Practices of social and complementary currencies in Europe and the world

- With regard to the promotion of social enterprises -

Yasuyuki Hirota

miguel@ineval.org

Universitat de València (Spain)

Introduction

A number of social and complementary currencies (SCCs), used in parallel with legaltenders (such as Korean Won, US Dollar and Euro) for payments, are emergingthroughout Europe and in other continents to enhance the local economy. Unlikeofficial currencies, these means of exchange are managed democratically by their ownusers, making it easy to make our economy serve for us and not vice versa. But veryfew, if any, studies have been done in terms of the relationship between socialenterprises and SCCs, posing a need for further researches in this field.

This paper’s goal is therefore to fill in this academic gap by illustrating how theseSCCs can help social enterprises in different ways on the basis of both theoreticalframework and empirical findings. It is essential to start with the fact that currentmonetary system has some innate failures which are actually hurdles on stimulatingsocial enterprises. Although there is no SCC to target them specifically, differentexperiences have already proved the potential that social enterprises can benefit fromsuch means of exchange too, so this paper tries to depict the perspective for thecollaboration between SCCs and social enterprises.

This paper will consist of four sections: it begins with explaining different structuralfaults of our conventional money system which are against nurturing social enterprises,such as money creation as bank debt, compound interest and pro-cyclical moneycreation. Then relevant theories are presented to depict SCCs’ role in our economy.Description on some leading experiences, such as Chiemgauer (Germany), SOL-Violette(France) and Banco Palmas (Brazil) will be presented to highlight what sorts ofsocioeconomic benefits they are bringing about. Last but not least, an analysis is given,focusing on how such experiences can improve social enterprises’ performances interms of finance and customer acquisition / retention as well as their challenges.

1: Structural issues with our current money system

It is quite relevant to begin with defining some structural issues with our currentmoney system before dealing with the need of SCCs.

The first problem is that most money is created and supplied to the economy asbank debt (Greco, 1990: Douthwaite: 1999, Greco: 2001, Lietaer and Belgin: 2012,Jackson and Dyson: 2012 and Lietaer et al: 2012). In the UK as much as 97.4% ofmoney has come into being as such (Ryan-Collins et al, 2012) and last March the Bankof England itself has officially admitted this process (Bank of England, 2014).Undoubtedly banks are corporations, therefore money is only provided to projects as aloan when they find it profitable to lend, or in other words money creation itself is thebank’s business in search for profit. The fractional reserve allows banks to create andlend tens of times more money than they actually have as cash deposit (the requiredreserve rate is only up to 10% in the US1, up to 1.3% in Japan2, 1% in the Eurozone3 andnon-existent in the UK4), and what is important is that the money, thus created by bank,only exists electronically at bank accounts. Galbraith (1975) says that “the process bywhich banks create money is so simple that the mind is repelled.”

What we see as a result are the “debt economy” and “economic relationship that…includes a modernisation and a control of the subjectivity” (Lazzarato, 2011), in otherwords, “a virtual economic serfdom in which debtors, struggling to avoid default, areforced to an unhealthy competition with one another” (Greco, 1990). Lietaer et al (2012:125 – 127) explain that, had France not approved the Article 25 of the Law on the 03rd

January 1973 which forbids the Banque de France to provide the French governmentinterest-free loans but forces the government to ask the banking sector for loans andto pay corresponding interest rates, the public debt in this country in 2009 would bemerely 8.6% instead of the actual 78%. The whole real economy (both the non-financial private and the public sector) is obliged to owe more and more to the financialsector in order to get the money necessary for their operation while banks enjoy theirmonopoly to charge interest on most economic activities, enriching themselves at thecost of the rest of the economy.

The second issue is around the compound interest, an essential condition for thebank to lend money to borrowers. Kennedy (1995) explains the following unsustainablefeatures of the compound interest:

1 http://www.federalreserve.gov/monetarypolicy/reservereq.htm

2 http://www.boj.or.jp/statistics/boj/other/reservereq/junbi.htm/ (in Japanese)

3 https://www.ecb.europa.eu/mopo/implement/mr/html/calc.en.html

4 http://www.bankofengland.co.uk/statistics/Pages/iadb/notesiadb/wholesale_baserate.aspx

It drives exponential growth which is observed in the natural world as thegrowth of cancer (all living things begin with growing quickly, then slow downand eventually stop growing quantitatively on reaching a certain maturity)

Interest cost raises the price of every goods and/or services that we consume:between 12 and 77% of the cost paid by West Germany’s public sector in 1982accounted for compound interest repayment, which means such a hugesurcharge would not have been necessary if interest-free finance had beenavailable to provide such services.

An unfair redistribution of wealth takes place with this interest, as the wealthycan afford to lend money and therefore enrich themselves furthermore bycharging them interest rate while the rest of the population needs to pay theinterest rate, either directly on servicing their own debt or indirectly on payingfor any goods or services as we have just seen

On top of Kennedy, Lietaer et al (2012) points out the short-termism as another by-product of the compound interest rate (See Figure 1).

Figure 1: How investment behaviours are affected by interest rate / demurrage5

5 Source: Lietaer et al (2012)

This graph shows two investment opportunities: one for a pine tree (costs $10 andwill yield $100 in 10 years) and the other one for an oak tree (costs $10 and will yield$1,000 in 100 years). From the conventional financial viewpoint, futures’ current valueis discounted6, so a pine tree is now worth only $61.39 ($100 / 1.0510) while an oak treeis now worth only $7.60 ($1000 / 1.05100), making everybody opt for the first option.However, if the demurrage (proposal by Gesell (1916) and Fisher (1933) to chargepenalty for hoarding money: see 3.2 for details) were imposed instead of interest rate,the picture would be completely different as the oak tree’s current value would bemuch bigger.

The last point is that the current money creation system, based on the bank credit, ispro-cyclical, in other words banks pumps out more money when the economy isbooming while it withdraws and shrinks their monetary supply once a recession starts.

Such a structure of our money system is quite adverse to social enterprises indifferent ways:

- Money creation as bank debt: in the first place, they have difficulty gettingaccess to the credit for both initial fund and operational fund from the bankdue to their low, if any, profitability. Social enterprises are to bear differentsorts of costs (especially training) to achieve their own goals while theirproductivity is not always as high as its rivals, making it little attractive forbanks to lend money to such projects. On top of that, it should behighlighted that what Greco (1990) depicted is contrary to social enterprises’principles, as commercial banks are actually promoting cutthroatcompetitions where social enterprises are in a very disadvantaged position.

- Compound interest: social enterprises need loans for their start-up but thecompound interest becomes another burden. The short-termism imposedby the compound interest is another threat, as they are forced to yieldresults as soon as possible without taking into account the necessary timelength to train the socially marginalised.

- Pro-cyclical money creation: social enterprises are needed more when theeconomy is in the bust as more people lose job and need to be sociallyreintegrated, but it is precisely at this time that banks are more loath to givecredits. While social enterprises can benefit from an economic boom as itmay loosen the criteria for bank loans, appropriate measures should betaken so enough fund should be pumped out to the social enterprisesduring the recession.

6 Provided that the interest rate is 5%/year, my $1,000 deposit will be worth $1,050 in a yearwhile what will be worth $1,000 in one year is now worth $1,000 / 1.05 = $952.38.

2: Definition of SCCs

The term SCC is comprised of two different concepts: social currency andcomplementary currency.

The first term “social currency” was invented by Primavera et al (1999) who, afterobserving the bustling practices of “club de trueque” (barter club) in Argentina at thattime, found out that it has “its effects of social inclusion” as thousands of unemployedpeople gathered there to exchange whatever they had (vegetables, fruits, clothes, shoes,books, CDs, cosmetics and furniture etc.) and/or whatever they could offer (haircut,manicure, wedding ceremony, legal counselling, car insurance, taxi and travels) to makeends meet (Gómez, 2009). Participants, called as “prosumidores”7, had an additionalincome of some 600 dollars per month, about twice the minimum wage (ibid).

The second term “complementary currency” was first used by Bernard Lietaer at hisreport to the European Commission in 1998, mentioning existing practices such as LETSand Time Dollar as they are complementary to the legal tender (Rizzo, 2003). Table 1summarises what Lietaer (2001) explains.

Table 1: Comparison between national currencies and SCCs8

National currency SCCs

Type of capital Financial / physical Social / Natural

Effects on therelationship

Scarce / Competition-inducing

Sufficient / Cooperation-promoting

Serving for Commercial and financialtransactions

Communitariantransactions

Form of creation “Fiat”, created by a Central ‘Mutual credit’, created by

7 “Prosumidor” (pl: prosumidores) is the Spanish word for “prosumer,” a concept invented byToffler (1980) by putting together both “producer” and “consumer.” Toffler was referring toconsumers who meddle in the production process, for instance by suggesting the producterwhich design is the best for them, or to freelancers, what emerged in Argentina was a hugeamount of consumers who turned to be producers too to make up for the economic losstriggered by economic crisis.

8 Source: Lietaer (2001)

Authority the participants themselves

Yang Yin

Nowaday both terms are used, quite often interchangeably, to refer to any means ofexchange other than national currencies. Lietaer (2001) defines money as “anagreement within a community to use something as a means of exchanege,” highlightingthat the civil society can have their own money (i.e. achieve their money sovereignty) asfar as there is a consensus among its members.

3: Case studies of SCCs

3.1.: LETS (World)

LETS is the most popular type of SCC based on the mutual trust among its members.Invented in 1982 at Commox Valley, British Columbia, Canada by Michael Linton, thismodel has been replicated all over the world, with successes, failures and evolutions.Servet (1999) defines this as “a group of people who, under an associative form and onthe local basis, exchange services and goods… by an internal accounting unit oftransactions.”

The system itself is quite simple: each member has their own account and startstrading among themselves in this currency. In case of a LETS with six members (Anne,Brian, Charlotte, David, Emily and Florence), everyone starts with a zero balance. Oneday Brian buys Anne some bread and pays two points to her, and she has the right tobuy something equivalent from any another member of this system while Brian owestwo points to all of them. But how to repay this “negative amount” differs from how toservice the debt, as Brian’s “negative amount” is cancelled when he provides equivalentgoods or services (food, a second-hand cloth or book or pick-up service, for instance).Usually there is a limit to the negative amount to prevent members from onlypurchasing other members’ goods and services without providing anything in return.

Currently the biggest experience of this sort is CES9. Originally developed as anonline LETS in Cape Town, South Africa, it took little time for this system to be linkedwith similar groups in other countries. As of May 2014 as many as 682 systems from 67countries / regions belong to this international online clearing system.

9 http://www.ces.org.za/

Another remarkable experience is Hanbat LETS10 at Daejeon, Korea which has beenoperational since 2001 which allows the payment in two currencies (LETS points calledduru as well as Korean won), with approximately 600 families trading partially in thislocal currency. The turnover has grown from 8,813,300 duru + 8,677,500 won =17,490,800 in 2001 to 132,187,025 duru + 115,757,020 won = 247,944,045 in 2011.

3.2.: Chiemgauer11 (Bavaria, Germany)

Chiemgauer is an euro-backed regional currency12 in the counties of Rosenheim andTraunstein as well as Rosenheim City, Bavaria, Germany to “bind the money and let itflow within the community” (Gelleri: 2009). This initiative began in January 2003 as anextracurricular project of a Waldorf school13 with six female students involved with thestart-up. (Gelleri: 2009, Kennedy et al: 2012). Table 2 shows key numbers about thisexperience and Graphic 1 explains Chiemgauer’s life cycle:

Table 2: Key numbers about Chiemgauer14

2003 2005 2007 2009 2011 2013

Consumers 130 700 1,337 1,899 2,470 2,769

Businesses 100 380 631 587 593 627

Social projects 5 50 158 200 233 253

Chiemgauer in circulation 10,000 50,108 165,648 327,458 498,906 520,514

Donation for social projects 1,800 10,498 26,272 39,150 52,128 59,282

Turnover in Chiemgauer 75,873 699,834 2,304,571 4,042,204 5,676,698 7,181,494

Chiemgauer’s circulation speed(per year)

9.48 16.78 19.35 13.72 11.42 12.82

10 http://www.tjlets.or.kr/ (in Korean)

11 http://www.chiemgauer.info/ (in German)

12 Kennedy et al. (2012) defines regional currencies as a subcategory of complementarycurrencies which focus on a particular region, defined as “a geographical area with which peopletend to identify themselves.” (ibid.)

13

14 Source: http://www.chiemgauer.info/fileadmin/user_upload/Dateien_Verein/Chiemgauer-Statistik.pdf (in German)

Euro’s circulation speed inGermany (per year)

6.78 6.21 6.16 4.82 4.42 3.88

How faster Chiemgauercirculates than euro in Germany

1.40 2.70 3.14 2.85 2.58 3.31

Chiemgauer’s multiplier effect 1.11 2.00 2.63 3.10 3.27 3.43

Graphic 1: Chiemgauer’s life cycle15

Photo 1: a two-Chiemgauer bill (2012 – 2013 series)

15 Source: Gelleri (2009)

Table 2 proves Chiemgauer’s steady growth as well as improving performance ontothe regional economy. The numbers of consumers and social projects have beengrowing steadily while that of local businesses has already peaked in 2007. More andmore Chiemgauer is used and this regional currency circulates much faster than euro,improving its multiplier effect too.

Chiemgauer’s stakeholders are consumers, local businesses and non-profits and thisregional currency is designed to offer benefits to all of them as seen on the Graphic 1.Consumers choose a social project to donate and exchange euro into Chiemgauer andpay in Chiemgauer at more than 600 member local businesses. Local businesses eitherspend it at other businesses or redeem it into euro paying 5% of commission. TheChiemgauer office takes 2% for its administrative cost and donates the rest of 3% tothe social project. On top of that, Chiemgauer is a currency with “demurrage”, amonetary proposal by Gesell (1916) and Fisher (1933) to charge hoarding fee to thebearers of money (2% every 3 months in this case: Photo 1 shows spaces where bearersof this bill should paste a 4 euro-cent stamp every 3 months), encouraging them tospend money as soon as possible. On top of that, Chiemgauer and two other regionalcurrencies have set up a financial cooperative Regios16 to provide microcredit both ineuro and in regional currency, with the option that the interest paid should be returnedif borrowers achieve to repay all their debt without delay (except VAT)17. Below arebenefits of this SCC for each stakeholder:

- Consumers: They can donate 3% of their expenditure to a social project(such as ecology and culture) without having to spend more. A consumerwho spends 500€ per month at local businesses can donate as much as180€ (500€ x 3% x 12 months) without changing their behaviour.

16 http://www.regios.eu/ (in German)

17 See http://www.regios.eu/wp-content/uploads/AGB_Regios.pdf no. 10 “Zinsbonus”.

- Non-profits: This regional currency provides another income source. In2003 as many as 217 social projects have received this donation, whichamounts to 58,739.61 €, and nine social projects have earned more than1,000 €.18

- Local businesses: Their acceptance of Chiemgauer attracts those consumerswho wish to support a social project financially, leading to increase theirturnover which compensates the 5% of redeeming fee to be paid when theychange redundant Chiemgauer into euro. The (almost) interest-freemicrocredit, to be offerred by the financial cooperative Regios, is anotherimportant advantage, as both the lower interest rate as well as the betteraccess to credit will increase the chance for local businesses to be financed.

3.3: SOL-Violette19 (Toulouse, France)

SOL-Violette is the most successful experience of the SOL project20, proposed byViveret (2003) as an interest- and speculation-free money which is committed to acertain sort of activities. The project in Toulouse, started in May 2011, differs fromother experiences as it has decided to issue its own bills while other experiences arecompletely electronic, requiring business owners to have their own card reader.

SOL-Violette is another euro-backed currency that only “solistes” (consumers) canget at two affiliated financial institutions (Crédit Municipal21 and Crédit Coopératif22)with an advantageous exchange rate of 20 € > 21 sol to encourage solistes to spendthis SCC as much as possible. Then they spend sol at 125 businesses which are allowedby CLAS (a French association in charge of managing SOL-Violette) to accept thiscurrency, and they either spend it at other businesses or redeem it at above-mentionedfinancial institutions (21 sol > 20 €) just like Chiemgauer. The deposited euro at theseinstitutions are to be provided as microcredit for individuals and/or small businesses.Businesses are required to comply with at least 9 of 25 ethical and environmental

18 Source:http://www.chiemgauer.info/index.php?id=249&rws_donation_from=01.01.2013&rws_donation_to=01.01.2014

19 http://www.sol-violette.fr/ (in French)

20 http://www.regios.eu/wp-content/uploads/AGB_Regios.pdf (in French)

21 http://www.credit-municipal-toulouse.fr/ (in French)

22 http://www.credit-cooperatif.coop/ (in French)

criteria set forth at the Dossier d’Agrément23 and the one year membership is given forthose businesses which do clear the condition (two years if they comply with at least 14criteria)24.

An important feature of this French experience is the City Council’s involvement: itdonated 120,000 € in 2011 and 2012 respectively and almost 100,000 € in 2013 tosustain this project. Part of this budget is spent as subsidy for the unemployed by wayof three Maisons de Chômeurs (Umemployed People’s Houses) and 90 unemployedpeople are selected to receive 30 sol during three months, giving them access toorganic food, other sorts of goods and/or services that they would never get. The solin circulation increased from 28,000 in 2011 to 47,918 in 2013 and the turnvover in thisSCC in 2013 is estimated to be 287,68825.

3.4.: Banco Palmas26 (Fortaleza, Brazil)

Banco Palmas at Conjunto Palmeiras, Fortaleza, Brazil is another remarkableexperience, especially in the context of poverty reduction. Conjunto Palmeiras is aformer shanty town which was founded in 1970s by former fishermen who had beenexpelled from their coastline village and in 1980s ASMOCOMP (Associação dosMoradores do Conjunto Palmeiras, Conjunto Palmeira’s Inhabitants Association) wasfounded to initiate its social struggle in search for better infrastructure (road pavement,water and sewage service, electricity and school). Ironically the improvement of lifestandard meant also the increase of the cost of living and a number of people wereforced to leave this neighbourhood simply because they couldn’t afford to pay the cost.Therefore ASMOCOMP founded the community bank Banco Palmas initially to providemicrocredit service so people could get out of the poverty by starting up their ownbusinesses, but later it introduced its local currency Palma too to stimulate localconsumption.

What is relevant of Banco Palmas is that this SCC is a part of an integrated localdevelopment project: For entrepreneurs Banco Palmas gives microcredit in real (Brazil’sofficial currency, R$) while consumer loans are done in the local currency called palmato stimulate local consumption and to retain the purchasing power within thecommunity. ASMOCOMP realises the mapping of the local economy on a regular basis

23 http://www.arecom-geneos.com/~fbosque/sol/sol-violette/questionnaire_agrement_papier_v2.pdf (in French)

24 http://www.sol-violette.fr/prestataires/rejoindre-le-reseau (in French)

25 Source: http://www.sol-violette.fr/uploads/assets/telechargement/Bilan-2013_V9_1213-12h33.pdf (in French)

26 http://www.bancopalmas.org.br/ (in Portuguese)

to detect which sort of businesses are lacking, helping entrepreneurs know the localneeds and set up new businesses which are more likely to succeed.

Another interesting feature of this bank is its own evaluation method: as mostpeople in the neighbourhood are from low-income families, it is not feasible to ask forcollaterals on offering microcredit. The banking team has therefore developed analternative: ask neighbours if they would lend money if they were asked by the loanapplicant to do so. Local inhabitants’ high-level mutual trust, which had been brewedfor decades through their social struggle, has enabled this community bank to get ridof that bothering evaluation procedure. In 2012 it lent R$ 3,660,991.97 (approximatelyUS$ 1,876,000) to 4,479 production projects on top of giving 230 consumer loans, and40,000 palmas (about US$ 19,500) were in circulation in the community.

Banco Palmas has been widely known as a model case of community bank, especiallyas the solidarity economy network was strengthened27. As of march 2013 there are asmany as 103 community banks all over Brazil28 and the public sector is providingsupports to replicate such an experience.

4: The complementarity of SCCs

We have already seen some fundamental problems in our current money system.Now it is worth reviewing how SCCs cope with them.

Money creation as bank debt: LETS is a perfect system to allow people to createmoney other than as a bank debt, but it is also fundamental for those with negativebalance to repay. Another way to create money is to issue it only on accepting tangibledeposits (such as food and biodiesel) and in fact Lietaer and Belgin (2012) suggests thismethod for a new global currency called Terra.

Compound interest: All SCCs are aware of what is stake at the compound interestand some work completely interest-free while some are unable to abolish it fordifferent reasons, although at least they try to reduce it to the minimum.

27 In 2003 both the SENAES (“Secretaria Nacional de Economia Solidária”, Brazilian government’sorganisation in charge of promoting solidarity economy,http://portal.mte.gov.br/tca_contas_anuais/secretaria-nacional-de-economia-solidaria-senaes.htm) as well as FBES (Fórum Brasileiro de Economia Solidária, Brazilian SolidarityEconomy Forum, http://www.fbes.org.br/) were founded, playing a fundamental role inpromoting this economy throughout this South American country.

28 http://www.inovacaoparainclusao.com/rede-brasileira-de-bcd.html (in Portuguese)

Pro-cyclical money creation: Stodder (2000) shows an important fact thatcommercial barters29 play a counter-cyclical role to the economy: they get bigger whenthe general economy enters a slump as it becomes more difficult for small businessesto get a loan and/or sell in the official currency while they shrink when the officialcurrency economy enjoys the boom, therefore balancing the whole economic activities.

5: How SCCs can improve social enterprises’ performance

Although currently not linked with social enterprises, the Chiemgauer model showssome ways to help social enterprises. Here I will refer to some potential ways SCCs cancontribute for social enterprises, basically on the basis of this German experience butreferring to other SCC experiences too.

The first advantage that this German experience could offer is, obviously, the 3%donation to the “social project.” If social enterprises are admitted as “social project” aswell as “business”, consumers can easily donate to them by spending in Chiemgauer,not only on spending there but also on shopping any other member businesses.Although this donation alone cannot warrant their economic survival, it is worth notingthat this mechanism can help them by providing an additional revenue.

The second advantage is its character as loyalty programme: Holders of Chiemgauer(both consumers who exchanged to it from euro and businesses who have acceptedthis regional currency) are forced to spend it at another member business if they do notwant to lose 5% as reconversion fee, making social enterprises a bit more competitive.

The third advantage is the easier access to microcredit. All these organisations arenon-profits or cooperatives which were established by its own users, making it easierfor lenders to trust small entrepreneurs and consumers and to finance their smallprojects, and even at lower interest rate. Banco Palmas shows that the high level oftrust among local inhabitants enables it to simplify its evaluation process. And theallowed maximum negative balance at LETS allows social enterprises to be “in debt” upto some amount which is negotiable with other members of the system.

29 SCCs used for B2B transactions. The biggest one is WIRBank (http://www.wir.ch/) in theSwitzerland, operational since 1934, which gives 647,244,773 WIR (one WIR is equivalent to oneSwiss Franc, as of 2013) to Swiss small businesses to promote trades among themselves, but anumber of similar cases are found in different countries. IRTA (International Reciprocal TradeAssociation, http://www.irta.com/) is this industry’s international organisation.

6: Challenges

It should be acknowledged, however, that the current practices of SCCs are far frombeing perfect on stimulating social enterprises and some major challenges are pointedout below to show what is at stake.

The first challenge for SCCs is their tiny size in comparison with that of the officialcurrency economy. Although Chiemgauer is successful in achieving to attractthousands of local consumers, its number is still less than 1% of the local populationand its turnover in comparison with regional GDP is even smaller (the annualexpenditure per member (consumer + local business + social projects) in 2013 is 1,968€ while Germany’s GDP per capita is estimated to be around 30,000 €). WIRBank30 inthe Switzerland is the only exception in terms of its dimension which could providelow-interest-rate loans to social enterprises (but not additional income thatChiemgauer gives to “social projects”), but it would be necessary that a Chiemgauer-model SCC should increase its size so more money should be donated to socialprojects (1 million € should be exchanged into this SCC to achieve 30,000 € donation).

The second challenge is the need to nurture a solid social cohesion within thecommunity so as to allow “an agreement within a community to use something as ameans of exchange” to come into being. Chiemgauer has been able to grow thanks tothe existing social capital around the Waldorf school and Banco Palmas was born onthe basis of the local inhabitants’ union which had been shaped as a result of years oftheir social struggle to improve their own life standard while SOL-Violette has beenpossible thanks to the local social and solidarity economy network as well as thesubsidy from the City Council. While SCCs are an economic tool, it is also essential fortheir promoters to make enough efforts to build up an adequate community.

The third challenge is the need of marketing. Quite often SCCs are conceived,promoted and implemented by advocates of monetary reform and, while they areexperts in ideological discussions, they lack arguments to show businesses and ordinaryconsumers which sorts of specific socioeconomic benefits are available for SCCs users.Kelman (1961) shows that there are three stages on adopting social causes: compliance(I don’t smoke here because it’s forbidden by law), identification (I don’t smoke becausemy favourite TV starts have declared to quit it) and internalisation (I don’t smokebecause it’s unhealthy for me) and, while it is practically impossible to resort tocompliance (it is quite unlikely that any government should approve a law to forcebusinesses and consumers to accept SCCs), it would be quite useful for SCC promotersto try to come up with strategies to attract new users by identification (Use of a local

30 http://www.wir.ch/ (in German, French and Italian)

currency as a symbol of attachment to the community) as well as showing cleareconomic benefits for different stakeholders (consumers, local businesses and non-profits) on using a SCC (ex.: Chiemgauer).

7: Conclusions

Our current money system has some structural failures which are adverse to socialenterprises. The very process of money creation as bank debt means that the necessarystart-up fund and operational fund is provided from commercial banks only when theyfind it profitable to lend this money, raising the hurdle as social enterprises tend toyield little profit, if any. The compound interest, an essential requirement on borrowingmoney, is another obstacle as well as contradiction since social enterprises, with theaim of helping the socially marginalised = the poor, need to pay interest, shrinkingfurthermore their profitability, on top of promoting cutthroat competition and short-termism. The pro-cyclical nature of money creation is another headache for socialenterprises when the economy is in the bust, because there is even more need forsocial enterprises while the banking sector is unwilling to lend money for their projects.It is in this context that SCCs have emerged as other means of exchange, to be moreprecise another agreement within the community to use something as means ofexchange, for social inclusion and to stimulate what is lacking with our nationalcurrency economies, such as cooperation and communitarian transactions.

Different sorts of SCCs exist in the world: LETS is a system based on the mutual trustwhere members exchange goods and services in their own exchange unit in parallelwith official currency. Chiemgauer in Bavaria, Germany is an euro-backed regionalcurrency with the aim of linking money with the community by donating 3% andcharging 5% of reconversion fee as well as providing low-interest microcredit in thisSCC. SOL-Violette in Toulouse, France is another remarkable experience whichpromotes only those businesses which comply with some environmental and socialvalues, on top of giving subsidies to some unemployed people. Banco Palmas inFortaleza, Brazil is a pioneer of the community bank in this South American country inwhich local inhabitants set up their own bank to satisfy their financial needs, givingconsumer loans in SCC to stimulate the local consumption. LETS shows the possibilityto create money other than as a bank credit, all SCCs try to minimise, if unable toeliminate, the problems triggered by the compound interest and they are counter-cyclical.

SCCs can be advantageous on promoting social enterprises, although somechallenges do exist. On one hand, the Chiemgauer model in Germany proves thatconsumers can donate 3% of their consumption without virtually losing anything,

paving the way for social enterprises to receive such donations. Its effect as loyaltyprogramme makes enrolled social enterprises more competitive, because holders of aSCC need to spend it at other member businesses if they are to avoid the reconversionfee. The better access to credit is another positive effect as it enables more socialenterprises to be set up. On the other hand, SCC's tiny scale is still not enough to givea significant impact on the local economy, a high level of social cohesion should bebrewed up to introduce a SCC and an appropriate marketing strategy should beelaborated to present specific benefits to each stakeholder to be involved in such asystem.

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