MONEY is perhaps the most widely used artefact in daily life, but it remains something of an enigma. The wide use of a variety of money substitutes such as credit cards and even digital currencies has only added to the puzzle of what money is. Students of economics are invariably told that money is a medium of exchange, a unit of account and a store of value. True. But then why are there such wide varieties of money? Do all of them play the same role?

Bernard Lietaer and Jacqui Dunne deal with these and many more issues relating to money. Their work is not a scholarly treatise on money. It is an attempt to get general readers properly acquainted with money—what it is and what it does—and to introduce them to new and somewhat unexpected possibilities of some forms of money. If money is usually the symbol of scarcity (that is, you have to pay for the things you need, leading to the general statement “There is no such thing as a free lunch” that economists are fond of repeating), the authors argue that some currencies can turn scarcity into prosperity.

To enter into some of the new perspectives relating to money that the authors deal with, it may be useful to start with what money basically is. In the broadest sense, money, especially its most widely used form, currency, is a promise, a token of a promise to pay, that is. It may be helpful to recall that currency notes carry the statement: “I promise to pay the bearer the sum of….” Money, therefore, symbolises an obligation, an “I owe you”, or IOU as it is commonly expressed. If that is the case, then it will also be true to say that money is basically a symbol of debt.

A major contribution of the book is that in its early chapters it deals with this aspect of money and some of its not-so-visible implications. It is well known that today money is closely associated with banks at least in the sense that if you have more money than you think you need, you deposit part of it in the bank instead of keeping it stuffed in a mattress. What is perhaps not as widely recognised is that such being the case, the banking system as a whole (including a central bank that regulates banking activities) also creates money because banks immediately lend out part of what you have deposited, allowing those who are eager to have credit, which means that they are in debt to the bank. Thus, if money symbolises debt, a largely monetised economy is also one based on debt. That may be a new perspective for many and so it may be helpful to spell out how a debt-economy functions and what its implications are.

A debt-economy is one where most of its crucial activities are based on lending and borrowing. When you deposit money in a bank you are indeed lending to the bank and the bank is obliged to pay you interest which becomes part of your earnings or income. But the bank lends a part of your deposit and earns interest from those whom it promises to pay, who get credit from the bank and in turn become its debtor. Money, therefore, leads to debt-and-credit activity and to interest payments associated with that process. This is only the first round, though. Those who borrow from the bank have to provide collateral, and just as the bank used your deposit as the basis for lending it can use the collateral for further lending to earn interest, which, again, is a normal banking function. An increase in these standard steps leads to the emergence of finance, further enlarging the debt-and-credit activity and leading to the generation of more interest income. The upshot of it all is that a money economy makes “money making” as such a recognised and highly respectable economic activity.

The authors make two significant observations based on this exposition about modern money economies, practically all of them some version of a capitalist economy. The first is that they have a built-in tendency towards inequalities of income and wealth because it is the high-income wealthy class in society for whom money making becomes the normal thing to do. As they put it: “It is generally not understood that an interest-based monetary system is also one of key underlying mechanisms for concentrating wealth in increasingly fewer hands, fuelling the growing disparity between rich and poor.” In other words, an interest-based monetary system has a built-in “trickling up” mechanism.

However, and this is the second aspect that the authors bring out, that mechanism is not a smooth one: it is accompanied by ups and downs for the system as a whole. The upward movement may appear to be natural and steady. But it will impose heavy debt burdens on unsuspecting ordinary people who have to work hard to make money for daily needs. And soon the bubble will burst. In other words, what happened in the United States (and elsewhere too, possibly with some lags) during the past decade was not anything strange: it was very much an aspect of the system.

Does it then mean that the use of money as such is dangerous and is to be avoided? The bulk of the volume is devoted to show that such is not the case and that money, properly understood and put to use, can be a very useful agent for economic activity and social cohesion. The problems noted above, argue the authors, result not from the use of money as such, but from a disproportionate thrust on its role as a store of value. Money as a facilitator of exchange can lead to an increase in desirable economic activity and outcome, they claim. As an example, consider a community of self-sufficient farming households, all of whom produce enough grain for their needs and a little surplus as well. Imagine also that each household produces another item—say vegetables by one, fruits by another, milk by a third, and so on. Now, if they agree on grain as a form of currency it can be used to buy vegetables, fruits and milk so that every household can be better off. Indeed any one of the products can become the local currency as long as the participants agree on it and work out the exchange rates in terms of the chosen good, indicating that cooperation among the participants, rather than the choice of the medium, is the crucial ingredient in generating and maintaining an exchange economy. The authors refer to this form of currency as “cooperative currency” and claim that there are currently some 4,000 cooperative currencies globally, practically all of them launched since the 1980s. The principle underlying cooperative currencies is that of networks—diversity and interconnectivity. If it is accepted that “money is an essential vehicle for catalysing processes, allocating resources, and generally allowing the exchange system to work as a synergetic whole”, the role of cooperative currencies can be appreciated. It can be seen also that they need not become substitutes for standard currencies, but effective complements to them in given situations.

A few examples may be considered that bring out the working principle of cooperative currencies. According to the authors, the most frequent cooperative currency system in the world today is LETS, an acronym for Local Exchange Trading System, started in the early 1980s in a community close to Vancouver, Canada.

A defence establishment was the mainstay in this small town of some 50,000 people for many years, but it closed down in 1982 throwing the workers out of employment and sustenance which, consequently, affected all local businesses. That was the context in which LETS was introduced and distributed to the residents, who were encouraged to use it for their transactions. Since the relative prices of goods and services were known, it was easy to have prices—of vegetables, haircuts, car services, cooking, web designing, and so on—established in terms of LETS, and economic activity soon picked up, many people going back to their old ones or discovering new possibilities. The authors mention that LETS or its equivalents are now in use by many groups in North and South America, Europe, Australia and Asia. India is also mentioned in the list without further specification.

In the U.S., Edgar Cohn, a former close associate of the Kennedy family, used the recession of the early 1980s to devise a cooperative currency, which he called the Time Dollar. The basic unit of account was a time dollar, equivalent to one hour of service, which could be spent for goods and services available or could be generated within a given community. The basic idea was to connect unused resources with unmet needs, with the entire community accepting responsibility for the endeavour—economically and socially a very enriching process. This idea is now being put into practice by many communities in different parts of the U.S., enriching lives and realising a new sense of belonging.

On the initiative of a professor of architecture in Germany, who experimented with a variety of eco-friendly buildings which did not find acceptance initially, a group of like-minded people launched a new currency called the “regio” to supplement the euro for specific social and ecological problems of their regions. With specialists contributing their skills evaluated in terms of the region, many new projects, initially considered beyond reach have been completed.

Multinational corporations are also discovering the beneficial role of cooperative currencies. The vast supply chains and distribution channels that they have to rely upon, increasing networking possibilities facilitated by technological advances and the annoying volatility of national and global currencies, are the factors that have encouraged them to experiment with cooperative currencies. The most successful among multinational cooperative currencies has been the Trade Reference Currency (TRC), with a unit of account called the Terra (corresponding to the dollar, the euro, the rupee, etc.), launched without any new law or international agreement, and making good progress.

Thus, there is scope for cooperative currencies at the local, national and global levels. But conditions apply. First and foremost, unlike standard currencies that are used for transactions as well as for accumulation, cooperative currencies are strictly limited for transactions, that is, they are not related to debt-credit and do not yield any interest when not in use. On the contrary, they are useless if they are not steadily circulating. Secondly, if standard currencies are based essentially on the authority that backs them (in the case of national currencies, the government), cooperative currencies rely on the cooperation extended by the promoters and users. Indeed, their success will depend on the clarity of purpose and transparency of the cooperative endeavour both in use and in accounting. Given these basic principles, they can be used to stimulate economic activity and build up social interaction where resources, including labour power, remain latent.

With the growing popular demand for decentralised planning and administration in India, the use of cooperative currencies is certainly worth trying out. And, if such efforts are going on, they need to be given greater publicity.