In 2016, while living in Southern Spain, I came across a local complementary currency driven by citizens impoverished by the financial collapse of 2008. It turned out they knew more about how our conventional money works than most economists, financial experts and policy makers.
The way most money is created today lies at the root of our many sustainability challenges. Far from the neutral money implicit in mainstream economics, how money is created, by whom, what for and for whom shapes how we relate to each other and the world around us – with effects as diverse as the entrenchment of inequality, biodiversity loss and climate change. And yet, from economic experts to elected politicians – not to mention the general population – few know how money works. This robs us of the ability to redesign money to build a more sustainable, just and equal future.
About 97 per cent of our money is created by private banks when extending loans. Following a profit motive, bank officials lend when they expect the economy to grow and restrict credit when they expect the opposite, thereby expanding the amount of money in times of boom and constraining it when we most need it. Similarly, they lend to those sectors of the economy they anticipate will ensure repayment of the loan plus the interest – such as housing – and limit funding to those sectors whose future is less certain – such as green energy or the arts. Granting credit when hopeful and restricting it when fearful, the sentiments bankers follow in their profit-making calculations selectively create and introduce money into the economy, thereby steering the direction of the economy, magnifying booms and busts, and increasing socioeconomic inequality.
Although understanding money creation is fundamental to addressing our economic and environmental problems, few of those we trust to make decisions about our future know how money works. A poll conducted by Positive Money in 2017 among members of the British parliament found out that as many as 85 per cent of MPs did not know who created the bulk of our money, nor how money was created or what it was created for. A survey administered to 23,000 citizens in 20 countries representing 75 per cent of the world economy showed the general public was similarly ignorant. To the question of who they thought created more than 95 per cent of the money in circulation, 20 per cent of world citizens, compared to 15 per cent of British parliamentarians, correctly answered ‘private/commercial banks’. Financial professionals, who directly or indirectly work with money creation, knew only slightly better, 26 per cent of them acknowledging private banks’ central role in creating the vast majority of our conventional money.
Ignorant of how money works, progressive thinkers and policy makers trace our unsustainable predicament to the individual behaviour money seems to elicit. Corporate greed – or the pursuit of profit for money’s sake – the argument goes, leads to the exploitation of nature, the oppression of workers, and the transformation of citizens into consumers. Accordingly, transformation comes from reducing our consumption levels to minimise environmental damage, from organising work through trade unions and cooperative ownership to reduce inequality, and from promoting circular production processes that reduce waste and care for nature. While all these changes are urgently needed, they will remain toothless even if widely implemented, because they treat the symptoms without attending their cause. Today’s opaque money creation, coupled with a confused rhetoric that disconnects money creation from our sustainability challenges, deprives citizens and their representatives of the ability to articulate a political agenda to transform the money-unsustainability nexus.
Monetary schools are therefore sorely needed. Fortunately, there are many. Since 2008, a wide variety of citizen groups around the world have started local monies. From France to Argentina, from Spain to Brazil, from Germany to Japan, citizen groups are experimenting with various ways of creating money to advance the future they dream of. Whether connecting the issue of the new money to actions of caring for nature – as in the case of Enepo in Hida-Takayama (Japan) or the Turuta in Vilanova i la Geltrú (Spain) – or distributing the new money through payment of universal basic income – such as Demos in Gran Canaria – communities are designing the rules for the creation, distribution and circulation of money in order to promote the behaviours and societies they want to see happen.
Some municipalities are building on those lessons to implement municipal currencies themselves, as tools to advance urban sustainability and social inclusion. Such is the case of Vilawatt, in Viladecans (Spain), a municipal currency introduced to coordinate the transition to a low-carbon economy, and of Mumbuca, in Maricá (Brazil), a currency distributed as an additional social benefit to the most vulnerable citizens and coordinated to support the city’s local commerce.
While there is much debate about the actual economic impact of complementary currencies, two effects are widely recognised: first, well-designed complementary currencies promote solidarity and caring behaviour; second, citizens and municipalities are learning to see money as an infrastructure that can be reclaimed, redesigned and reorganised to benefit people and planet. Herein lies much hope for, if we are to advance a sustainable future, we need empowered citizens and cities who can formulate political demands that link money creation to the sustainability agenda.
Ester Barinaga Martín is Professor of Social Entrepreneurship at Lund University School of Economics and Management and Professor with Special Responsibilities at the Copenhagen Business School.
Remaking Money for a Sustainable Future by Ester Barinaga Martín is available to read open access on Bristol University Press Digital here.
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Image credit Liam Roberts Design via Coinage by Zualidro