Social-Purpose Currencies

Specialty currencies can solve social problems without raising taxes, redistributing wealth, increasing regulations, or going into debt.

One of the most important things that all of us need to understand about money is that it is not value neutral.

Value neutral? What does that mean?

This is actually a simple idea. It means that the features of money do not affect how people use it, save it, and spend it.

This concept is absolutely false. The reality is that the features a currency has very profoundly impact how people use that currency.

For example, businesses are finding this statement to be true in their customer loyalty programs (airline miles, cashback bonuses, discount coupons, etc), which are just specialized currencies. The features of a business’s customer loyalty currency very directly affect the currency’s success or failure.

Our money has three primary features. Our money is:

1.    A unit of accounting.

2.    A store of value.

3.    A medium for exchange.

Most people think that ALL money has these three features. That is false.

Most people think that all money MUST have these three features. That is also false.

In fact, there have been multiple currencies used for literally thousands of years that did not have all three of these features. And as a result, people in those times used money differently than we do. The features any currency has can and does influence how people use it.

Because money is not value neutral, it is possible to invent currencies to solve otherwise intractable problems. Here is just one example from Brazil.

The Brazilian Saber

Economist and currency expert Bernard Lietaer (one of the creators of the Euro), designed a currency for the Brazilian educational system  to help it increase the effectiveness of the money the government spent on schools. At the time he created the Saber, the Brazilian government was looking for ways to do more for its children without adding pressure to its already strained economy. The program that Lietaer came up with was surprisingly simple.

1.    Create a complementary currency, called the Saber, that is backed by a grant from a  national educational fund.

2.    Give the complementary currency to 3rd graders.

3.    The 3rd graders pay 4th graders to tutor them. A teacher records the transaction.

4.    The 4th graders use the currency they've received to get tutoring from 5rd graders.

5.    This continues on up through the grades until the complementary currency ends up in the hands of the high school seniors.

6.   The seniors can use the currency to pay college tuition to participating colleges.

In general, the colleges that participated in this program were running at less than their capacity of students. The program required them to charge Saber students 50% tuition. Colleges participated because receiving 50% tuition was better than receiving 0% tuition. Once a student was into the college, the colleges were required to continue to accept Sabers for that student's tuition until the student graduated.

There are a lot of reasons why this innovative program is so effective. First, it propagates the value of the actual money through the entire educational system without actually spending the money itself. Until the children graduate from high school, the money remains in the bank. But in the meantime, the value of that money is being used over and over again through each grade level until students actually apply it to their college tuition.

Second, it adds very little overhead on the part of the school to derive the value of the program. Essentially, it's one teacher or staff member sitting in a room with the students while the students give or receive tutoring. That one adult keeps order and records transactions on a computer when the tutoring is complete. The overhead is slight relative to the massive value being received.

Third, the Saber educates children in ways that are far more effective than traditional means. It is based on one-on-one teaching, which is the best way to learn. The worst way to learn something is to receive a lecture about it. In a lecture situation, only about 5% of the material presented will be remembered. Things get slightly better with material that you read. You'll remember about 10% of that. If there's a demonstration of the concepts taught, recall will go up to about 30%. Both discussion groups and practice by doing also increase retention. But the best way to learn something is to teach it. In that case, retention goes up to 90%.

It is well proven that having children teach others solidifies what they learn. In this way, students make massive gains in their educational successes.

One last benefit of this program is worth mentioning. One of the best features of the Saber system is that it teaches students the basics of free markets. In particular, it teaches them the value of work, the value of consistent effort, and it gives them the understanding that they can better their situation through effort, education, and the workings of free market economics.

In this example, it’s important to remember that no handouts are given. The kids work for what they get. Implementing the Saber or similar currencies does not involve the redistribution of wealth. It can be done with tax revenues that are already available. It’s just a matter of spending existing revenues in more effective ways. Therefore, a program like this can be implemented without bonds, loans, federal involvement, or even charity.

With imagination and creativity, we can design currencies that solve massive and seemingly intractable problems without growing the government, going deeper into debt, or creating dependency.

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