In the future, money will lead not to rising inequality and environmental damage but to stronger, more socially engaged communities. The beginnings of the new economy are already visible in England. The Intelligent Optimist talked to some pioneers in the city of Bristol—and a self-willed Dutch visionary who’s spent decades thinking about how to change the system.
I’m standing at the counter at Joe’s Bakery, in Bristol, England, on a sunny June morning, facing two decisions. What should I get for breakfast? And which currency should I use to pay for it?
I choose an almond croissant and move on to the next question. Out of the corner of my eye I spy Queen Elizabeth smiling up from a standard British banknote in my wallet. But I fish out a different green-and-black bill instead.
“Payin’ in Bristol pounds,” the guy at the register says, grinning. I nod. The transaction feels like a small act of resistance. I watch as he lays the note in the drawer alongside the regular money. The bakery, along with dozens of other shops here on Gloucester Road, has been taking the city’s
local currency for two years.
As I eat my croissant, I watch morning traffic moving down Gloucester Road. This is England’s longest shopping street, and it’s lined predominantly with small, independent businesses like Joe’s. It’s a typically Bristolian point of pride, as I’ll soon learn. The road winds through the city’s northern precincts for a couple of miles. To be honest, I’d never have seen it if Katie Taylor hadn’t invited me.
Taylor, the marketing manager for Café Grounded, lives and works on Gloucester Road. When I asked Twitter where I should go to see the Bristol pound in action, she immediately invited me to come visit. Good PR, of course, but as soon as we start talking, I see how genuinely amazed she is at the remarkable movement taking place in her city.
Taylor, a young woman with a broad grin who can talk a blue streak, tells me she grew up in a village in southwestern England and never fancied a move to “the big city.” But now that she’s in Bristol, she doesn’t want to leave. “I had no idea that living in a city could feel so intimate,” she says. “People are really trying to build strong communities. I’m proud to be part of it.”
She’s not the only one. Bristolians like to brag about their opposition to capitalism and the establishment. It’s no coincidence that the enigmatic Banksy’s first works of humorous political street art appeared here. In 2011, powerful opposition flared up against the coming of a Tesco supermarket around the corner from Café Grounded. The initially peaceful protests ultimately gave way to riots. The Tesco store opened anyway, to many locals’ displeasure.
I ask Taylor what’s wrong with chain stores. “Big corporations control everything,” she replies. “You just don’t have anything to say anymore. We want to have a voice in the community and to support our own local businesses.”
Café Grounded is one such business: a place where neighborhood residents can grab a quick espresso or read a book on the sunny patio. “We proudly accept Bristol pounds,” declares a poster by the door. A small but growing contingent of customers pays in local money, Taylor says. The café, in turn, uses Bristol pounds to pay local suppliers like Stewart Wines.
It’s a way to keep money in the community, Taylor explains. If the café bought its wines from a big national distributor, it would be sending -resources out of town. “Where you spend your money can actually make a difference,” she says. “It’s like making a statement.”
The Bristol pound has caused a commotion in the city since it launched in September 2012. It’s already gained fame as one of the world’s biggest and most successful complementary currencies. With almost half a million Bristol pounds having been issued, there’s huge room for growth: the city has about a million residents, counting suburbs and neighboring villages. The mayor already receives his salary in Bristol pounds.
The architects of the new currency have one goal in mind: building a whole new economy based on socially conscious trade. The Bristol pound gives people a chance to break free of interest, banks, federal regulations and stock exchanges and start over.
For instance, a project scheduled to begin soon will enable local retailers to access new credit. It’s the ambitious brainchild of local-currency innovator Henk van Arkel. With the organization he founded in the 1970s, STRO (Social Trade Organisation), the Dutchman created the ingenious payment software that underpins the Bristol pound. Called Cyclos, it is already the most popular such program among local-currency initiatives worldwide. This groundbreaking new system could revolutionize the way people use money by helping it to serve local communities in new ways. A trial is due to begin soon in Bristol.
Plenty of other cities—not just in England but also Nantes, France, and various localities in Spain’s Catalonia—are watching Bristol, Van Arkel says. “And that interest will only increase as the pound’s success continues to grow.”
The Bristol pound is stimulating the local economy—and flying in the face of every law of classical economics in the process. “Screw classical economics,” retorts Stephen Clarke, one of the currency’s founders. “It’s all fairy tales.” He and his colleagues are working to prove that local money can make communities stronger and more socially minded. They aim to show that money doesn’t just drive inequality and environmental damage but can also—if it’s used in the right way—bring people together.
The Bristol pound’s HQ is housed, very appropriately, in the city’s old commodity exchange. The office looks chaotic, with papers strewn everywhere, but it’s abuzz with activity. This afternoon, in two small rooms, I count a dozen people, all talking and making calls at the same time. Stephen Clarke leads me to the sole quiet room and gives me a cup of strong English tea. A self-
possessed figure, he inspires great confidence as he tells a story. And, calmly and steadily, he tells me his.
All through the autumn day in 2012 when the Bristol pound launched, people lined up outside the office to swap pounds sterling for local currency. Clarke spent the day talking to the press. That night, the team celebrated. “There was music, and we were all dancing and drinking,” he says. “And then I suddenly got a call: could I go live on late-night
television news?” He smiles. “It was surreal. Before I knew it, I was in a taxi to the
BBC studios.”
Launch day made real what had previously been nothing more than an idea in four men’s heads. For two years, they’d worked to get the Bristol pound off the drawing board. They found initial inspiration in the hippieish nearby town of Totnes, whose locally printed currency they’d seen in action. Clarke, then a partner at a national law firm, thought, I want to do that. He talked with entrepreneurs Ciaran Mundy and Chris Sunderland and researcher Mark Burton, and they came up with a plan to try it in Bristol.
“We decided we wanted to do something more ambitious than in Totnes,” Clarke says. “And it had to have a digital component, because most people don’t pay with paper anymore.” They set up a nonprofit company to develop the new currency and devised a mobile payment system to go with it. Their plan worked: today, two-thirds of Bristol pound transactions are made via Txt2Pay. Each user has to open an account in Cyclos with the Bristol Credit Union. So far, 2,000 people have done so.
Though Clarke speaks softly and formulates his sentences with care, when you get him talking about Tesco—clearly a sensitive topic around here—he becomes visibly agitated. “There are currently 29 Tescos in Bristol,” he says, squeezing his eyes shut. It’s clear that to him that’s 29 too many.
“I see the strategies of these supermarkets,” he says excitedly. “They open stores with lots of parking space outside of town. A lot of people go there, and the local food retailers in the city lose their clients and need to close down. Eventually, Tesco moves to their buildings within the city to open up small shops.” Luckily, Clarke assures me, Bristol has plenty of local businesspeople who refuse to be driven away that easily. And with the Bristol pound, he means to help them.
He explains how: “For every pound you spend in a chain supermarket like Tesco, it’s known that about 90 pence of it leaves the city. A lot of it goes to shareholders and some to offshore tax-avoidance schemes. If you spend Bristol pounds, 100 percent will stay in Bristol.” Only independent businesses that are locally owned can join the scheme. A big advantage for them is that the Bristol pound makes them more visible. Literally: potential customers can look at a map with all businesses using the currency. The Bristol pound also does a lot of promotion for them online. “The branding makes it easier for them to differentiate and compete against big multinationals,” Clarke says. And Bristolians who are keen on using Bristol pounds will more easily make the choice to spend it in a local shop.
That brings us back to the currency’s three goals: keeping as many independent local retailers in business as possible, strengthening neighborhood cohesion and promoting sustainability. The Bristol pound’s organizers frequently bring local businesses together. For instance, they’ll ask a restaurant why it wants to order cheese from France, all those miles away, when it could buy from the shop down the street. “In this way,” Clarke says, “the currency is completely changing the way business is done in the city.”
To Henk van Arkel, the Bristol pound is a small cog in a vast global network of parties working to develop alternative currencies. He’s been part of that network for decades as head of STRO. A strong-willed visionary with incredible perseverance, he’s been looking for alternatives to the current money system since the 1970s—in an effort, he says, to “increase
the chance of having a more sustainable, socially conscious world.”
Van Arkel comes from an activist background. As a teenager, he successfully petitioned to stop a highway being built near the Dutch town of Soest. “That’s when I got optimistic about the possibilities to find creative solutions,” he says. Sitting in his canal-side office in the Dutch university town of Utrecht, he recounts the tale with characteristic animation and charm. He has a gift for making you look at the world in a whole new way.
Van Arkel started STRO in the 1970s as Aktie Strohalm, one of the Netherlands’ first environmental groups. At that time, he was organizing protests against “the most dangerous type of nuclear energy,” as he calls the fast breeder reactors. He also campaigned for a greening of taxes. At the same time, the people at STRO were increasingly discussing “the way in which the current money systems organize society.”
They concluded that the way in which we create and use money is the foundation of a lot of problems in our society. When the first computers announced the start of the digital age, Van Arkel realized that opportunities for a new kind of money might appear, and decided to redirect much of STRO’s energy to that.
Talk about money quickly becomes complicated. And yet it should be simple. Human beings like to organize things. We want to create, trade with one another, build a better life. Money helps us to do that. It’s useful as a unit of account, a medium of exchange, a means of saving. But it’s long since ceased to serve our drive to build a better life. In fact, the financial markets appear to be running the world. Money has become a goal in and of itself, of which ever more must be made. The economy must keep growing, which is why we must keep making things and consuming things, whether we need them or not. This is depleting the planet. In addition, money has become a speculative tool. New money tends to be produced in countries that already have plenty floating around. And money flows out of precisely the places where more of it is needed. -Clearly something is not right.
Van Arkel brings up Monopoly, recounting with a grin how, in his family, it was considered fun to change the rules of the game—varying the amount of money each player started with, for example. Every time the rules changed, you needed a new strategy to win—“buying houses faster, spending your money, or else being really frugal and hanging on to your cash.” He adds: “A lot of people think you can’t alter the rules of the world’s monetary system.” To him, that’s a serious misconception: “we’ve forgotten that money is a social construction, and as such, it’s entirely malleable, subject to change.”
The STRO founder’s ideas are so original and innovative, not everyone understands them. At the top of the list are Western economists. Van Arkel has a different take on everything they hold dear. For instance, he doesn’t believe in saving money. Yes, you read right. He concedes that it’s good to “preserve value” for the future—by purchasing a house, say, or investing in relationships with people, or buying a piece of land for a farmer who’ll provide you with food. But the idea that you can put your money in some anonymous fund to safeguard your future is an illusion, he says. “One fund speculates the economy down the drain. The other invests in the continued increase of production, which means there will be less and less of the earth to live on.”
Van Arkel’s individualistic thinking comes to the fore when he cites the three functions generally ascribed to money—accounting, trading and saving—and then adds a fourth: people who use money as a means of getting richer.
“Rich people expect their wealth to keep increasing in value,” he says. And that often comes at the expense of others who are left with less, or it comes at the expense of the planet. And that’s a big problem, since their mania for growth encourages speculation. Van Arkel explains why that’s bad: “Money that’s being used to profit from the rise and fall in the prices of foreign currencies or oil or corn, or from the division of a company, isn’t contributing to the real economy.”
Wealth is a hot topic right now. Everyone’s talking about Thomas Piketty, the French economist who, after years of research, argued recently in Capital in the -Twenty-first Century that because returns on global wealth are growing much faster than the real economy, inequality will just keep getting worse.
Van Arkel isn’t pessimistic about the future—he’s working hard to create alternatives, after all—but he does believe that the current rules make it too profitable to earn money simply by having it. “When the economy’s doing badly, it’s more lucrative for businesses and consumers to hoard money or earn it through speculation than to invest it productively,” he says.
He cites the interest system as one of the chief culprits, arguing that it makes the rich richer and the poor poorer. This view is widespread in local-currency groups. Interest, the thinking goes, is paid by people who are short of cash and have to borrow. By definition, they pay it to people who have too much money and are therefore in a position to lend. That’s why new monetary systems often exclude interest, or impose negative interest as a tool to spur businesses and consumers to spend their money before it loses value. The Austrian town of Wörgl deployed this trick when it successfully issued its own currency in response to a crisis in the 1930s.
Why was interest invented in the first place? It’s a reasonable question. The answer is that money can be endlessly saved and stored. If too much cash is hoarded, not enough will be left to keep the economy
going. Someone once calculated that if you’d put a small gold coin in the bank on Jesus’ birthday, two millennia ago, by 1750 your descendants’ wealth would have equaled that of a gold sphere the same weight as the earth. And today, you’d have 20,000 such globes. If the powers that be in the world force a situation where money loaned out should be rewarded with interest, things go wrong, concludes Van Arkel. Because not only does the original amount need to be paid back, but the people borrowing the money must come up with
the interest as well. Since that money has to come from somewhere, an interest system requires endless economic growth.
But there are other ways to prevent the wealthy from stockpiling money and to keep it flowing free, according to Van Arkel. STRO looks for healthy ways to keep economies moving without necessitating the kind of relentless growth that makes the rich richer and encourages speculation.
It might sound abstract, but Van Arkel has real-world examples to back up his theories. For years, he’s worked with STRO all over the world, particularly in poor South American villages and towns where people have trouble making ends meet. Such places often import goods from outside the region, meaning local businesses have little opportunity to get established or grow. Van Arkel noticed that people in these areas were often open to adopting new monetary systems, since they had few ties to the existing economy: many had little savings and got by without bank accounts.
In Fortaleza, Brazil, STRO helped to set up a local currency that enabled a poor neighborhood to prosper. In El Salvador, they set up a local monetary unit called UDIS to make cheaper loans for farmers possible. In Uruguay, the organization even established a national trade network. All these initiatives bolstered healthy economic growth.
Van Arkel believes that communities become stronger “when businesspeople, producers and consumers are involved with each other,” and that local money that operates by different rules than the national currency is an important ingredient. “Where it helps local entrepreneurs to earn more money, there’s a chance local production will continue to grow.”
Talk to Van Arkel and it’s impossible not to wonder about his plans and ideas for the future. He’s got plenty. STRO’s Cyclos software is already being used by hundreds of local-money initiatives. STRO has launched a new version of Cyclos in which it is possible to give money a digital tag in the system so a local community will be able to analyze where and how it is being spent, and even to stimulate money to be created inside a local network within a city like Bristol. This launch could mean the breakthrough of a new financial system. It will soon undergo its first real-world tests in Bristol.
People in Bristol have come to look at money in a whole new way since the coming of the local pound, says Mark Burton, one of the currency’s four founders. As a researcher at the University of Bristol, he spent years studying the influence of local currencies on human behavior. “I think the way that we use money is so habitual—and very mundane—that we don’t think about it anymore,” Burton says. “The Bristol pound interrupts that mundanity, and it opens up a little space so people can think about money differently. The people who use it feel more connected to their communities. They feel more proud.”
Burton has always been interested in alternative monetary systems. “The fundamental problem with the current system is that banks create money,” he says. “It disturbs me that money isn’t created for the good of society but that it’s created by commercial organizations. Their commercial interest is creating profit for their shareholders, and they do that by creating money.”
Ironically enough, Burton works for a bank himself these days—the local credit union, where he oversees transactions made in Bristol pounds. Users open accounts there, which are managed by Cyclos. Burton shows me how he logs in to the system and how easy it is to make a payment to a fellow Bristol pound user. Businesses also use Cyclos.
As a Bank of England–recognized financial institution, the Bristol Credit Union makes a trustworthy partner for the Bristol pound. Every Bristol pound that is issued is backed by a pound sterling, and these pounds will be held by the credit union in a trust account, to provide certainty of value to the local pounds.
Traditionally, credit unions are community banks that help low-income people to save and borrow. And these are exactly the people who are reluctant to switch to Bristol pounds. “They’re often quite disengaged with these kinds of projects,” Burton says, “and it’s a very big thing to ask from them—to suddenly use a new type of money, which they often can’t use in the very low-cost chain stores and supermarkets they might need to go to.”
Inequality in Bristol is pronounced. In certain neighborhoods on the south side, life expectancy is 11 years lower than in wealthy areas. That’s the kind of demographic Burton and his colleagues want to reach. One way they’re trying to do that is by putting groups of residents in touch with farms and food distributors so they can buy in bulk with Bristol pounds and get healthier food at lower prices.
Through such schemes, the Bristol-pound team aims to penetrate further into the real economy, Burton says. Thoneis soon after launch, it’s difficult to say how much economic impact it’s had. To bring about true change—create jobs, reduce poverty—the currency’s further growth will be crucial, he says. And that’s why it’s vital to get local government on board.
In this respect, the city is lucky to have a mayor, George Ferguson, who’s a fan of the Bristol pound. He receives his entire $85,000 salary in the currency. The city also supports the Bristol pound in numerous other ways.
“When I first heard about the idea of a local currency, I thought it was a bit wacky,” says Jason Thorne, the city official who oversees Bristol-pound matters. Now he sees nothing but pluses. “It’s been increasing the profile of the city. It’s enabling businesses across the city to better market themselves. And it’s got people talking about the value of money. It’s been very positive.”
People can already pay their business taxes in Bristol pounds. Soon the same will be true for council tax, which in Bristol ranges from $1,600 to almost $6,000 per household per year. That means the city will soon be taking in many more Bristol pounds, which it will be able to use to purchase local goods and services.
Some of that public money will be spent on a highly innovative STRO credit network for which Bristol will serve as a testing ground. It’s designed to solve a big problem for many local businesses: the difficulty of getting loans. Banks are reluctant to lend money to small and medium-size businesses, preferring to sit on their cash because of the economic crisis. To help, STRO came up with what’s known in Bristol as “Henk’s model.”
Companies in Bristol will soon be able to sign up to participate in the credit network. In this network, they can get loans and exchange services and goods. Their transactions all come together in the Cyclos software. The idea is: they don’t exchange money, but a “claim” on money that becomes available in the future.
Suppose Bristol has a company that does catering for events. That company already has some customers, but most of them pay only after 30 days. The caterer therefore often has difficulty investing in all the required ingredients for the next event. For that period in between two jobs, the company will look for a bridge loan, which banks are reluctant to give, because it is just a small enterprise. But now, the catering company will be able to get the loan in the credit network, in the form of digital credits. Credits that the company can spend with another company, such as a local farm that supplies fresh vegetables.
This credit system suddenly creates new opportunities to invest (for the catering company). And others (such as the local farm) get new customers. The credits that the catering company borrowed must eventually be repaid. They have an expiration date by which all transactions between companies must be settled. The credits that have been exchanged between companies will be offset against each other. But companies that still have a credit deficit must repay in Bristol pounds. Companies with a credit surplus remaining get Bristol pounds. So at the end date of the credits, they suddenly change into actual currency.
Henk van Arkel has built two tricks into the system. First, the credits accrue negative interest, meaning they’re worth less and less over time, so businesses are encouraged to spend them. Second, all companies that benefit from the new loans contribute a little bit extra to the system. Should an entrepreneur in the system go bankrupt, that risk is covered by the additional contribution.
“It’s all about changing the rules of the game to improve liquidity for businesses and stimulate circulation,” Mark Burton explains. Burton and Clarke are waiting on tenterhooks to see how it all plays out, but they’re enthusiastic. The new trade network will go into action this fall. The challenge will be to convince enough businesses of its usefulness, Burton says.
But one thing’s for sure: the introduction of a local currency has made Bristol a petri dish for serious thought about financial innovation. It’s the perfect city for experimenting with new monetary systems. “It’s very important that we start using other types of money,” Burton says. “We need more diversity in our economy.”
Other places besides Bristol will be testing STRO’s new trading system this year: the governments of Italy’s Lombardy and Sardinia regions and three cities in the Catalonia region of Spain have also decided to take part. STRO won a key European IT innovation award this year for Cyclos, and it’s using the prize money to set up projects in all three countries.
Since the late 1990s, rather than working toward new physical currencies, the organi-zation has focused on developing money-free computerized accounting systems that can keep track of as many transactions as possible. Cyclos is one such system, and Van Arkel is as proud of it as the Bristolians are of their pound. Hundreds of local-money projects around the world already use the software. Most of STRO’s employees—who number about 40 worldwide—work on Cyclos.
For Van Arkel, the lightbulb moment came in the 1980s: digital money was the future. “I saw a computer with a modem that was communicating with another modem,” he says, “and I thought: This is the monetary system’s Achilles’ heel. Now you can reduce money to information and send it to somebody else with one click.”
Digital money in itself doesn’t mean it’s better. Computers, after all, make speculation in the financial market possible. But it also holds enormous positive potential to organize the economy in a more social way, says Van Arkel.
Cyclos is used by banks to link account holders internally. But Cyclos also makes it possible to change the rules of the game so that people in local communities can engage in commerce without the restrictions of the current money system.
“In a digital system it’s very easy to introduce your own rules,” Van Arkel says. “We’re looking for ways in which money comes into circulation interest-free and then goes on to serve the local circulation for a longer time.” The moneyless trade system for Bristol businesses is a good example. He says Cyclos makes socially minded business possible. It’s no coincidence that STRO stands for “Social Trade Organisation.”
STRO has made a great leap over the decades, from a Dutch alternative environmental organization to an international digital-technology trendsetter that could take the economy in a whole new direction. But its underlying goal hasn’t changed, Van Arkel says: “We want to help our society to organize itself globally in a sustainable and socially conscious way.”
In Bristol, he hopes to see the number of local pounds in circulation increase tenfold in the next few years. “That’s still not much compared to the total amount of money circulating in Bristol, but that kind of growth would be an unprecedented success,” Van Arkel says. “More than 20 other towns in England are closely following the developments in Bristol. And plenty of foreign cities are watching, too.” He’s convinced that Bristol can serve as a source of inspiration for financial innovation around the world.
Meanwhile, at Café Grounded, on Bristol’s Gloucester Road, monumental issues like these feel far away. At the counter, though, one more customer is opting to keep his sterling in his wallet and pay for his latte in Bristol pounds.
