?
BERNARD: We’re starting a B2B currency here in Europe. I was just at a meeting today at one of the pilot programs in Germany. They are considering calling it the "Com" for complementary and commercial—one Com equals one Euro, and it doesn’t have interest. There are now four pilot projects in gestation in Europe.The idea is to launch the pilot projects independently of each other and then interconnect them in 2010.
One of the main reasons we can do it so quickly is that thereare open-source softwares available for free, to make it all work. That solves much of technical problem.
Therefore, the only thing to be done is the social part, i.e. convincing businesses to be involved. Let me give you an example of how that might be done.
If one of your biggest customers tells you "We are going to buy from you at the condition that we can pay 10 percent with this new Com complementary currency." As a supplier, when your biggest customers tell you that, you basically have a choice. You don’t have this big customer, or you accept the 10 percent payment in Coms.
The pilot projects are the beginning of the process. As we start to interconnec them on the European level, throughout the Euro-zone, there will be 16 countries that are using the same currency, all connected by the same software.
One of the key elements is transparency. With the Com system, I have the right to see your account before I make a trade with you. In other words, so it’s self-policing. That will make it very unattractive for the mafia and anyone else interested in criminal activity.
You can implement a B2B currency with same pricing structure and the same marketing mechanism and everything else. It simply offers an additional source of funding. The hope and idea is that at some point, at least during the period of the crisis, governments—particularly local and city governments—will accept partial payment of their taxes in the B2B currency, making it acceptable to everybody.
TRACY: Is there any talk about doing a B2B project in the US?
BERNARD: That will depend on the American businesses themselves. In order to do something like the B2B, you need to be willing to think out of the box.
TRACY: Our economic system is based on growth, and a lot of economists that are thinking about the coming environmental and even population crises are coming to an agreement that we are reaching a point where the growth has to stop. Can complementary currencies help stop consumption and waste, as well?
BERNARD: I actually disagree that growth as a whole needs to stop. I think what we need is to stop stupid material growth. What I believe is that we only need more smart growth. For instance, we need an infinity of growth in learning. An infinity of growth in beauty. Large amounts of growth in care, help and restoration. So the question is not whether we need growth or not. The real question is to define what kind of growth.
TRACY: Well said! Do the B2B currencies stop stupid growth?
BERNARD: For example, we can have currencies that motivate you to put less carbon in the atmosphere. There are now six cities in Europe that are planning to launch a carbon currency to do just that—Bristol, Dublin, Munich, Rotterdam, Brussels, and Amsterdam.
TRACY: How does that one work? Is this different from the cap-and-trade system we read so much about?
BERNARD: Oh, yes. Cap and trade involves basically only corporations and governments. The consumer is not involved. Here we’re talking about actually motivating the citizen/consumer to get involved.
Let’s assume that you take the bus or the subway instead of your car. Well, we give you credit for the carbon units that you’re saving with your ticket. It’s all done electronically, using a "smart" card [that works much like a standard credit card with a rewards program]. You want to go buy a bicycle? You can pay for the bicycle with the carbon credits. Or if I install solar panels in my house, I get carbon credits, which I can then use to take the subway.
The way that the US some state governments try to motivate people to buy a hybrid car is that they give you two- or three-thousand dollars in a tax rebate when you buy a hybrid. You can then use those two- or three-thousand dollars to go to Hawaii and emit more carbon than [you would save in the life of driving that hybrid]. So the government has no way of influencing behavior patterns after the first transaction.
The carbon currency works only in carbon-producing activities. So you create and economy that favors that activity. That’s an example of a complementary currency that actually encourages smart growth.
TRACY: What do you think individuals can do, here in the US, as we’re headed toward an unprecedented crisis?
BERNARD: If you’re a business manager, start a B2B currency. There are models available. We’re not talking theory: It’s been done before, and in Europe, we’re in the process of doing it again.
If you are a mayor, or a state governor, obtain the permission to accept such B2B currencies in payment of local taxes. You can choose the criteria that makes that currency acceptable for partial payment in taxes. This will provide the most powerful incentive for other businesses to accept that currency, and it will provide you with city and state income that you otherwise wouldn’t have.
If you’re an individual, gather your community, and create your community, to help build social capital.
In Brazil, the central bank is now helping to launch 150 dual currency banks to solve local problems, at the rhythm of 10 per month. In communities that have little money, survival is about the social capital. You can solve problems together that you can’t do alone. There are complementary currencies to achieve that as well, like Time Dollars. It doesn’t have any meaning to accumulate lots of Time Dollars, but the relationships you establish within a Time Dollars network are important. And local complementary currencies are very easy to start!
TRACY: Joanna Macy and others have talked about this moment where we’re going to have to act, to fundamentally change our economic system, or we’re going to enter a period of destruction. Is this it? Is this sink-or-swim time?
BERNARD: Yes, we’ve started, and yes, it’s sink-or-swim time. It’s time to do things differently—structurally differently. The faster we shift, the less suffering we will engender. Time is of the essence.
If I want to be cynical about it, I would guess the federal government will start making structural changes in about five years. What they’ll do is try the classic solutions, which we’ve already talked about, and then they’ll find out that those solutions will not work. I think that process will take three to five years.
The same thing happened to Japan, when it hit an economic crisis like this one. They tried the classical solutions, and after five years, they stopped believing the economic downturn was a cyclical thing, that it was like all the other ones. That’s when they started implementing these structural kind of solutions, which is why Japan is a full-scale laboratory of complementary currencies. However, Japan still haven’t gone to scale yet. They’re still experimenting. My suspicion is in the next two to three years, Japan will announce 10,000 local currencies, or a national B2B currency, and they’ll tell the world they’ve changed their development model.
In Europe, we’re trying to experiment with taking complementary currencies immediately to scale. By the end of 2010-11, we hope to have a B2B system that is available at the Euro-zone level.
We could do the same thing in America. Basically, we need leadership. It doesn’t need to be political leadership. It could be business leadership. American business has proven it’s capable of turning on a dime. They don’t need to go to Washington to try to beg for a little more money. That won’t work, because there won’t be enough money for everybody. But American business needs save themselves. Nobody can do it for them.