“The Crime of Alleviating Poverty: A Local Community Currency Battles the Central Bank of Kenya”

Preface: See this and this  for more on alternative currencies.

Guest post by Ellen Brown, http://www.WebofDebt.com.

Former Peace Corps volunteer Will Ruddick and several residents of Bangladesh, Kenya, face a potential seven years in prison after developing a cost-effective way to alleviate poverty in Africa’s poorest slums.  Their solution: a complementary currency issued and backed by the local community.  The Central Bank of Kenya has now initiated charges of forgery.

Complementary currencies can help eradicate poverty.

Proving that may be difficult in complex economies, due to the high number of factors influencing outcomes. But in an African slum with little of the national currency available, supplying residents with an alternative currency has a positive effect that is obvious, immediate and incontrovertible.

This was demonstrated when Will Ruddick, an American physicist, economist and former Peace Corps volunteer, introduced a complementary currency into a Kenyan slum called Bangladesh, near the coastal city of Mombasa. Will’s local development organization, Koru-Kenya, worked with over one hundred small business owners in Bangladesh, who agreed to give each other the equivalent of 400 shillings (about €3.5 or $4.60) in mutual credit in the form of business vouchers called Bangla-Pesa. Half of the vouchers would be available for spending on each others’ products and services, and half would be spent into the community on public projects such as waste collection and health services.  Allocation decisions were democratic and transparent, and the new currency was backed entirely by the community’s own resources and insured by a system of group guarantors, not by the Kenyan government or a development agency.

The project was launched on May 11, 2013.  The immediate effect was an increase in sales of 22%. That meant increasing incomes and purchasing power by 22%.  These exchanges were of goods and services that without the additional currency would have been thrown away or gone to waste, not because they were unmarketable but because potential customers did not have the money to buy them.  Introducing Bangla-Pesa worked to move the economy forward at full capacity, connecting the community to its own resources when the only things lacking were those slips of paper called “money.” A compelling video on the project is here.

The successful Kenyan experiment quickly earned endorsements from the United Nations, The Hague and  the International Reciprocal Trade Association. Indeed, no other poverty alleviation or local governance program can compete with the cost-effectiveness of this approach, which is easily replicable in poor communities across Africa. The plan was to expand it to other villages in a democratic grassroots fashion so that it could provide a local medium of exchange for people throughout the continent. This would be done via mobile phones with a system provided by Community Forge, an organization based in Geneva that supports the development of community currencies worldwide.

But that plan was unexpectedly interrupted on May 29th, when Will and five other project participants were arrested by Kenyan police and thrown in jail.  Besides Will, who is married to a Kenyan aid worker and is a new father, the others include local community business owners who are parents and grandparents, a youth activist, a volunteer mother, and the caretaker of seven orphan children.

The police at first accused the group of plotting a terrorist overthrow of the government, claiming that Bangla-Pesa was linked to the MRC, a terrorist secessionist group. When that link was easily disproven, the Central Bank of Kenya was called in and charges of forgery were formally placed.  Will and his fellow suspects have been released for now on a bail of EUR 5,000 and await trial on July 17th.  If convicted, they face seven years in a Kenyan prison.

Despite these perilous circumstances, Will remains optimistic.  “The exciting thing,” he says, “is that these systems really do show a means of poverty reduction – and my hope is that after this case we’ll be allowed to spread them to slums across Kenya.  There have been years of precedent for Complementary Currencies as a solution to poverty, and today there is no doubting it.”

Successful Precedents from Switzerland to Brazil

Complementary currencies are endorsed by many governments worldwide. The oldest and largest is the WIR system in Switzerland, an exchange system  among 60,000 businesses – a full 20% of all Swiss businesses. This currency has been demonstrated to have a counter-cyclical effect, helping to stabilize the Swiss economy by providing additional liquidity and lending capacity when conventional credit for small businesses is scarce.

Brazil is a global leader in using the complementary currency approach for poverty alleviation. Interestingly, its experience began in much the same way as Kenya’s: Brazil’s most successful community currency, called “Palmas”, was nearly strangled at birth by the Brazilian Central Bank. How it went from criminal suspect to official state policy is told by Margrit Kennedy and co-authors in People Money:

After issuing the first Palmas currency in 2003, local organiser Joaquim Melo was arrested on suspicion of running a money laundering operation in an unregistered bank.  The Central Bank started proceedings against him, saying that the bank was issuing false money.  The defendants called on expert witnesses, including the Dutch development organisation Stro, to support their case.  Finally, the judge agreed that it was a constitutional right of people to have access to finance and that the Central Bank was doing nothing for the poor areas benefiting from the local currencies.  He ruled in favour of Banco Palmas.

What happens next shows the power of dialogue.  The Central Bank created a reflection group and invited Joaquim to join in a conversation about how to help poor people.  Banco Palmas started the Palmas Institute to share its methodology with other communities and, in 2005, the government’s secretary for “solidarity economy” created a partnership with the Institute to finance dissemination.  Support for community development banks issuing new currency is now state policy.

The Legal Debate: Mutual Credit or Counterfeiting?

If the Kenyan court follows the example of Brazil, this could be the beginning of a promising new approach to poverty reduction in Africa. The Bangla-Pesa is backed by local resources, and the villagers were very happy to have it in order to move their products and buy the surplus of others within their community.

Viewed as a case of counterfeiting, however, there is historical precedent for harsh punishment.  In the mid-eighteenth century, when the Bank of England was privately owned and had the exclusive right to issue the national currency, counterfeiting Bank of England Notes was made a crime punishable by death. That was the era of Charles Dickens’ Tale of Two Cities and Bleak House, when supplementing the national currency might have helped relieve mass poverty; but it was in the interest of the Bank to control the market for currency and keep it scarce, in order to ensure a steady demand for loans.  When there is insufficient money in the system to cover the needs of exchange, people must borrow from banks at interest, ensuring the banks a handsome profit.

The converse is also true: when sufficient money is supplied to cover the needs of exchange, debt levels and poverty are dramatically reduced.

In this case, the physical Bangla-Pesa voucher looks nothing like the national currency, as it would need to in order to sustain a charge of forgery. The intent of complementary currencies, as their name implies, is not to imitate or compete with the national currency but to complement it, allowing for increased sales within the local community of existing goods and services that would otherwise go unsold. Today, the Bank of England itself acknowledges this role of complementary currencies.

The Bangla-Pesa experience demonstrates what policymakers often overlook: gross domestic product is measured in goods and services sold, not goods and services produced; and for goods to be sold, purchasers must have the money to buy them. Provide consumers with excess money to spend, and GDP will go up.  (In Kenya, where nearly half the population lives in poverty and mass unemployment, increases in GDP reflect extractive practices rather than local conditions.)

The common perception is that increasing the medium of exchange will merely devalue the currency and increase prices, but the data show that this does not happen so long as merchandise and services remain unsold or workers remain unemployed. Adding liquidity in those circumstances drives up sales, productivity and employment rather than prices.

This was demonstrated in a larger experiment in Argentina, when the country suffered a major banking crisis in 1995.  Lack of confidence in the peso and capital flight ended in a full-scale run on the banks, which closed their doors. When the national currency became unavailable, people responded by creating their own. Community currencies at the local level evolved into the Global Exchange Network (Red Global de Trueque or RGT), which went on to become the largest national community currency network in the world.  The model spread throughout Central and South America, growing to seven million members and a circulation valued at millions of U.S. dollars per year. At the local government level, provinces short of the national currency also resorted to issuing their own money, paying their employees with paper receipts called “Debt-Cancelling Bonds” that were in currency units equivalent to the Argentine Peso.

Although these various measures increased the currency in circulation, prices did not inflate.  To the contrary, studies found that in provinces in which the national money supply was supplemented with local currencies, prices actually declined compared to other Argentine provinces.  Local exchange systems allowed goods and services to be traded that would not otherwise have found a market.

This salutary effect was also observed in Bangladesh. “With Bangla-Pesa,” says Ruddick, “we’ve seen that a circulating community-backed interest-free credit is a low-cost, effective way to increase local liquidity and decrease poverty.”

The defendants just need to prove that in court. A crowd-funding campaign is being used to raise the money urgently needed for their defense. The link for contributions is here. To sign a petition begun by a delegation at The Hague supporting the Bangla-Pesa, click here.

Jamie Brown contributed to this article.

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  • jadan

    Bernard von NotHaus, creator of the Liberty Dollar, would have a less sanguine tale to tell about “complementary currencies”. Our own central bank, the Federal Reserve System, is a jealous master (monster) and will tolerate no competition for its Federal Reserve Notes.

    Your little local currencies ( Ithaca Hours, etc ) remain local and pose no threat to the hegemony of the FRN. 60 million Liberty Dollars were put into circulation. It began to defy the private money monopoly of the Fed. The Fed, a private corporation, accused von NotHaus of terrorist activity, in promoting an anti-government agenda. Of course the Fed is not a government entity, but it does own the government. And each one of us, too……..

    So long as the Kenyan currency does not interfere with the central bank’s profits or challenge its role as the central money power, the complementary currency will not be suppressed.

    Don’t worry, Will. Just reassure them that they own the cake and they’ll let you have a piece. Just do what so called public banking is doing in the US: politely, yet passionately, kiss the fat Mammon ass of the Fed and you’ll be OK.

  • Tonto

    “Proving that [Complementary currencies can help eradicate poverty.] may be difficult in complex economies, due to the high number of factors influencing outcomes. But in an African slum with little of the national currency available, supplying residents with an alternative currency has a positive effect that is obvious, immediate and incontrovertible.”

    In the example provided,”Former Peace Corps volunteer Will Ruddick and several residents of
    Bangladesh [a like-named town in Kenya] face a potential seven years in prison after developing a cost-effective way to alleviate poverty in Africa’s poorest slums. Their solution: a complementary currency issued and backed by the local community. The Central Bank of Kenya has now initiated charges of forgery.”

    What Ellen Brown provides for the reader as “obvious, immediate and incontrovertible” proof of the value of public banking, is no such thing.

    In fact this falsehood is the crux of her deceit intent on proving herself a genius economist, an economist who says she can end poverty. Let’s see, if Ellen Brown can end poverty.

    Ellen Brow explains ” […] over one hundred small business owners in Bangladesh [Kenya], who agreed to give each other the equivalent of 400 shillings (about €3.5 or $4.60) in mutual credit in the form of business vouchers called Bangla-Pesa. Half of the vouchers would be available for spending on each others’ products and services, and half would be spent into the community on public projects such as waste collection and health services.”

    About this, Ellen Brown continues, “The immediate effect was an increase in sales of 22%. That meant increasing incomes and purchasing power by 22%. […]”

    Ellen Brown’s rags to riches story is a ruse. Where did this money come from? It was printed up, that’s where. Let’s look at what the real effect is that is created by injecting this new “currency” into this rural Kenyan economy. The reader will see, what Ellen Brown is talking about is no economic miracle at all.

    First of all. It’s obvious something over $460 in “business vouchers” were created out of the scheme Ellen Brown relates for the reader. She says, over a hundred small business owners gave each other the equivalent of $4.60 in mutual credit. This is the purported foundation of this new “currency”. And the people of Bangladesh, Kenya spent this money, thus increasing local incomes and purchasing power 22%

    Who can complain with such a miracle? Let’s see.

    The rather obvious first question is, what is the economic difference between the reported effect of this story, and the result were these small businesses to band together and simply create counterfeit currency exactly the same as the Central Bank of Kenyan circulates?

    The answer is, there would be little difference. The wealth effect initially would be the same.

    Counterfeiting is a crime though. The events in the story Ellen Brown relates has little difference from a story about counterfeiting. The same amount of counterfeited currency similarly injected into this rural community would have increased local incomes and purchasing power 22% too. And just the same as counterfeiting, this “money” is free money, no work required.

    It is not true however, that the creation of $460 in Bangla-Pesas (the new “currency”), has no difference from simply counterfeiting the same amount. The difference is, there is coercion involved with this new “currency”. Because it would be natural for some in the marketplace to look at the new “currency” and fear accepting it in any trade. And to refuse to accept this new “currency”, would put the doubter outside the local economy that did accept it. Anyone who refused to accept the new “currency” would be economically harmed. And that “anyone” I just cited, would be all the rest of Kenya. How is this story going to end up with a lesson about ending poverty?

    And while it is obvious for anyone to see, that in the case of counterfeiting a currency, that counterfeiting is an act that devalues the real currency, it might be more difficult to see that creating a competing currency scheme devalues the real currency even more than does counterfeiting. Creating a new currency scheme in an economy like exists in Kenya, not only devalues the Kenyan currency like counterfeit money. It also negates some of the accumulated goodwill of the Kenyan currency, further devaluing the currency of Kenya beyond the effect of injecting the same amount of counterfeit currency into the marketplace.

    How is this going to improve the economy of Kenya, which is already existing under extreme stress?

    The answer is, a competing currency will not aid Kenya. It will merely make more bureaucrats. It will merely create more opportunity for graft and corruption, something Kenya already is well known for.

    Such a competing currency scheme could do such harm to Kenya’s economy that it is morally right these devious, scheming, and pretending scoundrels involved in this “public banking” scheme should be prosecuted. This public banking scheme is a poverty-inducing malefactor masquerading as a public benefactor. There is no genius inherent to counterfeiting schemes. And that is what this scheme is. It is merely a form of counterfeiting.

    No one reading Ellen Brown’s article should be swayed by the presentation of this supposed “obvious, immediate and incontrovertible” public banking miracle that was related in this article. The story is a ruse. There is no miracle related in this story. It is merely an example made up after the fact to fit the ideological bent of the author. Ellen Brown is fine with rewarding people for no work. That is what this story is about. The story Ellen Brown relates in this article is a story about something for nothing.

    Ellen Brown and her public banking followers are frauds. Nothing about what they are saying can possibly help the current economic situation of the country or the world. The problem the US and the world face is due to too much credit and too much money printing. It is not a problem with a lack of “public banking”, or whatever else Ellen Brown is trying to sell. Everything Ellen Brown has ever written that I have taken the time to read is similarly delusional. Ellen Brown does not know what she is talking about. And her followers know even less about what she is talking about.

    Economics is not an intuitive science. It can at times be very counter-intuitive. And it will remain counter-intuitive as long anyone thinks they can reach an understanding of economics by reading blog articles like those written by Ellen Brown, the queen of public banking charlatans.

  • Tonto

    Here’s another take on all these insidious “public banking” schemes.

    What’s the difference between these public banking schemes and the payroll bank card schemes being fostered upon American low wage workers?

    http://www.activistpost.com/2013/07/wall-street-banks-extract-enormous-fees.html

    The way I see it, it is the same thing, and with the same irrational justification. Ending poverty? Never!

    Honestly, who would want to be forced to take their paycheck in funds other than the central banking currency that is accepted everywhere? Coercion? Take it or leave it!

    The U.S. dollar is the reserve currency of the world. And someone is going to give you your pay in Bangla-Pesa?

    Not on your life!

  • armorbear

    Yes, You are absolutely choosing the right plans.Before you step into the business world you need some serious Market Research. But only the research is not going to help you alone it has to be implemented properly with positive frame of mind and a lot of hard work too.

  • Great info post, ““The Crime of Alleviating Poverty: A Local Community Currency Battles the Central Bank of Kenya”, thanks for the post.

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