The changing landscape
Imagine a world, an alternate reality where economies and currencies no longer exists in the way they exist in today’s world.
It’s plain to see that global economies are in jeopardy and some near to potential collapse. A most recent example is the Greek economic meltdown (Margaronis) and the current austerity measures in place to try to offset the damage caused.
There is a desperate need to look for pioneering ways to sustain and grow the local economy, the global economy, SME’s as well as to cater for the unique requirements of each individual within them.
There is a general movement towards ethical and green investments. A place where individual investors can have their investment target ethical and/or green investments or contribute to social investment projects. A spin off of this is the Social Stock Exchange-The world’s first regulated exchange dedicated to businesses and investors seeking to achieve a positive social and environmental impact (Blue and Green Tomorrow).
Over the next couple of pages my aim is to explore the following questions:
Is there a place for an intermediary (financial services) to facilitate the transactions of an alternate currency?
Is there a future for traditional financial services as we know it in the changing landscape?
What products and services, if any, can be transposed and utilized in an alternative currency environment?
What is an alternative currency?
According to a paper, People Powered Money (New Economics Foundation), an alternative currency is the rebirth of an old technology. Although loosely based on the current concept of money and its representation of value to purchase a good or service, an alternative currency is mostly geolocal in nature and is extremely useful in a failing state economy.
Surprisingly, there are a lot of different alternative currencies, most of which are a variation of the same concept, and can be based on either:
Community and complementary currencies
Time based currencies
Local exchange trading systems
(New Economics Foundation)
Examples of alternate currencies from around the world include:
The Bristol Pound – UK
Worgl – Austrian
Spice Credits – UK
WIR Bank – Sweden
Linden Dollars – America
Bitcoin – America
Trueque – Argentina
K’Mali – South Africa ((The Kokstad Advertiser)
SoNantes – France
Makkie – Netherlands
Bangla-Pesa – Kenya
(New Economics Foundation)
What is the role of a financial institution?
A company that sells screwdrivers is not just a supplier of screw drivers; they are a supplier of hole-making machines. Therefore their business can be expanded to other tools that make holes. This is the fundamental concept around functional fixedness. A psychological cognitive bias that limits a person to using an object only in the way it is traditionally used. The concept of functional fixedness originated in Gestalt Psychology, a movement in psychology that emphasizes holistic processing. (en.wikipedia.org/wiki/Functional_fixedness)
Discovery Health (Pty) Ltd could be seen as a prime example of undoing their bias towards their market scope and reinventing the concept of medical aid into health care. The introduction of their Vitality program and HealthyCare products, a system encouraging healthy living, can offset some of the risk involved in having an unhealthy client base. A change of focus towards preventative care becomes a win-win for customer and company alike.
Vitality: Get healthy, get rewarded
By being a Discovery Health Medical Scheme member, you have the opportunity to join Vitality, the world’s leading science-based wellness programme that encourages you to get healthier, and gives you fantastic rewards. -https://www.discovery.co.za/portal/individual/medical-aid (Discovery Health)
The Financial Services industry has a varied product offering, but mainly focuses on short and long term insurance products and investments. The outcomes of these products lie in bettering a person’s financial well-being and in turn, this has a massive impact on our economies.
If we had to expand the financial services market and re-focus on the outcomes that a financial institution provides rather than the products on offer, it means we can open our scope, and potentially include alternative currency models. Thus, creating a parallel stream rather than a replacement.
In addition, in the book (New Economics Foundation), reference is made to the fact that alternate currencies flourish when economic times are bad. Something which certainly influences the core business of any financial services company.
We can begin to see the impact of the global and local economic downturn on many Financial Services companies.
Alexander Forbes was quoted as saying: “Growth in operating income was also muted in line with a weaker economy leading to negative employment growth and increased retrenchment activity within our institutional client base. (Alexander Forbes through SENS)
Therefore, accepting an alternative currency model within the core business could make financial sense if somehow the industry could capitalize on both sides of an economic turn, be it for the better or for the worse.
A gap identified within the Alternate Currency Economies
Reading some of the literature on alternative currency, or people powered money, a fundamental issue is trust. Even if there isn't a central person capturing or recording the transactions of exchange, be it time or goods & services, there has to be an electronic medium doing so. Surely there is a possibility for someone to hack that system and potentially skew figures or even wipe the information clean.
How does the local economy ensure the safe keeping of the information or the exchange of that particular alternate currency when it’s based on the reliance of someone accurately capturing the data?
For the whole concept to work there has to be trust. For alternative currencies to be viable as long term options, and given the move towards more technology based systems and them being vulnerable to attacks, do you think that having a trustworthy high tech custodian of the information would be a potential solution to the problem?
But Can the two meet?
The future of the economy rests with the power of its people and no longer within bureaucracy or politics. It was clearly demonstrated in Egypt in June 2010 where a revolution was fueled using social media. Wael Ghonim the instigator of the revolution on Facebook went on to write a book titled: REVOLUTION 2.0.
The Power of the People Is Greater Than the People in Power: A Memoir. (Ghonim)
I am by no means an expert in the field of economics, currencies or investments. But I can ask questions and isn’t that the foundation to innovation?
How can the financial services industry meet with local economies and their alternative currencies?
Perhaps a local currency exchange centre, between local, national or even global currency for a specific community.
For instance catering to a tourist market - facilitating the transaction, helping local economies grow through the influx of exchange between local, national and global currencies.
Financial service institutions could play a significant role in adding credibility to community currencies, thereby helping them prosper.
They could do so in the following ways:
Co-Partnering – Financial services could help in the administration and everyday running of an alternate currency
Sponsoring - This is typically financial, but allows some scope for regulating the currency.
Championing – this requires lending support and validity to a currency without direct involvement but in this instance a stakeholder could not expect to gain from the currency.
(New Economics Foundation)
Potential products or services
So, the question is, how could financial services move into the alternate currency space and develop products or services to cater to the needs of local currencies and communities with the future of our national and global economy in mind?I haven't finished reading through the whole people powered money book yet, but these thoughts came to mind in the interim and would really like to know if this is something worth exploring or if you think that its counter to the concept of community currencies. Somehow I just feel that, perhaps not banks, but other financial service institutions could play a significant role in adding credibility to community currencies, thereby helping them prosper.
I am by no means an expert in the field of economies, currencies or investments although I work for a Financial Services Company. However reading some of the literature on alternative currency, or people powered money,i figured that for the whole concept to work there has to be trust. But, if there isn't a central person capturing or recording the transactions of exchange, be it time or goods & services, there has to be an electronic medium doing so. Surely there is a possibility for someone to hack that system and potentially skew figures in or even wipe the information clean. For the currencies to be viable as a long term options, and given the move towards more technology based systems and them being vulnerable to attacks, do you think that having a custodian of the information would be a potential niche market?
Alexander Forbes Financial Services. https://www.alexanderforbes.co.za. n.d. Website. 04 12 2015.
Alexander Forbes through SENS. Money Web. 30 11 2015. Website. 04 12 2015.
Blue and Green Tomorrow. Winners and Spinners Report 2015 reveals best-in-class ethical funds but uncovers evidence of ‘greenwash’. 17 10 2015. Website Article. 04 12 2015.
Discovery Health. https://www.discovery.co.za/portal/individual/medical-aid . 2016. Internet. 18 02 2016.
Ghonim, Wael. "Mr." Ghonim, Wael. Revolution 2.0. New York: Houghton Mifflin Harcourt, 2012. Website.
Margaronis, Maria. http://www.thenation.com/article/greece-meltdown/. 29 02 2012. Webpage article. 30 11 2015.
New Economics Foundation. People Powered Money. London: New Economics Foundation, 2015. E-Book open source.
The Kokstad Advertiser. "Keep The Money In Our Community." The Kokstad Advertiser 29 10 2015: 12. Newspaper.
Disclaimer: This is a personal piece and in no way expresses the views of my current or previous employers or my colleagues.