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?
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: