24 Jan 2006
Local Energy – Local Currency – Local Power
I have an idea evolving in my head, and I want to put it out there for your feedback and thoughts. As the ‘Hands’ part of the **Head, Heart and Hands** approach I am developing towards the response to peak oil, I am exploring structures and mechanisms that we can develop for driving localisation. The one I am focusing on at the moment is the ESCO, or Energy Supply Company, which is designed to provide people with the services that energy does, rather than the energy itself. ESCOs are often the tool used to drive forward microgeneration initiatives, the only one I know of in the UK being Thameswey, which was set up and is owned and managed by Woking Borough Council in London. You can read a very detailed guide to microgeneration and ESCO’s in Greenpeace’s excellent ‘Decentralising Power’ report. The subtle shift in emphasis from providing energy to providing the services that energy does, means that it becomes more cost effective to insulate houses than to just sell energy to poorly insulated homes. This company could be owned by the community through a share launch, as have many of the community wind developments in the UK such as Baywind. There is a lot of data about community ownership in the Irish context in ‘To Catch the Wind’, a report edited by Richard Douthwaite.
The clever bit that came to me when listening to Bernard Lietaer last week, and then in discussion with David Boyle of the New Economics Foundation , is that once you have a company generating local energy, you have an asset that you can use to back up a local currency. The problem with many local currencies such as LETS is that they can’t be exchanged for things in shops, and are not much use to business. Lietaer said you have to start with the idea that the currency can be used by business, and then also by the community. A currency backed by energy achieves this. Then people can part pay their bills in the local money, which would liberate the workpower needed to start to implement localisation in other areas such as land use and community development. The currency would be of use to everyone, not just to people who want an aromatherapy massage, as can sometimes be the problem with LETS. It can be either a printed currency or an electronic one. The company could give favourable loans to business start-ups that are driving forward the Energy Descent Action Plan.
The idea of energy backed currencies is not new, they were promoted by Shann Turnbull in articles called Selecting a Community Currency andDemocratising the Wealth of Nations – from new money sources and profit motives, and also in a piece called “Notes on the World Kilowatt Dollar”, which I can’t find on the web anywhere, but which appears in David Boyle’s excellent book “The Money Changers”.
There is a very concise reference to the idea in an excellent article on the site of the Schumacher Society by Robert Swann, called “The Place of a Local Currency in a World Economy” in which he says;
>If we are to begin to design a local money system that would work for development of a local economy, what are the elements or characteristics for such a system? It would have to be simple to understand, but consistent with our experience of the present money system. That is: it would have to consist of both cash (or paper currency) as well as a checking system–or some other form of bookkeeping which utilizes the computer to simplify accounting.
>Unlike our present money system, it would have to be redeemable (i.e. exchangeable) in some real value–not necessarily gold or silver, but real needs of everyday use such as energy. Without redemption system it will be difficult to convince people of its value–after all isn’t that exactly why the dollar so devalued–because it is not redeemable for real value from the primary issuer, the Federal Reserve. Most importantly, we would need to establish a measurement of value which would be as universal as possible and not subject to swings in value up or down as our present money system is. In other words, it would have to remain as constant in value as possible in order to establish a sense of permanency and security as well as make it more practical for exchange to take place. Such a method of measurement would be the most revolutionary element in the design and would be the key factor in making it possible for a universal system of money and banking–without the need of central banks or central governments becoming involved in money issue.
>Once this standard of value had been arrived at, it could be monitored by the state or federal government just as the Bureau of Standards maintains and monitors other standards of measurement such as weights and units of space. But it would not require state intervention into the economic sphere, as is now the case. And finally, it would have to be organized at the local level and controlled by the community as a whole (i.e. each community would elect members of the board of the issuing bank which would preferable be a non-profit institution). Under such a structure as I am suggesting, banking would become more truly a profession, and bankers would be paid for their services, but the community would decide how and where its currency would be invested”.
I really feel that this could be one of the keys to whether this whole thing works or not. Richard Douthwaite believes that although such an approach is viable and desirable, it is only effective when over 30% of the town are using the energy supply. I’m continuing to explore this and will post new information as I come across it.
31 Jan 12:15pm
I hope you will continue to develop this idea about energy, at least as I understand it. I have never been able to make sense of LETS.
In my writings on my web site I point out that fossil fuel energy corresponds directly with income. Growing GDP maps growing energy. If we used energy as the currency it would reflect reality. If we had energy labels with emboddied energy like food labels we would know the cost of items.
Please develop this theme. It is important.
2 Feb 5:41am
Great work, keep it up.
So a simple thing might work this way?
I have solar PV panels on my roof. As power dissapears from the grid on a regular basis, I can set up a work station on my driveway. People will arrive to plug into my energy to have work done, i.e., cook food, keep cold beer in a fridge or purchase an icemaker, etc.
I would provide coins, electronic(electric!) or paper money to reflect the trade that takes place, which people can use elsewhere. On a local basis, why would the feds or state get involved at all? If they are there at all, won’t they have their own money?
3 Feb 3:31pm
Nice to hear your thoughts on this. I’d like to add a couple quick viewpoints on local currency. It’s very important, as you think about the role of money in solving societies problems, to see clearly that there are three (at least) separate functions of our current money: 1) medium of exchange 2) unit of measure 3) store of value. This linkage is not necessary. The reason (I have often seen) that folks have “never been able to make sense of LETS” as Pat said, is that they assume that all money must mix these three functions to be money. This isn’t true. LETS is a form of money that exclusively serves the first purpose. When you assume that a currency must be “backed” you are joining together function 1 & 3, and when put that currency on a market to establish its price vis-a-vis other commodities, you add function 2.
I am not making a prescriptive statement here, just a descriptive one. As you think about currency I encourage you to think about these functions.
Bob Swann worked with Ralph Borsodi on the Constant project, which was a currency that, similar to Lietaer’s Terra that is meant to be backed by a basket of commodities (of which energy is just one component).
The unspoken assumption in most peoples minds is the belief that a currency must represent something real to be useful for anything but aromatherapy. I challenge this. If a currency represents something real, then it will be as scarce as that thing. Mixing the medium of exchange function of money, with the unit of measure and store of value function is a fundamental logical mistake.
Don’t take this as criticism. I’m hugely in favor of local currencies that, as Susan Witt of the Schumacher Society says, enable communities to expand local productivity, which is exactly what your energy currency will do. Because in fact, you can issue the currency before you build the power plant to finance it.
3 Feb 5:03pm
Just to make a point about economic growth. bear with me, for this point we will need a group of people with a shared resource (say a biodiesel plant or a garden .. or both). Say they are on average employed to 60% percent of them. if these 60 percent get paid more at their work and spend more they contribute to economic growth. But that is not going to happen as energy prices rise. we are all going to get squeezed.
Now the group does have a resource to back up complementary currency: their time. If the employed give a little of their time and the unemployed all to the shared resource, there is a growth in activity (but not economic as we define it).
If their hours work are logged, then each will accumulate (wealth) which they can use to trade with each other. (every trade= growth in economic activity). If they run the garden really well it will bring productivity improvements for every worked hour .. more (economic) growth.