Concepts of the Gelre, or: What is ‘High Powered Working Capital’?
It is not enough to say the Money Power controls our money supplies and that it is too powerful to break its chains. The reason interest-free currencies have not been able to compete in the market-place is simply because their design has been insufficient. The challenges, how to overcome small initial network size, difficulty of financing and liquidity have not been adequately addressed. There can be no doubt, however, that they can be.
By Anthony Migchels for Real Currencies
So that’s the question: why don’t we have interest-free currencies? On the Government level the answer is pretty straight forward: the Money Power has bought all the politicians and kills those that break through to the top without complying.
But how about the market-place? Is it true the Money Power has an unbreakable monopoly? We can immediately establish this is not the case: both in the US and in Europe there are free currencies. LETS, the Berkshares, the Ithaca hours, the Chiemgauer and other regional currencies in Germany, RES in Belgium and of course the WIR in Switzerland.
Nonetheless, except for the WIR none of these currencies managed to pose a credible threat to the Money Power’s de facto monopoly.
The fact is: none of the mentioned units is good enough. Worse, they are all rather primitive. Each of them holds one or two keys, but all lack a comprehensive appreciation of the challenge at hand.
And interest-free currencies, starting from scratch, do face a major challenge. The main thing is to create a sufficiently large scale user base. Clearly, a unit used by only a handful of users will not add much value. To have a notable impact, in terms of turnover and percentage of total turnover for participating firms, a sizable numbers of participants is necessary.
For instance, the WIR has about 60,000 firms on board and this results in about 10% extra turnover for participants. This sounds like a big number for only 10% extra, but it must be kept in mind that the WIR circulates throughout Switzerland. On a regional level, a much smaller number of participants would be necessary to provide members with a similar boon.
So to overcome this challenge and to strike a serious blow at the MP’s monopoly, we need truly high powered units and here’s how to go about it.
0. All out focus on liquidity
Liquidity is what the unit will buy. Start up units, with few participants are weak because they have very limited liquidity. This is the basic challenge: how to provide working capital that is sufficiently liquid to have the necessary impact? All the measures below are answers to this basic challenge. The more successful measures to improve liquidity are in place, the more successful the unit will be.
1. Shedding naivety
The interest-free community, particularly in Europe, but certainly also in the US is actually quite naive about the backgrounds of the current order. They tend to think it is all just a wonderful accident. True, its leaders realize there is such a thing as a (central) banking cartel, but they are still handicapped by the ‘conspiracy theorist’ put down. Or they fear the ‘antisemitism’ label. Few of them will accept the depth of the rabbit hole. This is a major problem, because, as Sun Tzu teaches us, for victory to be assured one needs to know both oneself and the opposition.
This is the key reason why we have discussed the nature of the conspiracy at some length on this site. It is not to look for controversy or to defame people or religions, but because it is unsound strategy to go into battle without knowing who you’re up against. The more so if one is facing an enemy as relentless and powerful as the Money Power.
2. Combining interest-free credit (IFC) with convertibility
As discussed previously, the key challenge for the near future is offering units based on IFC, Mutual Credit, that are convertible to other units. At this point there are euro/dollar backed units like the Berkshares or the Chiemgauer that provide convertibility. This is a result of the backing with the national unit: because there is a dollar for every Berkshare, firms can convert them back with the issuing organization. However, because there can never be more Berkshares than dollars in the bank, there can be no credit based money creation as with Mutual Credit. The downside of Mutual Credit is that there is no dollar backing the outstanding money supply, so convertibility in the classical way is impossible.
Thankfully nowadays the way forward is known: the Mutual Credit based units should be traded in an open market-place, in a way similar to Bitcoins. Read all about it here.
3. Offering solutions for both Business to Consumer (B2C) and Business to Business (B2B)
This is the classic chicken or egg dilemma that the interest-free community has struggled with forever. Should beginning networks focus on B2C or B2B? However, this is fallacious or/or thinking. The solution is simple: and/and. New units should provide methods of payment for both consumers and businesses. B2C solutions include cash, which is the classical approach, also used by most German regional currencies. But also cards are possible, as used by the Belgian RES network. B2B basically means a telebanking system is necessary. Firms typically deal with businesses further away and often larger transactions are involved where cash becomes cumbersome.
Servicing both B2B and B2C simultaneously massively increases liquidity and paves the way for the next point.
4. Start promoting the payment of salaries early on
This is another breakthrough: usually salary payments in the free currency is thought of only in regard to mature networks. This is a mistake. By offering to pay a small fraction of salaries to employees, liquidity is enhanced drastically early on. It also massively enhances purchasing power and acceptability for the unit. Of course employees should not and cannot be forced to accept the unit, but if it is clear where they can spend the unit and why it is important for their employer that they start paying with it, many of them will comply willingly. Too much is at stake and good communication can make this clear, even just on economic grounds.
The benefits for employers is clear: more liquidity for their Gelre assets. They gain a new outlet for their income in Gelre and of course for their interest-free credit line.
The benefits for the network are incalculable: businesses send their employees to each other. They refinance trade amongst them with interest-free capital, freeing expensive and scarce euro’s for other purposes.
5. No transaction costs!
A common way of generating income in barter systems are transaction costs. This is a grave mistake. Everything should be focused on making transactions as cheap and easy as possible to maximize trade. Transaction costs, even when they are to be paid by the accepting party hinder transactions.
6. Those who pay are more important than those who accept
In the early stages of the Gelre our motto was ‘we accept Gelre’. We had stickers for the participants saying this. All our communications focused on acceptance of the Gelre. But after a year we had a hundred firms accepting the Gelre, but none paying with it.
In hindsight it is easy to see why: to pay is active, to accept is passive. To pay is yang, to accept is yin. Yang precedes Yin. Yang creates Yin. So building the network is about having people pay with Gelre. Businesses seeing their customers wanting to pay with a unit will quickly accept it, if they can plausibly pay (or convert) with them themselves. The unit should be designed with the payer in mind, not those accepting it. Everything should facilitate paying and if a choice has to be made affecting both the payer and the acceptor, the interests of the payers should precede.
7. Professional Management
All successful units have great management. It is THE crucial success factor, even more so than the architecture of the unit. Lack of professional management has relegated LETS to mediocrity and superior management elevated the WIR to the leading free market unit in the world. Even though they have a very similar Mutual Credit based design.
Professional management implies a good business case for the issuing organization, so that sufficient income is generated to pay staff decent wages.
The business case is pretty straight forward: the more firms participate, the more revenues the organization can generate. Firms should pay a fee for participation. This fee should typically pretty low, no more than a few hundred dollars per year. A mature network should see costs for exploitation at a maximum of about 1% of total turnover in the network.
So, what is “high powered working capital”? It’s more than just a cool label. It is a means of exchange that is specifically designed with only one purpose: to serve the community.
Most modern barter units are just cash cows for the issuing organization, just as the banking units themselves are. Or they are pleasant nice, completely innocent little play things designed by well meaning people to prove a point, namely that we can all make money.
High powered working capital aims at competing with banking units in the market-place, in such a way that the people producing the unit can sustain themselves with its proceeds, so that long term viability and stability are assured. It aims at taking away all obstacles for using it. It is provided by, preferably, not for profit organizations, emphasizing the public function that currency really should provide.
It leaves all the added value of production and trade with those producing and trading, taking only what is necessary to maintain the operation. It brings back economic power to those who work and produce, instead of ‘investors’ and ‘capital’. It does not redistribute wealth, as it leaves wealth where it is generated. It relocates the bottleneck in production from capital to labor, as there will always be enough capital, but the labor pool will be limited by nature.
High powered working capital will allow providence to function at its maximum capacity and will bring abundance to the many.
Mutual Credit, the Astonishingly Simple Truth about Money Creation
Mutual Credit for the 21st century: Convertibility
Regional Currencies in Germany: the Chiemgauer
The Swiss WIR, or: How to Defeat the Money Power
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