Proposal for a Decentralized Alternative Monetary System
by Robert Swann, September, January 30, 1979
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The suggestions that follow are based on limited knowledge of local consideration in India. They are, however, the result of many years of research, and on the direct experience with a local script system in Exeter, New Hampshire. The concept proposed here is to develop a very simple system at the local level, but a system that could be integrated at a wider regional level and eventually with an international-level system on a more sophisticated basis.
It should be kept in mind that we are dealing with principles of banking, which are universal but not used properly in our national monetary systems. In short, we are trying to create an honest monetary system. In the history of the world, at least the western world, such a system has seldom if ever been created. We are breaking new ground, and this should be recognized.
Principles on which to Base a Proposal
1) Honest money can only be created by people who produce goods or services of real value to the community or village. Money (meaning credit) is created in the process of making loans for productive purposes.
2) Banking is a community function. The community, or representatives of the community who make up the community bank, should decide when to loan money for specific purposes.
3) To create honest money, a redemption system must be included. Otherwise , it may be possible for scoundrels to take over the bank and issue money for their own purposes-just as present national governments do for their own purposes (usually war and violence).
4) Thus a certain commodity (or commodities) will be selected as a standard on which to base the currency, and the bank will be prepared to redeem all the currency presented to it in the commodity specified on the face of the currency.
5) Currency may be issued or created in various ways, but it must be for productive work-primarily short-term production. For example, agricultural workers on an ashram farm could be paid in whole or in part with such created currency, because they are engaged in the short-term production of crops that have value equaling several times their cost. Other workers, such as teachers, could be paid partial salaries in the new currency, but consideration would have to be given according to the productive value of their work in relation to the length of time it takes to "bear fruit." (More discussion of this later.)
6) Interest should be no more than cost. Nonprofit credit unions charge 6 percent on the unpaid balance, at a flat rate of 12 percent interest per year. However, until the total volume of business has reached a certain level (perhaps 5 to 10 lakhs per year), it will be necessary to charge more to subsidize the cost of operation.
In the normal course of commercial banking, as opposed to savings banks or credit unions, credit is issued in the form of a deposit account in the checking system once a loan for commercial purposes has been made. In the script system proposed here, a bookkeeping entry would be made for the loan, and script could then be issued for this amount. Once the loan has been repaid, a proportional amount-at least 10 percent-should be required to remain on deposit as savings by the borrower. Thus, the amount of script in circulation will be reduced and the savings deposits accumulated as the basis for long-term loans.
In the future we can add one, two, or three common commodities. Such additions may be made and a simplified index developed as the need to expand the use of the currency increases from the village to the region and beyond. In other words, once the habit and understanding of how to deal with a commodity unit of exchange has been developed, it will be easier to add additional commodities to the unit so as to expand the range of acceptance and the exchange value.
When such a change takes place, local or community banks will probably need to exchange the old single-commodity currency with the new multiple-commodities currency. These banks will be set up for such purpose. A regional community bank, consisting of 199 or more villages, would be the actual issuer of the new currency. My assumption is that in India the Sarvodaya workers, who are the primary catalysts in the rural development areas, will create the regional banks.
For more information, please contact the
E. F. Schumacher Society:
140 Jug End Road | Great Barrington, MA 01230 USA
Phone: 01.413.528.1737
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