Rescuing money from the banks’ dictatorship (or how a virtuous money should be)

Money is a social technology that, far from emerging spontaneously from barter (as both mainstream and marxist economists claim), is deliberately created by social groups with a preexisting political organization in the pursuit of a certain goal. Historical records demonstrate that the origins of money date back to a time where the market economy did not exist yet. Moreover, the first forms of money were introduced in Mesopotamia 2,000 years before the first coins were minted. So, if the first forms of money were such that they could not be used to make exchanges, what were they used for?

On money’s functions

There is evidence that primitive societies used money both as a way of measuring the size of the life-debt that each member of the community had to pay to the Gods (and their representatives on Earth) and as a means of establishing the penalties that had to be paid for the injuries and damages done to the community or a member of it. Later on, the empires of the ancient world used money to keep record of the goods produced and stored in their warehouses. In Mesopotamia, for instance, taxes were set in a “money of account” and paid in barley. So, money was originally created by communities to facilitate their political and economic organization.

No reasonably organized society can do without the tools that perform these two functions, namely a way to measure what is produced, exchanged and owed, and a means to pay for all these transactions. However, the important lesson that we need to draw from the historical evolution of money is that whatever we use to make payments (either of debts or goods and services) need not be, simultaneously, what we use to measure the value of these payments. Amato and Fantacci make it clear when they say that “when I ask for a metre of material, I want a piece of cloth of one metre long, not a metre made of cloth. The same holds in economics, and still to a much larger degree. The money in terms of which debt is denominated is not necessarily the money in which it must be paid. In order to serve its requisite function as a public tool, money only requires the relationship between the two functions of measure and means to be established publicly and in due time”.

John Maynard Keynes himself made it clear in his Treatise on Money, where he stated that “perhaps we may elucidate the distinction between money and money of account by saying that the money of account is the description or title and the money is the thing which answers to the description. Now, if the same thing always answered to the same description, the distinction would have no practical interest. But if the thing can change, whilst the description remains the same, then the distinction can be highly significant. The difference is like that between the king of England (whoever he may be) and King George. A contract to pay ten years hence a weight of gold equal to the weight of the king of England is not the same thing as a contract to pay a weight of gold equal to the weight of the individual who is now King George. It is for the State to declare, when the time comes, who the king of England is”.  

A money that definitely and institutionally combines these two functions becomes necessarily a store of value. By store for value we refer to the possibility of putting aside a means of exchange with the institutionally guaranteed certainty that it will preserve its value in terms of the unit of account. Not surprisingly, mainstream monetary theory argues that this is a precious function that money has to perform. This inter-temporal cost-free transferability makes store-of-value money the absolute form of every asset and instrument of credit.

So, although most economic textbooks state that money has to be a store of value, the very “nature” and history of money suggest otherwise. Money was not invented to be a store of value. Store-of-value money only emerges in the specific case where a single thing is given the functions of unit of account and medium of exchange. This form of money, however, is self-destructive. A money that performs the function of being store of value is likely to preclude it from performing its function of medium of exchange. This is because if there is the institutional certainty that money will preserve its value over time, there will be growing incentives to hold it, thereby taking it out of circulation. If less money is available for to perform as a medium of exchange, less transactions can take place.

If store-of-value money is an asset it has, by definition, a price. The price of money is the rate of interest. Apart from entailing a cost for those that need credit (we will leave the problem of the unconditional transformability of money into credit for a next post) the existence of the rate of interest implies that the price of money can change, which hinders the unit of account function that societies need money (of account) to perform. If the price of the money of account changes continuously so will be the prices of the goods that the unit of account measures. A metre is a good standard to measure lengths because it is invariant. That does not happen with contemporary money of account because what has been chosen to perform that function is at the same time given a (variable) price.

There is an alternative!

In order to fully exploit communities’ capacity to produce and satisfy their needs, different forms of money (compared to the forms of money that have established as mainstream) are needed. The decoupling of the functions of unit of account and medium of exchange would be a good starting point - two different things should be performing each of these crucial functions. Another helpful step would be the introduction of incentives to make the money of exchange circulate fast. In countries with relatively high inflation rates the sole fact that prices tend to rise would encourage people to get rid of money. In countries with price stability, demurrage could be an interesting option. Demurrage was proposed by the German-Argentinean economist Silvio Gesell and it consists of a mechanism whereby saved money loses its purchasing power through negative interest or a tax. The case of the Austrian town of Wörgl in the 1930s is a good example of the benefits that demurrage can deliver. Gesell’s monetary theories were so delighting for Keynes that he claimed that “the future will learn more from the spirit of Gesell than from that of Marx”.

Mutual credit currencies are based upon Silvio Gesell’s idea that money’s sole purpose should be to enable communities to take full advantage of their productive capabilities by facilitating the exchange of goods in a safe, fast and inexpensive way. Whenever money is used as means of saving rather than exchange it tends to be withdrawn from circulation and its dearth turns out be an obstacle to the reciprocal exchange of wealth. This is the case of money as we know it. Products cannot be sold and are unwillingly accumulated, idle capacity grows, production comes to a halt and unemployment grows. Gesell therefore suggested a kind of currency whose circulation should be compulsory or at least strongly stimulated. This property can be facilitated through a mutual credit system.

It is estimated that there are over 4,000 complementary currencies around the world. Some of the most interesting complementary currencies around the world are based on mutual credit. A well-known example is Sardex, a system designed for Sardinian businesses which was launched in 2010. The accounting infrastructure of mutual credit systems has also been clearly described by the Credit Commons initiative.

The case of Moneda PAR

Moneda PAR is the a blockchain-based mutual credit currency. It was developed by in cooperation with the Observatorio de la Riqueza Padre Arrupe (a think tank) and the Movimiento Nacional de Empresas Recuperadas (a group of recovered entreprises) and was launched in Argentina in May 2017. The system’s token is named PAR. Following Gesell’s principle, PAR can only be used to purchase goods and services from other members of the network. Sales are recorded on the blockchain as positive balances of PAR and purchases as negative ones. As all mutual credit systems, it works because participants have access to interest-free overdraft. This means they can buy products from others before selling their own, holding a negative balance up to a certain amount. Whenever a user goes into overdraft she is in fact receiving credit from the rest of the network and whenever a user holds a positive balance he is granting credit to the rest of the network. This means issuances of PAR are not backed by an asset like gold, legal tender or another cryptocurrency; instead, every PAR in circulation is guaranteed by the transactions that take place within the community. The amount of tokens circulating is adjusted at all times to the needs of the economy. PAR tokens are like a voucher for an existing product or service, or future ones. For convenience, it has been established a one-to-one relationship between PAR and the Argentine peso. Thus, in the PAR network the Argentine peso is the unit of account and the PAR is the medium of exchange. There is no institutionally guaranteed conversion between PAR and pesos.

In a mutual credit system as MonedaPAR, money is not a financial asset but a tool to keep track of how much value has been given and how much received. The fact that someone is holding a negative balance of PAR necessarily implies that another member of the system is holding a positive one. Therefore, it must always be the case that the sum of all balances add up to zero, i.e. there is no financial wealth within the system. It is because of this that PAR can successfully perform its function of means of exchange, unlike conventional money. Those who sell more than they buy — i.e. have a positive balance of PAR — do not earn an asset which can be used as a means of investment or speculation, as is the case with legal tender. They have instead put their surplus at the disposal of the rest of the community, in accordance with Gesell’s idea that money should always be in constant circulation, either being spent in exchange for goods or being lent to those who need it.  

Through Moneda PAR members effectively have access to liquidity with no need to rely on the traditional banking system: they rely on no one but themselves. To make the system fair for everyone — and therefore successful — it should be the case that members with negative balances should try, over time, to cancel their overdrafts by selling their goods or services so as to achieve equilibrated balances of PAR. Everyone would thus be taking from the community an amount of goods and services equivalent to the amount she offers.

The sole requirement to have access to overdraft is the endorsement of any member of the community. The executive committee of Moneda PAR (with representatives of all the participants of the network) is in charge of attesting that new members are capable of giving to the community production of his own for an amount that at least equals the value of the overdraft limit they are being granted. There are currently three types of predetermined limits which are given by the community’s types of users: self-employed workers, small producers and businesses. Yet it is not compulsory to get an endorsement to be part of the network: anyone who downloads the PAR wallet can receive payments for the goods and services she offers to the community. However, it is only through endorsements and overdrafts that the system grows and makes a meaningful impact.  

The system’s outstanding feature is that it is built as a set of smart contracts on the Bitshares blockchain. All transactions are therefore public, transparent and secure. Payments are made on a P2P basis through an electronic wallet. Producers and consumers meet in a digital marketplace specially developed by No middlemen are required in any way. Endorsements and overdrafts are represented as tokens which are distributed with the same electronic wallet that is used for making transactions. Thus, it is always possible to verify the distribution chains of endorsements and the economic performance of the clusters that these invitations give rise to. In short, the development of PAR on blockchain technology allows for high levels of flexibility, security and transparency, making it unique among complementary currencies around the globe.  

Moneda PAR’s main goal is to benefit cooperatives, SMEs and informal workers by giving them access to interest-free loans to acquire both consumer goods and inputs for production. All members can use PAR to put their products and capabilities at the disposal of the rest of the community. Businesses can increase their sales and workers are given the chance to offer the products of their labor in exchange for the goods and services of the community. The network is currently in the process of expansion and consolidation.’s participation concerns the development of pedagogical plans, training of new members, analysis and design of economic circuits, digitalization of new agreements and maintenance of the currently operative software. A promoting team made up of MonedaPAR’s executive committee members is also working on the development of the nodes of the network. According to the information collected by promoters, its potential utilization would add up to 10% of Argentina’s GDP, which is estimated to be the share of the cooperative sector in the overall economy.

Call to action

The world economy is going through a period of financial accumulation. Among the most salient features of financialization we find a growing interconnectedness of financial systems, the emergence of shadow banking, increasing financial innovations and the diversion of investment from the real to the financial sphere of the economy. The result of these compounded changes has been an unstable global financial system. As a result, most of us find ourselves subject to massive upheavals coming from the financial sphere, where decisions are hardly made following social welfare but short-term profit criteria. It is up to us to get organized and try to get the best out of our creative capacity to develop these types of alternative monetary systems. Moneda PAR is an example of how such a complementary system could work. There are many more. Let us keep up the fight!