14 - Alternative Money in Porto Alegre

The social benefits of the Tupi in deserts of capital, where people can produce but have no means of triangular exchange, is enormous. But as Ari confirms the next day when I track him down at a meeting of several representatives of communities managing Tupi-based trading systems, the system is not meant to work for millions of people, and certainly, in his opinion and those sitting around the conference table, is not designed to replace the existing monetary system. It is only, he explains, designed to stimulate trading and self-sufficiency amongst excluded communities.

Ari does tell me about a country that turned to a similar trading system called the Trueque. In Argentina, after the flight of short-term speculative capital left the country with virtually no access to credit, people began using their own community-based currency for trading. The system never reached the mainstream shops and businesses, but according to the BBC around 5 million people relied on the Trueque for triangular exchange. Others believe the figure was nearer one million. Either way, that’s a lot of people. The system had no time for planning, instead it just flourished over night. Employees of factories that went bankrupt turned around to the global financial system and screamed “Vaya te!” telling them to go away. “We have the factories, the machinery, the workers and the know-how. We don’t need you!” And so the Trueque system supported a large layer of people who otherwise would have fallen through the cracks of capitalism, cracks that widen during times of crisis. The Trueque system eventually collapsed because of corruption and miss-management, owing to the speed of its implementation. But in Argentina, when the capitalist system turned its back on an entire nation, people did not wait around hopelessly. They took the situation into their own hands and managed a deep economic crisis; a predictable economic crisis that has been tearing countries apart one after the other over the past twenty years.

My three months in Rio have exposed me to a snapshot of reality in communities living marginalized lives at the fringes of society, and helped me make sense of this snapshot of reality in a historical and economic context. My journey to other parts of the country begins with a taxi waiting to take us to the airport. Our next stop: Porto Alegre, the famous city in Rio Grande Do Sul, in the Southern tip of Brazil. On the way to the City hotel from the airport I have the impression of having gotten off the train a couple of stops too soon on my way to a cute skiing resort in the Swiss Alps. It’s a dull, built up, grey city on a lake referred to by everyone as a river. Mind you the thick layer of clouds blocking the last remnants of sun in a winter afternoon might be an unfair time to judge Porto Alegre, home to the first three World Social Forums, and the focal point to the world for its system of participatory budgeting and democracy.

The next day, still overcast, we catch a taxi to the other side of town, and notice the driver trying to rip us off by setting the meter on 3 (the late-nigh week-end charge) instead of 1. We manage to scrape a little off the price out of principle, and enter the year old offices of Instrodi, the magnet that had drawn us South to the coldest tip of Brazil, away from the hot and sunny beaches up North. I am sitting with Camilio, a visionary who’s come all the way from Holland a year ago to help set up an Instrodi office in Brazil.

Camilio is a young dynamic guy full of energy in his early thirties I presume, not too tall, broad shouldered, coarse stubble and short light brown hair fashionably all over the place. He has an intense look, a cross between questioning and confirming. Camilio is certainly known within the civil movement, or at least many people I spoke to in Rio had heard of him. He often publishes articles and lectures about his work.

Apart from him being known within the narrow scope of civil society, or at least within the even narrower spectrum I have been exposed to, Camilio is an anonymous guy doing his thing. Yet hidden away between his office on the outskirts of town and his farm-house an hour away from Porto Alegre, Camilio’s vision is no less than an economically vibrant Brazil, independent from the global financial system holding this country to ransom, and free of the IMF debt, its suffocating exponential interest and its painful anti-social conditions holding Brazil in a state of paralysis. No, he doesn’t just dream of this, he believes he holds the road map ahead.

To understand Instrodi’s proposed solution to communities, neighbourhoods, municipalities, civil movements and business networks making up Brazil’s population, it is essential to understand the present global financial system, and its fundamental component: money. Blue and black felt-tip pens in hand, Camilio stands in front of the white board and begins my first lesson.

Once upon a time the ‘currency’ used for triangular exchange was a commodity or product of actual value, such as salt, shells, gold or precious stones. Five thousand years ago the Egyptians held large stocks of grain that were used as a means of exchange of goods and services. This however became inconvenient, especially when large amounts of goods were traded across vast expanses of water, and equivalent values of gold would have to sail the opposite direction. A genius answer to this logistical problem of early triangular trading was the invention of a bond. You could deposit a certain amount of gold in a ‘bank’, and get a piece of paper with your name on it as an equal representation of that gold. Like that you didn’t have to drag along kilos of gold to buy tons of rice. So far so good. Then someone in the middle ages in Italy turned up at a ‘bank’ with no gold, but offered the banker a deal: “Lend me the gold, and I can buy low and sell high, and I’ll give you a share of the profits”. The banker agreed. This printed piece of paper was guaranteed not by gold but by the value expected to be generated by the borrower. Its cost was literally the piece of paper it was printed on, but the cost of borrowing it was the promised share of profits. Its valued lay in the ability of the borrower to use it to generate value. Eventually all the gold was sold (the US Dollar was freed from gold in 1971) and since then expected value generation by borrowers has been the major guarantee of the value of money.  

Today private banking institutions offer money for investments and trading by creating it and lending it against a small base of money deposited with them. Usually national laws state that only 10% of loans need to be guaranteed by deposits. So with 1 pound (with the necessary licenses of course) I can legally create (on a computer screen) 100 pounds and lend it out. This percentage can be tweaked by governments as a tool to control money supply, although seldom used. Should these loans not be honoured the bank risks bankruptcy. These would be called bad loans. The cost to borrowers seeking this means of exchange for the creation and trading of the products and services they work so hard to generate compensates the bank for its risk of bad loans. This cost is called interest. This interest is exponential, which puts borrowers under pressure to repay loans on time.

There are only two ways of getting hold of this means of exchange for investments and trading: Loans from banks or equity from investors. This interest rate is the benchmark of minimum accepted profitability for investors. Why would anyone accept less from a real product or service generating project if they can make more from a seemingly interest free return from low risk government bonds? This race to maximise the return on investments and loans (with the minimum acceptable return being the exponential interest paid by governments) is how people and communities can gain access to the means of triangular exchange necessary for investments and trading.

There are several problems, explains Camilio, with this global financial system of spreading access to the means of exchange: First, people and communities must be able to communicate to lenders and investors. Some communities are so remote and seek such small amounts of money for their local trading needs that it is not even worth investor’s time and effort to deal with them. This creates what are known as deserts of capital, where people are suspended in paralysis.

This is one reason why there is a shortage of capital in the productive circuit. Yet there is plenty of money in this world. The amount of money in this world has increased 10,000 times, explains Camilio, since 1945, yet production has only increased 50 times, “which is huge by the way. For production to multiply by 50 in 50 years, it has never happened before in human history. But money multiplied 10,000 times, and still there is not a money surplus but a money shortage. This is contradictory”. So where is all this money then? Camilio explains that it is in the speculative circuit. Embedded deep in a mind-opening speech by David Corthen, a modern day economist who might one day be remembered along side legends such as Keynes and Smith, is reference to the fact that approximately 99% of money in this world is speculative. A speculative investment adds absolutely no value to people and communities; they are purely designed to take advantage of an expected increase in price, in other words inflation. So when people buy land purely for the hope of selling it at a higher price in the future, without harvesting it or building on it, this is a speculative investment. When shares are bought hoping to be sold for a profit, this is a speculative investment. When currencies and bonds are traded, they are bought and sold purely as a speculative gamble. No tangible value is generated in the real world.

Yet only 1% of money is flowing in the productive circuit. This scarcity of cash as an essential fuel for production and trading is forcing companies to compete ferociously for capital from a speculative circuit where returns must exceed interest rates. This competition for the scarce resource, money, is what drives companies to offer maximum returns, no matter what the consequences on the communities they function in, the people they employ and the environment they affect. The best way to attract money from the speculative circuit, where exponential interest rates are a benchmark, is to offer exponential returns. If you set up a business selling a constant stream of products, such as a shop selling at full capacity say, the returns are linear. So an investment of 100 pounds could yield 25 pounds a year of profits. This return however is linear. In order to be even more attractive, and therefore attract money from the speculative circuit to the productive circuit, a company needs to grow. (One could argue that profits could be re-invested into another linearly profitable venture, thus creating exponential returns. But what would you chose if returns were your only objective in this system, a business that offered you this level of exponential returns, or the headache of searching for another attractive opportunity every time you receive profits? A speculative investment effectively reinvests the profits every second with no effort whatsoever.) The interest-based financial system, concludes Camilio, therefore creates deserts of capital, and forces businesses to compete ferociously for scarce capital, at the cost of communities, employees and the environment.

But money, Camilio says, has been demystified. People are beginning to understand the nature of money, as an invented number on a computer screen (sometimes physically represented by a piece of paper) given value by the expected productivity of the borrower. Communities are waking up to the fact that it is their work and their risk that is guaranteeing the value of money that is created from nothing by private banks, and that generating this money is as simple as ABC, if managed properly. People are also realising that money can have any characteristics we choose to give it. The interest rate set by a free market of speculative investments is just one way of allocating cash to projects. It is clear to many that this system has failed to provide the necessary means of exchange for the development of communities all over the world. People are also waking up to the fact that even if interest rates were paid on borrowed money, there is no reason to give this ‘tax’ on the use of money to banks on the other side of the planets. The interest could quite easily go into a community account, to be used for whatever the community chooses to use it for. Or maybe communities can find other ways of ‘programming’ money without the use of interest rates, to suit their own specific needs.

Instrodi has built networks of alternative socially friendly money in Spain, Holland and Ireland before coming over to Brazil. Their system has developed over time, and they have recently developed software for administering the latest version, and built into it enough flexibility to give any community the choice of how to program it. Instrodi give the option for communities to choose an inverted interest rate on cash. Camilio explains that this would encourage people to spend the money they make, thus promoting local development. Furthermore, the local currency would encourage people to buy products made inside the community, as a ‘tax’ could be charged for converting the money out of the community. The money charged for either holding cash or converting local money would go into a community account. This could be used for whatever the community chooses.

The thought of having my money depreciate in value on a monthly basis gives me the shivers. I want to be able to save for my children, or for a year off travelling, or an expensive product. I ask Camilio how one could save for security or an expensive purchase. He explains that their program allows for a savings account. But this savings account does not pay interest, which in many religions is considered as wrong, but can be placed in a fund, and made available for loans to people in the community looking to open a business. A carpenter could use it to buy some tools for example.

“Oh my God!” screams out the capitalist trained side of my mind, “surely this is risky!” Camilio tells me to think about it: If all the businesses that borrow money free of interest fail, then yes, my savings would be lost. But within the community, if these loans are made democratically, then the majority of the people obviously think it is a good idea, and their own money is also at stake. So overall you must trust that the community, using a democratic process, would make the right investment decisions that would add most value to the community. Think about it, if the customers are also investors and employees, you have a better chance of success. So overall, savings should increase. The key to the success of this social currency is a truly participative democratic process. This must be the new driving force behind investment decisions, because communities are in a better position to understand their own needs than speculators and lenders on the other side of the planet. And anyway, why should these unaccountable institutions profit from the work, the risk and the natural resources of a local community?

Giving a community economic democracy and increased autonomy from the global financial system, whether a local neighbourhood, a chain of businesses, a cooperative or a municipality, would unleash a torrent of creative energy to structure community-based economic systems in a multitude of ways. This would bring humanity back to the markets where it belongs, turning money back into a useful tool for triangular exchange, back from its current status as master.

I’ve been here four days now, and I have had a chance to think over the overwhelming wealth of paradigm-shifting information from Camilio and the serious amounts of reading I have been given. I am heading back to Camilio for my last chance to have a chat before I leave to Sao Paolo. To my pleasant surprise Camilio suggests we head down to the beach for a more pleasant atmosphere. I find myself sitting on the edge of a road abruptly terminated by a one-meter dip into a narrow expanse of public beach cut short by private land on either side. I am overlooking a vast expanse of sea naturally cordoned by hills in the not so far horizon. The sun is an hour away from setting behind the hazy-green hills, still warm enough to keep my cotton sweater wrapped around my waist. 

I ask Camilio what his dream is for Instrodi’s alternative community-based economic system, and what he believes Brazil can gain from it. He tells me (and I quote from memory as I don’t want to ruin the vibe with my recorder): “Imagine if every community in Brazil is freed from the need to please the global financial system for its means of exchange, and every community is trading with one another, linked democratically into a web, with Brazil as its whole. Then, and only then, can Brazil turn around to the IMF and say, “Go away, we don’t need you any more”. If Brazil did this today, it would cause a serious credit crunch that would paralyse the country and turn it into a desert of capital. Today, Brazil relies on the global financial system for its means of triangular exchange, but one day I hope Brazil can become independent, free of the financial blackmail from the global financial system”.

I sincerely wish him luck as we say goodbye, and on my way back to the hotel I am somehow left with a positive and optimistic feeling about Camilio’s ambitious dream for Brazil. Despite its mammoth scale, it makes sense; and it’s this logic and reason that leaves me with a sense of belief that another Brazil is possible. A democratic Brazil made of communities in control of their own destinies.