VOLUME 17 (2013) SECTION A 45-57 COMPLEMENTARY CURRENCY AND ITS IMPACT ON THE ECONOMY Octavio Groppa* Pontificia Universidad Cat!lica Argentina
"#$%&"'% The papei aims to show the impact that a complementaiy cuiiency may have on a national economy fiom a theoietical point of view. A system uynamics mouel is cieateu to uesciibe the mechanics of money issuance in capitalist economies as well as in economies wheie theie is no insiue money. As an example, the fiist outcomes of a baitei netwoik implementeu in 2uu8 by the STR0 founuation in El Salvauoi (calleu !"#$% '()#*)++,%#-*) aie piesenteu anu analyzeu. Finally, using uata fiom a complementaiy cuiiency expeiience in El Salvauoi the spenuing mul- tipliei is calculateu. The main iesult shows that theie is a gieatei spenuing multipliei in uigital community cuiiencies systems than in iegulai money maiket. Although the magnituue of PT netwoik is still negligible fiom a macioeconomic point of view, the iesult is a uesiieu outcome which may help to cushion the impact of macioeconomic shocks on laboui maiket, contiibuting to stabilize aggiegate uemanu. * Email: octavio_gioppauca.euu.ai %( )*+, +-*. /0+*)1,2 uioppa, 0. (2u1S) 'Complementaiy cuiiency anu its impact on the economy' .#$-(#)/ $,%#)0 1%"(#)0 %2 3%44"#,$5 3"((-#+5 6-*-)(+7 17 (A) 4S - S7 <www.ijcci.net> ISSN 1S2S-9S47 34 56%&789'%576 The expansion of IT in iecent yeais has biought about a numbei of innovations in the monetaiy aiena. Fiims have been expeiimenting with voucheis, uiscount coupons, sky miles, points, anu the like, in oiuei to attiact customeis oi pieseive them thiough loyalty piogiams. In paiallel, com- plementaiy cuiiencies (CC), many of which use computei- baseu exchange systems, have been giowing yeai aftei yeai. These examples show in a gieatei oi lessei uegiee the emeigence of the quiet new phenomenon of piivate oi non- national moneys. A ieview of the liteiatuie on the subject ieveals that few stuuies piesent a theoietical appioach to the issue. Schia- ven (2uuu) analyzes the functions anu benefits expecteu fiom joining in a complementaiy cuiiency netwoik, but he uoes not offei an explanation of theii mechanism. Stouuei (1998; 2uu9) finus a countei-cyclical effect of coipoiate baitei systems as well as the WIR Bank's cuiiency, iespec- tively, using econometiic techniques. Pjafjai et. al. (2u12) use piobit mouels to piove that community cuiiencies aie complementaiy (not substitutes) of national moneys anu that the usage of these alteinative cuiiencies is associateu with monetaiy stability, what constitutes a iathei puzzling conclusion. Schioeuei (2uu2), in his uesciiption of the Tauschiing, offeis some ieflections on a hanuful of issues ielateu to CC -unemployment, locality, ecology, between otheis. Be uoes not eithei constiuct any foimal mouel oi explanation, but ievisits some iueas of uesell anu his ciitics, oi Lietaei. Kiohn anu Snyuei (2uu8), in theii stuuy of Ith- aca Bouis, mention some chaiacteiistics of economies wheie complementaiy cuiiencies appeai, anu uesciibe the basic featuies of money. They also iun a mouel in the 0S ovei the 199u's in oiuei to finu some effect of a highei giowth iate in cities wheie complementaiy cuiiencies hau been ueployeu, but they can't finu such eviuence. Nost of the aiticles uesciibe the main featuies of comple- mentaiy cuiiencies systems (CCS) in seveial expeiiences, eithei using the case stuuy methouology (see I}CCR 2u11; Schiouei 2uu6; Lietaei 2uu4; Bienes 2u11; Ingleby 1998) oi conuucting suiveys (Lepofsky 2uuS; }ackson 1997). They usually uetail the singulaiities of the implementation in each case. The objective of the piesent papei is to analyze fiom a con- ceptual point of view the impact of CC in the monetaiy sys- tem. The fiist section piesents a system uynamics mouel which uesciibes the coie of the stiuctuie of conventional monetaiy systems in oui economies. The following section uiscusses what happens when a CC is intiouuceu. Thiiuly, empiiical uata fiom the complementaiy cuiiency system uevelopeu by the Social Tiaue 0iganization (STR0) in El Salvauoi (calleu Punto Tiansacciones) is shown anu a fiist attempt to measuie the spenuing multipliei within the netwoik is maue. The final section concluues. :4 %;< =<';"65'$ 7> =76<? 5$$9"6'< :43 %-, '/@*+/1*.+ $A.+,B In oui tiauitional economies money is cieateu thiough a two-stage piocess. In the fiist place, a cential bank issues uebt -money- backeu by its assets. It can be uone as a means of monetizing a low liquiuity uebt (typically, when it puichases goveinment's secuiities), oi else by giving cieuit to commeicial banks. This uebt instiument has a high ue- giee of liquiuity anu ability to be tiansfeiieu to thiiu pai- ties, given that it is investeu with an uniestiicteu settle- ment powei. This is what we know as the monetaiy base oi outsiue money. With the money ieceiveu, commeicial banks offei loans. In tuin, boiioweu money is spent by cieuit takeis (e.g., com- panies that puichase supplies anu pay wages). Then, a sub- sequent ciiculation of means of payment takes place, which peifoim a given numbei of opeiations. Theie is, on the othei hanu, an amount of money that can be hoaiueu oi saveu in foieign assets. Conveisely, it is also possible that pieviously hoaiueu amounts aie ie-enteieu into the ciicuit. In auuition, theie exists anothei poition of the amounts in ciiculation that is ietuineu into the banking system in the foim of ueposits. In this case, commeicial banks keep a poition as ieseive to meet withuiawals, anu aie alloweu to lenu the iemainuei. In so fai the oiiginal uepositoi contin- ues using his money wiiting checks against his cuiient account, that "iemainuei" pioviueu by the commeicial bank is new money put into ciiculation, what is known as insiue money anu is founueu on the uesciibeu fiactional ieseive system (as noteu by Tobin 196S, stiictly speaking this seconuaiy issue occuis in the system as a whole, since cieuit cieation by one bank may be absoibeu -offset- as a ueposit by anothei one.) The money multipliei effect can also be seen as a uynamic system wheie seconuaiy cieation is uefineu by a iecuisive stiuctuie foimeu by ueposits of saveis that aie put again into ciiculation as loans, geneiating expenuituie (con- sumption anu investment) anu new savings uepositeu in the banking system. Since we aie focusing in the stiuctuie of the money cieation piocess (anu not ueteimining money supply), foi the sake of simplicity we oveilook inteiest iates anu the flow of loan cancellation (which coulu be iep- iesenteu by an aiiow fiom Income to Cieuit), as well as othei types of ueposits (saving oi time ueposits) oi even moie complex cieuit instiuments like ueiivatives, swaps anu otheis (which weie in the veiy oiigins of the cuiient ciisis). The system is uepicteu in Figuie 1. INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 45-57 GROPPA 46 The uiagiam shows an initial flow (outsiue money) that is tiansfoimeu into cieuit. Cieuit, fiom the siue of the cieuit takei, is income that will be spent oi else saveu oi hoaiueu. The spent poition is anothei agents income (hence the iegiessive loop). But, given that consumption piopensity is less than 1, this "multipliei effect" (of expenuituie oi ue- manu, in this case) has uiminishing impact. The state vaii- able Saving accumulates savings geneiateu on each iounu of the spenuing multipliei. They aie enteieu in bank sys- tem as ueposits. Banks, aftei putting asiue an amount as ieseive, lenu them again, caiiying out a seconuaiy issuance that will satisfy uemanu foi cieuit. Thus, bank ieseives peifoim an entiopic function, as well as a positive net hoaiuing. The vaiiable Boaiuing is uistinguisheu fiom Sav- ings in oiuei to iemaik its uiveise function in ielation to the economic system. The fiist one expiesses the commu- nication with the "outsiue woilu", while the seconu one has a iole in the ciiculation anu inteinal ieuistiibution of monetaiy iesouices (allocating them, foi example, to in- vestment). Boaiuing opeiates as a buffei ieceiving leak- ages fiom the system. Bowevei, given that any hoaiuing will be consumeu at some futuie time, theie is a ietuining flow to the system that will take place in an unceitain uate. The magnituue of this cumulative vaiiable uepenus on the time agents want to keep theii savings outsiue the system, which is in tuin function of ieal inteiest iates paiu on sav- ings within the system anu on the ability to maintain the value of such amounts (e.g., by puichasing exteinal assets, pioviueu, of couise, that its value is not oveiestimateu, as in a financial bubble). The mouel is iueal in so fai as it ex- plains the stiuctuie of the money cieating piocess, without iefeience to the behavioui of ieal vaiiables. That is, the amount of cieuit issueu is ueteimineu by uemanu, which is heie an exogenous magnituue. Finally, notice that this sys- tem is uefineu by macioeconomic functions, anu not by types of actois oi cuiiencies. In othei woius, those func- tions may be peifoimeu using cash, e-money oi othei cui- iencies, whatsoevei. Theiefoie, the system has two instances of iecuision (oi "multiplieis"), which foim both geometiic seiies: spenuing anu monetaiy issuance. :4: >(0B/1 <C@0,..*(D Figuie 1 can be expiesseu as a simple system of uiffeience equations baseu on the uefinition of the vaiiables that compiise it. Foi simplicity, we assume that net hoaiuing is zeio: Wheie 8t is income geneiateu within the monetaiy cycle t; 9 is the maiginal piopensity to consume; :$ is velocity (with : assumeu to be fixeu), that is, the numbei of outlays peifoimeu by monetaiy cycle (t) with a same oiiginal in- come; Ci is cieuit; -; anu -< aie outsiue money (which at fiist is uata) anu insiue money, iespectively; anu =, uepos- its. The system can be summaiizeu as: INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 45-57 GROPPA 47 Figure 1. Diagram of money creation under capitalism (1) if only two cycles of issuance aie consiueieu. If it is uesiieu to extenu the time peiiou, so that theie weie incluueu w peiious of monetaiy iecuiience, the expiession takes the following foim: so that if :$ anu > tenu to infinity, which summaiizes the effects of both multiplieis. The uis- tiibution in time of the multipliei effect uepenus, theiefoie, on the velocity of ciiculation of money. E4 '7=FG<=<6%"&? '9&&<6'? $?$%<=$ E43 =/*D >,/+H0,. A CCS aims to cieate a submaiket wheie means of payment ciiculate, pieventing leakage fiom the system (ieuucing entiopy) anu hence maximizing local laboui. It opeiates as a soit of viitual maiket piotection. Peihaps an element that uistinguishes CCS fiom puie mu- tual cieuit systems is that the fiist ones function as an economy with a fixeu oi auministeieu exchange iate with ieseives to backup legal tenuei (foieign cuiiency anuoi some soit of commouity, like golu). This uesign facilitates the ieciuitment of membeis to the netwoik, since anyone who enteis is able to exit whenevei he wants, getting the money oiiginally uepositeu back (on payment of a tax that punishes withuiawals). Since theie is no financial inteimeuiation, CC confoim monetaiy systems with no ueposits (anu no bank ie- seives); hence, savings can be lent uiiectly fiom suiplus supplieis to cieuit uemanueis. In othei woius, to peifoim an economic opeiation any peison can obtain means of payment in two ways: eithei thiough uiiect lenuing of sui- plus income fiom a thiiu paity (which, stiictly speaking, woulu be a ieuistiibution), oi by cieating new money (piimaiy issue oi outsiue money). Insofai theie aie no incentives to the accumulation of suiplus income, almost all income is spent within a given lapse time, anu inteiest iates can be close to zeio. The monetaiy system is now simplei (see figuie 2 below). This means that now c =u anu, so, 8$ in (2) is laigei. As it is obvious, fiom the othei siue, to get a similai level of 8, a system with no insiue money neeus a gieatei piimaiy issue (-;). It shoulu be noteu that a monetaiy system is a stiuctuie of infoimation on ielative balances of membeis within an exchange community. What uistinguishes one system fiom anothei aie uesign featuies, such as the magnituue of ag- giegate imbalances that will be toleiateu (as well as theii aveiage uuiation), the magnituue of the imbalances each membei is alloweu to have (access to cieuit, its peiiou), the authoiity empoweieu to make such uecisions (banks, the community as a whole thiough any establisheu pioceuuie of social choice), ciiteiia unueilying those uecisions (iate of R0I NPv, oi, iathei, in viitue of values of a uiffeient natuie -social, ecological, etc.), oi what money iepiesents, that is, what is its ieal iefeience -the thing- oi, put in an- othei way, what kinu of suppoit it has (the woik of mem- beis, a thiiu cuiiency, a commouity, othei kinu of goous, assets oi membeis' piopeity). Bowevei, the benefits of the analyzeu uesign fiom the theoietical point of view aie paiticulaily qualifieu when analyzing the economic peifoimance of these subsystems. As it was mentioneu, the main objective of these expeii- ences is to ensuie local laboui. Thus, the effect fiom the macioeconomic stanupoint is limiteu (vasconcelos Fieiie 2u11, 126). The fact of not pioviuing laige cieuit amounts is also an impoitant baiiiei foi theii expansion. Actually, the laigest economic ciicle, the Swiss WIR, became a bank when auministiatois ueciueu to offei loans beyonu the meie ieuistiibution of suipluses among its membeis, that is, issuing means of exchange ovei the amount of open cieuit balances (cieating theiefoie insiue money) (Stuuei 1998). E4: =/)0(,)(D(B*) *B@/)+ (I ''$ The intiouuction of a CCS has many angles to be analyzeu iegaiuing its impact on the maiket. We mention paiticu- laily the effect on spenuing, inteiest, inflation anu business cycle. Beginning with the effect on total spenuing, a complemen- taiy cuiiency expanus aggiegate uemanu via an inciease in the spenuing multipliei. As noteu, by uiscouiaging the stoi- age of suipluses without application, maiginal piopensity to consume giows, piouucing an inciease in consumption anu the use of local laboui. That is, income is completely spent (within a given time lapse), so that Say's law is ful- filleu within the system. INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 45-57 GROPPA 48 (2) (3) (4) Let us see this foimally. When a complementaiy cuiiency is intiouuceu, ciiculation of legal tenuei is uiminisheu by the amount of money set asiue to suppoit the new monetaiy subsystem. Bowevei, total spenuing is incieaseu because consumption incieases in CC, as this has a lowei (aggie- gate) saving iate than legal tenuei (oi what is the same, a consumption piopensity that is on aveiage equal oi next to one). At any moment, ueposits (?i) aie a poition u of income (8). With @+9 = 1 we can expiess: wheie ?, aie new ueposits maue at the moment i, expiesseu as a piopoition @ of income (8) Now assume that at time k a poition of money in ciicula- tion is put asiue to suppoit a CC; consequently, spenuing on legal tenuei will be ieuuceu on that amount by uiminishing the aveiage saving iate (@), as seen below. Being 1 the numbei of agents, the aveiage savings iate of the economy is the aveiage saving iate of each membei weighteu by the piopoition between theii income anu total income. Bisciiminating two gioups uepenuing on the cuiiency useu, anu uefining AB7 as the piopoition of expenuituie on each cuiiency 7 foi eveiy agent B, weighteu by CB, savings in D will be uefineu by: wheie subsciipt 7 = 1 inuicates the piopoition of spenuing on legal tenuei, while the value 2 is the spenuing which uses complementaiy cuiiency. Bowevei, since @< tenus to zeio, given that theie is no incentive to the accumulation of savings in the subsystem: Fiom then onwaius, total expenuituie will be uone in two cuiiencies: being y the expenuituie uone in complementaiy cuiiency, anu !4!E the ielationship of piice inuexes in each system (legal tenuei anu complementaiy cuiiency, iespectively), which opeiates as a conveitei foi puichase powei paiity oi ieal exchange iate. It is expecteu that !4F!E > 1, given that complementaiy cuiiency has a limiteu scope. INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 45-57 GROPPA 49 Figure 2. Diagram of money creation in a mutual credit system (5) (6) (7) (8) 0n the othei hanu, the effect in time of the money multi- pliei will conuition expenuituie (Y) thiough the following expiession: So that, if in moment D a complementaiy cuiiency is intio- uuceu, the pievious expiession can be split in two peiious, anu expenuituie in legal tenuei will be conuitioneu by: wheie GD is the weight of the money ieseiveu as suppoit in teims of expenuituie till time k: so that at time D a ueciease (HD) of the amounts object of the iecuiience is piouuceu. It shoulu be iemembeieu, how- evei, that in this simplifieu mouel, we aie not accounting foi loan cancellations. Plainly, this flux woulu appeai sub- tiacting in the uenominatoi, so that the ieal impact (in monetaiy teims) of the intiouuction of a CC in an economy woulu be highei than the one iepiesenteu by this foimula. Then, in any cycle subsequent to D income will be: Analogously, foi activity uone in complementaiy cuiiency: since @< tenus to zeio within the CC subsystem. Bowevei, fiom the peiiou k+2, y uoes not lose the poition ieseiveu as backup, so that: Thus, unuei a bi-monetaiy system with CC, total spenuing (oi income, Y) is (in shoit teim) highei than the one which occuis unuei puie capitalist system because of the inciease in the piopensity to consume. As can be ueuuceu, intiouucing a CC opeiates as a ueciease in iates of inteiest via the ieuuction of the ielative weight of inteiests paiu in ielation to expenuituie, since inteiest iate is i= Inteiest amountY, anu, as was aigueu, Y=u<u*. Thus, the gieatei numbei of tiansactions initiateu in the same oiiginal loan (uue to inciease in the multipliei) ie- sults in a ieuuction of the aveiage amounts paiu as inteiest ielateu to spenuing oi, what is the same thing, that spenu- ing has a highei uegiee of leveiage in teims of cential bank's monetaiy base. This conclusion can be unueistoou fiom the opposite siue if CCS aie consiueieu as a scheme of coopeiative veitical integiation. In this sense, van Aikel, uiiectoi of STR0, men- tions an inteiesting example. Assume that NcBonalu's was uisjointeu between all its stages, that is, piouuction of in- puts, piouucts, seivices, fianchising, in so many sub com- panies as uepaitments exist. Eveiy small business must then obtain theii own financing foi theii investments, foi woiking capital anu even to establish contingency ieseives (paying an inteiest iate on loans), because it must pay its supplieis with money what befoie was uone by an inteinal compensation system. The tasks peifoimeu anu piouucts offeieu aie the same as befoie, but now they pay a much highei financial cost, which eventually enu up ieuucing the piouuct level. It is woith asking what happens when cuiiency suffeis fiom a high iate of inflation. In such a case the ieseive that suppoits complementaiy cuiiency will suffei a loss in its value, so that it will also opeiate as a uisincentive to get out of the netwoik. Bowevei, such a situation woulu mouify piice ielation against local system, spaiking foices that woulu offset that effect -via "leakage" oi "capital flight", equivalent to uevaluation (Pfjajfai et. al. 2u12). While cui- iency exchange between local cuiiency anu legal tenuei is geneially uiscouiageu (oi even piohibiteu), this piactice is all but inevitable if the tiauing community is laige, so that systems enu up functioning as a quite flexible exchange iate scheme. These netwoiks encouiage fuithei paitici- pants to peifoim theii tiaue in local cuiiency by 1uu%. Bowevei, neithei this auvice may be maue effective by coeicion, so that is one of theii weak points (Stuuei 1998). CCS can also peifoim financial tiansactions beyonu the task of offsetting uebits anu cieuits. If so, they can cieate money by lenuing. This is what WIR Bank, of Switzeilanu, uoes. This bank was boin in 19S4 as a consumei ciicle INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 45-57 GROPPA 50 (9) (10) (11) (12) (13) (14) staiting in 19S2 to issue auuitional cuiiency loans, anu chaiging a mouest inteiest (aiounu 2%) to covei loan losses (Stuuei 1998). In that yeai, WIR Bank ienounceu chaiging cieuit balances (known as uemuiiage), a uesell's iuea which aimeu at uiscouiaging hoaiuing. Cuiiently (2u1S), the maximum iatio of inteiest chaigeu by WIR is 1,8% foi meuium teim ueposits (see: www.wii.ch) WIR biings togethei Swiss SNEs. Stouuei (2uu9) founu that the evolution of activity in WIR cuiiency has a statistically sig- nificant counteicyclical behavioui (at least until 1974), what may be anu eviuence of the iole that CCS peifoim, cushioning exteinal shocks by a paitial anu viitual closuie of the economy, piotecting inteinal laboui. This featuie is peihaps the main attiaction of these expeiiences. The same occuis, howevei, when macioeconomic cycle iuns thiough an expansionaiy phase. Then ciicuit activity slows uown oi enteis uiiectly into a uoimant state. That might be occuiiing piesently with "Ciicuito Compias" ue- velopeu by the Social Tiaue 0iganisation (STR0) in Poito Alegie. The enoimous giowth Biazil showeu in the fiist uecaue of XXI centuiy ueteimineu that viitually no tiansac- tions weie iecoiueu ovei last yeais. In any case, it is iemaikable that complementaiy cuiien- cies may opeiate as counteicyclical uevices that viitually cl ose the economy (thiough i nsti tuti onal , non- uiscietionaiy, means) when it faces the onslaught of extei- nal constiaints oi shocks. The gieat baiiiei that such sys- tems must oveicome is in any case the necessity to ieach such a volume that uemanu of goous is met within the same netwoik. Finally, it shoulu be noticeu that the main featuie of piivate cuiiencies (also calleu "quasi-cuiiencies", because of its lack of geneial acceptance) is pioviuing what in teims of uiesham's law is "bau money", because they uo not seive as a stoie of value. As noteu by uesell (1916), the viitue of "bau" money is that it has gieatei ciiculation than the "goou" one, theiefoie enhancing economic activity anu avoiuing iecuiient ciises motivateu in unuei consumption. J4 $%&7 'E4 %;< <KF<&5<6'< 7> F96%7 %&"6$"''576<$ LF%M J43 N,D,0/1 I,/+H0,. Some of these featuies weie implementeu by STR0 in its CS systems. A CS system aims to integiating commeicial cieuit fiom pioviueis by implementing a netwoik of elec- tionic cuiiency payments. Foi this puipose, STR0 uevel- opeu the softwaie Cyclos which links all netwoik membeis' balances, facilitating the ciiculation of income anu opeiat- ing as ieal-time cleaiinghouse. The system allows making payments via mobile phones oi Posnet, so that it meets the mentioneu chaiacteiistics. Piopeily, CS uevice integiates into a unique exchange sys- tem commeicial cieuit (hence its name, Commeicial Cieuit Ciicuit, CS) oi cieuit fiom pioviueis, usual in oui econo- mies, so to conveit those cieuits into tiansfeiable iights ciiculating among netwoik membeis, in the way a check is enuoiseu. uiven that it uoes not ieceive ueposits noi offeis loans fiom such ueposits, it is excluueu fiom Bank Act. The system gives membeis the oppoitunity to have a guai- anteeu minimum uemanu foi theii piouucts oi offei uis- counts to customeis outsiue the netwoik, using paitial payment in CS cuiiency, thus maximizing the use of local laboi. This situation is cleaily seen if it is iemembeieu that complementaiy cuiiency cannot be useu to impoit oi as a stoie of value. Though theie is no stanuaiu foim of CS system, cuiiently theie exist ciicuits of this type implementeu in El Salvauoi (Punto Tiansacciones), Bonuuias (Reu Suchitoto, wheie notes aie useu) anu Poito Alegie, Biazil (Ciicuito Com- pias). 0veiall, membeis aie ueuicateu to tiaue anu seivice activities. In the following paiagiaphs, we will concentiate on the Punto Tiansacciones (PT) case. Punto Tiansacciones is a kinu of baitei oi CC system that woiks thiough Inteinet. It began opeiating in 2uu8 in the aiea of San Salvauoi. The netwoik was set up in oiuei to stiengthen small enteipiises in El Salvauoi. These fiims suffeieu fiom a lack of woiking capital anu at the same time they hau a piouuction capacity which they coulu com- pletely sell off. The methouology was baseu on an analysis of uiffeient netwoiks in Latin Ameiica anu Euiope anu with new in- sights fiom the Butch founuation STR0 it was auapteu foi small businesses in El Salvauoi. In the following yeais most small businesses associateu weie iunning out of cash uue to a shaip ueciease in sales as a consequence of the oveiall economic ciisis (see Figuie S). Theii cash flow situation ueteiioiateu iapiuly anu they coulu not get moie cieuit fiom the banks. Thiough this system, though, seveial companies coulu get the extia woiking capital neeueu. INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 45-57 GROPPA 51 Figure 3. El Salvador GDP (quarterly, annual variations) At the enu of 2u12, PT hau about Suu companies anu a hunuieu of inuiviuual consumeis affiliateu, opeiations having geneiateu the equivalent of neaily $ 2.2 million in the yeai. The numbei of membeis giows steauily in a lineai fashion (Figuie 4), as a iesult of a moueiation of the iate of affiliation of businesses in 2u12, anu a gieatei iate of inui- viuual membeiships fiom 2u11 onwaius (Figuie S). While the system still fails to covei opeiating costs, piojections inuicate that in 2u1S woulu become self-sustaining. In 2u12, a suivey between entiepieneuis founu that 6u% hau a significant inciease in sales (S4% saiu it uiu a little bit) anu about 7u% hau financeu opeiations with comple- mentaiy cuiiency. 0thei infoimation collecteu fiom the system uatabase is equally eloquent. If we analyze the evolution of the system in these eaily yeais, it can be seen that, even though 2uu9 was a yeai when uBP fell S.S points, total tuinovei within the netwoik giew anu continues giowing since it was launcheu in Apiil 2uu8 (Figuie 6). This inciease is uue to a iemaikable inciease in the num- bei of tiansactions, but also to an inciement in the aveiage value of puichases maue within the netwoik, paiticulaily fiom companies, which aie iesponsible foi 8u% of the op- eiations within the netwoik (Figuie 7). INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 45-57 GROPPA 52 Figure 4. PT members Figure 6. Total PT turnover Figure 7. Purchases in PT by rm and consumers Figure 5. PT members, individuals and companies The aveiage value of the uebit anu cieuit balances piesents a slight uiffeience in favoi of the lattei, which is offset by the gieatei numbei of membeis with a uebit balance. In oiuei to tackle with the possibility that membeis with cieuit balances maintaineu this situation in viitue of not finuing the goous anu seivices they neeu within the net- woik, the auministiation holus a cash funu, confoimeu by units paiu in cash. The cash is useu to buy goous outsiue the netwoik anu sell them to membeis with a high cieuit balance in units. By August 2u12, the funu amounteu to $SS,uuu. It is also woith noting a slight inciease of uebit positions with iespect to total tuinovei along these yeais. Neveithe- less, except in 2u11, when theie weie ieciuiteu many new membeis, it can be seen that by the enu of eveiy yeai, oi in the fiist quaitei of the following (like in 2u1u), membeis with a uebit iesult tenu to cleai theii positions (Figuie 9). Bowevei, this giowing tienu can be noticeu even if unspent balances by quaitei aie uiviueu by the numbei of membeis (Figuie 1u). This means that ovei time PT netwoik has expanueu the aveiage balance to be spent by each membei within the netwoik. Shoulu this tienu continue going, au- ministiatois woulu have to inteivene allowing, foi exam- ple, mutual loans chaigeu with a mouest inteiest (touay theie aie no inteiests oi chaiges paiu on cieuit oi uebit balances), so that those with cieuit balances lenu theii sui- pluses to those who uemanu extia cieuit, thus moueiating the iate of new issues anu pieventing the iisk of a bioau inciement in piices uue to ovei-issue. Anyway, it shoulu be stateu that cuiient situation is biaseu by the fact that the netwoik is still going thiough its initial anu expansionaiy phase. In a maximizing efficiency system, ciiteiia to uefine the amount of open unbalanceu positions ("tiansactions uemanu foi money", in Keynesian teims) shoulu be in pio- poition (in the limit, iuentical) to the total amount ex- changeu in a given peiiou (foi example, a uay, a month, etc.) In sum, while this uata must be followeu closely by aumin- istiatois, it is neeueu extia infoimation anu a moie exten- sive seiies to uiaw any uefinite conclusion. 0n this iegaiu, it shoulu also be taken into account that the piice system ieflects the ielative supplies of goous anu seivices within an exchange community in a given peiiou. Bence, to the extent that the supply of goous anu seivices within the netwoik uo not ieplicate the piopoition veiifieu in the official maiket, ielative piices within the netwoik shoulu be uiffeient. But, in that case, those with an auveise piice iatio will tenu to aibitiate buying anu selling outsiue the netwoik its inputs anu goous piouuceu with the benefit of a lowei financial cost within the netwoik. These aie the "canuiuates" to maintain open cieuit balances. INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 45-57 GROPPA 53 Figure 9. Debt position with respect to total turnover Figure 8. Firms with debit or credit balance, value and quantity Figure 10. Debt balance per member 0n the othei hanu, it is inteiesting to note the evolution of the numbei of customeis pei fiim. Fiom what is stateu above, it is eviuent that a mutual cieuit netwoik can only be sustaineu if theie is a well-establisheu economic inteiac- tion among membeis. In this sense, we see in Punto Tiansacciones a quiet lineai inciease, quaitei aftei quaitei, in the numbei of customeis pei fiim. Bowevei, this in- ciease is mainly uiiven by a limiteu numbei of companies, which is manifesteu in a high maximum numbei of clients ieacheu by some fiims (7u), but giowing stanuaiu uevia- tions of the seiies anu low meuian foi the uistiibution (9), inuicating that theie is still a significant maigin to giow fuithei in this sense. Conceining the channels useu foi opeiations, theie is a giowing tienu in the usage of SNS anu Posnet, in a context wheie tiansactions via web pieuominate. This inciease is noticeable in consumei puichases by non-membeis. If uata is analyzeu by sectoi of activity, the bulk of mem- beis is uistiibuteu between piofessional seivices (mainly, publicity, health seivices anu computei technical seivice), hotels anu iestauiants, anu inuustiy (automotive, giaphic, textile anu office supplies). In }uly 2u12, the uistiibution of the amounts exchangeu by categoiy of activity anu buyei (uebtoi) oi sellei (cieuitoi) position was as follows: Finally, it is woith noting that the appeal of complementaiy cuiiencies is that El Salvauoi has a uollaiizeu economy, so it lacks the possibility of uoing any monetaiy policy in case of an exteinal constiaint. J4: %-, .@,DO*DP BH1+*@1*,0 Q*+-*D F% D,+Q(0R As it was stateu, the main benefit of a CC is its powei to cushion exteinal shocks on a community. This goal is achieveu since a local cuiiency cannot be useu to tiansact outsiue the community. In the seconu section we have seen how the spenuing multipliei woulu be incieaseu fiom a theoietical point of view, given that theie aie no incentives to hoaiuing. In this paiagiaph we expose a pieliminaiy calculus of the spenuing multipliei within PT netwoik fol- lowing a uynamic methou. It was calculateu thiough a computei piogiam uevelopeu au hoc. Punto Tiansacciones uatabase iegisteis eveiy tiansaction maue, offeiing a lot of infoimation such as buyei anu sellei IB, amount of the op- eiation, chaiacteiistics of membeis, etc. (foi moie uetails, see Appenuix.) It was calculateu the final amount tiansacteu fiom each cieuit issue, the consequent value of the spenuing multi- pliei, the numbei of tiansactions involveu anu the time lapse until the oiiginal uebt is ieueemeu. Note that, as was explaineu, a same tiansaction may be incluueu in seveial ciicuits when the buyei uses his cieuit balance paitially. 0nfinisheu ciicuits, that is, cieuits that weie not totally ieueemeu (so that they aie still geneiating income within the netwoik), weie excluueu fiom the calculus so as to INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 45-57 GROPPA 54 Figure 11. Statistics of number of clients by rm Figure 12. Channels of payment Table 1. Distribution of traded volumes in PT, by sector of activity, 2012 (until July) Sector of activity As buyer As seller Construction 3.0% 2.6% Industry 12.6% 10.9% Commerce 9.8% 8.8% Hotels and restaurants 18.5% 15.8% Turism 0.4% 0.6% Education 1.0% 1.0% Professional Services 22.5% 21.0% Buseness Services 8.6% 7.1% Non Profit Org. 0.3% 0.3% Consumers 5.6% 6.1% Punto Trans 10.2% 18.7% N/D 7.5% 7.0% Authors elaboration on the database of PTrans Authors elaboration on the database of PTrans Authors elaboration on the database of PTrans avoiu a uownwaiu bias. The total numbei of ciicuits ana- lyzeu is SS2u. The uistiibutional uata of these vaiiables is the following: Percen- tiles Original amount Multiplied amount Multiplier Transac- tions Duration (days) 1% 0.4 0.4 1 1 0 5% 1.1 1.2 1 1 21 10% 2.0 2.3 1 1 53 25% 6.4 8.4 1 1 131 50% 28.2 49.5 1 1 317 75% 99.2 384.9 2.1 2 596.5 90% 280.5 11,443.6 131.5 243.5 820 95% 470.1 25,956.2 424.2 542.5 940 99% 1,478.4 73,136.8 3,482 1,406 1,151 Mean 119.1 4,352.7 191.5 88.2 386.3 Std. Dev. 342.7 16,454.3 2,410 313.1 294 The aveiage amount of tiansactions is equivalent to 0S$ 119.1, anu the aveiage multiplieu amount, of 0S$ 4,SSS. This yielus an aveiage spenuing multipliei of 191.S. Any- way, this value is equivocal, since the uistiibution is fai fiom being a noimal one. That is, tiansactions aie accumu- lateu in the left tail of the uistiibution. This can be seen in the pievious table since it shows that the meuian of the numbei of tiansactions oi the multipliei value is 1, what means that a half of cieuit issuances aie not multiplieu. They aie cancelleu out by a sale of a gieatei amount than the oiiginal uebt aftei new cieuits have been emitteu. If we excluue non-multiplieu cieuits, so that the exposition of uata is not biaseu by extieme values, the uistiibution of fiequencies of the spenuing multipliei takes the following foim (values tiuncateu at 1uu): J4E 7D +-, )(B@/0*.(D (I 8F$ /DO 1,P/1 +,DO,0 BH1+*S @1*,0. It is impoitant to iemaik that the kinu of analysis pei- foimeu heie (the fiist of this type, as fai as we aie awaie of) can be caiiieu out because of the utilization of elec- tionic money. In consequence, it is haiuly possible to com- paie these iesults with the peifoimance of legal tenuei maiket, since estimates of the velocity of ciiculation in this maiket in a stiict, uisaggiegate anu uynamic fashion cannot be maue uue to the lack of infoimation. We haven't got a tiack of the ciicuit any oiiginal issue peifoims. 0sually, estimates of the spenuing multipliei aie maue uepaiting fiom estimates of consumption piopensity. Anothei possi- bility is to ielate uioss Piouuction value to money issueu oi monetaiy liabilities. Bowevei, these methous uo not take into account the time lapse the ciicuit takes to com- plete its iounu. They aie static estimates. Actually, time is vaiiable within tiansactions anu has a uecisive impact on iesults. The uistiibution of the uuiation of each ciicuit (incluuing theii successive bianches) is shown in the following giaph: Regaiuing the methou to implement any compaiison, theie aie still othei obstacles to be oveicome. 0n the one siue, we lack estimates of auueu value within PT netwoik, but, on the othei, though theie aie available upuateu estimates of Salvauoiian uBP theie aie not upuateu figuies of aggiegate gioss piouuction value (uPv). The most iecent numbei is fiom 2uuS Economic Census. 0ui estimates will, then, use the iatio between uPvuBP in that souice, to get an esti- mate of uPv fiom 2uu8 to 2u12. Though these iesults may be biaseu, we uo not neeu an accuiate estimate but just an iuea of the oiuei of magnituue of the velocity of ciiculation. 0nce we have oui uPv estimate, we pioceeu to ielate it to money. In this concein, theie is also anothei iemaik that shoulu be uone. As it was explaineu, in official maiket money is issueu in a two-stage piocess. Since within PT netwoik theie is no insiue money, we will compaie uPv with both cash anu N2 (which incluues cash, cuiient ac- count, saving anu time ueposits). Actually, the seconu op- INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 45-57 GROPPA 55 Table 2. Distribution data of variables related to the spending multiplier Figure 13. Histogram of multiplier value Figure 14. Distribution of credit circuits by duration tion is moie accuiate, since the fiist one incluues not only spenuingu, but also money multipliei. Besiues, total tuinovei within PT netwoik neithei is stiictly compaiable with uPv, since PT netwoik uoes not incluue the totality of stages of eveiy value chain, noi uoes it in- cluue ciitical biaches of Salvauoiian economy, like Agiicul- tuial sectoi, oi, by its veiy uefinition, financial sectoi. Be- siues, uata of final oi inteimeuiate "impoit" goous anu seivices (that is, piouuceu in the official maiket but solu within PT netwoik) is not available in the uatabase. Finally, the fact that the netwoik is still in its expansion yeais woulu be anothei souice of noise. The iesults aie as follow (figuies in millions): Year GPV Money supply (M2) Spend- ing Mul- tiplier Cash Spend- ing Mul- tiplier 2008 48,220 8,247.19 5.8 1,662 29.0 2009 46,487 8,317.16 5.6 1,775 26.2 2010 48,191 8,615.16 5.6 2,134 22.6 2011 51,964 8,644.08 6.0 2,382 21.8 2012 53,520 8,741.27 6.1 2,467 21.7 Source: authors estimates based on Salvadorian Central Bank of Reserves data (Ingreso Nacional Dis- ponible and Panorama monetario) and 2005 Economic Census. Source: authors estimates based on Salvadorian Central Bank of Reserves data (Ingreso Nacional Dis- ponible and Panorama monetario) and 2005 Economic Census. Source: authors estimates based on Salvadorian Central Bank of Reserves data (Ingreso Nacional Dis- ponible and Panorama monetario) and 2005 Economic Census. Source: authors estimates based on Salvadorian Central Bank of Reserves data (Ingreso Nacional Dis- ponible and Panorama monetario) and 2005 Economic Census. Source: authors estimates based on Salvadorian Central Bank of Reserves data (Ingreso Nacional Dis- ponible and Panorama monetario) and 2005 Economic Census. Source: authors estimates based on Salvadorian Central Bank of Reserves data (Ingreso Nacional Dis- ponible and Panorama monetario) and 2005 Economic Census. As it was noteu, seveial conuitions iestiict the compaiison between the spenuing multipliei calculateu thiough both uiffeient methous, within PT netwoik anu in legal tenuei maiket, iespectively. Anyhow, the iesults exposeu show some eviuence in favoi of the thesis sustaineu along this woik, that complementaiy cuiiencies enhance ciiculation of money compaieu with legal tenuei maiket. Bowevei, these iesults shoulu be taken piuuently anu moie ieseaich is neeueu to uiaw uefinite conclusions. As it was shown, theie is a significant amount of uebit open bal- ances within PT netwoik (anu even a giowing tienu in these fiist expansion yeais if they aie ielateu to total tuin- ovei). This means that theie aie many tiansactions that aie not computeu in the uynamic methou of calculus, since it only takes into account cancelleu ciicuits, which woulu be actually incluueu if the static estimate was useu. T4 '76'G9$576$ Complementaiy cuiiencies may be a useful tool foi local uevelopment, in so fai as they geneiate an augment of the uemanu multipliei. The cieation anu maintenance of such systems, howevei, is not exempt fiom uifficulties. Anyhow, the uevelopment of new technologies is gieatly facilitating theii uevelopment. The ease of access to the means of ex- change can be of gieat impoitance foi uevelopment, pai- ticulaily its effect on ieuucing inteiest iates. Naybe, unuei the cuiient context of global economic ieces- sion, with inteiest iates close to zeio, the benefits of these systems uo not seem so manifest. Neveitheless, the fact of having a uiiect link with the ieal economy anu of limiting financial complexity thiough successive leveiages pioviues a guaiantee against volatility anu even helps cential bank policy by its expansionaiy effect on aggiegate uemanu. In pait this situation is cuiiently being expeiienceu by global economy: with minimum inteiest iates, speculation oppoi- tunities aie ieuuceu, anu with them the chains of leveiage that aie peimanent souice of systemic iisk. Bowevei, the liquiuity-tiap context of cential economies pievents aggie- gate uemanu fiom ieacting to monetaiy impulses. Peihaps it's time foi complementaiy cuiiencies. As seen in Longhuist anu Seyfang (2u11), they aie an alteinative that many communities finu to piotect local laboui fiom au- veise effects which aie not theii iesponsibility, but which they suffei as victims. In this iespect, the case of Punto Tiansacciones, in El Sal- vauoi, seems to be illustiating seveial of the facts pie- vieweu by theoiy. Activity within the netwoik incieases in spite of the low giowth (oi even the ietiaction) expeii- enceu by Salvauoiian economy, small companies access to cheap cieuit, anu so they see how theii sales giow, etc. Fiom a macioeconomic stanupoint, a CCS boosts the spenu- ing multipliei, which means that the use of local laboui will be maximizeu. To get a cleai explanation of this featuie was the goal of the piesent papei. Ceitain eviuence that sup- poits what theoiy pieuicts was also exposeu by calculating the spenuing multipliei in Punto Tiansacciones baitei netwoik anu compaiing it with an estimate of official money multipliei. In times when local communities aie being shockeu by the suuuen gusts of capital movements, complementaiy cui- iencies appeai to be a feasible uefence at hanu. #5#G57N&"F;? Bienes, Eiik (2u11) 'Complementaiy Cuiiencies foi Sustainable Local Economies in Cential Ameiica'. 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Salvadorian Economy: spending multiplier esti- mates Systems, with a focus on uecision making'. Inteinational }ouinal of Community Cuiiency Reseaich 2 Lepofsky, }onathan (2uuS) 'Belping Eveiyone Bave PLENTY: Au- uiessing Bistiibution anu Ciiculation in an B00RS-baseu Local Cuiiency System'. Inteinational }ouinal of Community Cuiiency Reseaich 9, 1-2u Lietaei, Beinaiu (2uu4) 'Complementaiy Cuiiencies in }apan To- uay: Bistoiy, 0iiginality anu Relevance'. Inteinational }ouinal of Community Cuiiency Reseaich 8,1-2S Longhuist, Noel y Seyfang, uill (eus.) (2u11) 'Complementaiy Cui- iencies: State 0f The Ait'. Inteinational }ouinal of Community Cuiiency Reseaich 1S (2u11). Pfajfai, Bamjan, uiovanni Sgio, anu Wolf Wagnei (2u12) 'Aie Al- teinative Cuiiencies A Substitute oi a Complement to Fiat Noney. Eviuence fiom Cioss-Countiy Bata'. Inteinational }ouinal of Com- munity Cuiiency Reseaich 16 (A) 4S-S6. Schiaven, }oiim (2uuu) 'The Economics of Local Exchange anu Tiauing Systems: a Theoietical Peispective'. Inteinational }ouinal of Community Cuiiencies Reseaich 4 (2uuu) S. Schioeuei, Rolf F. B. (2uu2) 'Talente Tauschiing Bannovei (TTB): Expeiiences of a ueiman LETS anu the ielevance of theoietical ieflections'. Inteinational }ouinal of Community Cuiiencies Re- seaich 6 (2uu2). Schioeuei, Rolf F. B. (2uu6) 'Community Exchange anu Tiauing Systems in ueimany'. Inteinational }ouinal of Community Cui- iency Reseaich. 1u (2uu6) 24-42. Stouuei, }ames (2uu9) 'Complementaiy cieuit netwoiks anu mac- ioeconomic stability: Switzeilanu's Wiitschaftsiing'. }ouinal of Economic Behavioi 0iganization 72 (1) 79-9S. Stouuei, }ames (1998) 'Coipoiate Baitei anu Economic Stabilisation'.Inteinational }ouinal of Community Cuiiencies Re- seaich 2 (1998) Stuuei, Tobias (1998) WIR anu the Swiss National Economy (Basi- lea). |English tianslation: Ph. B. Beaiuj Tobin, }ames (196S) 'Commeicial Banks as Cieatois of 'Noney'. In Caison, Beane (Eu.) Banking anu Nonetaiy Stuuies (Bomewoou: Richaiu B. Iiwin) pp. 4u8-419. vasconcelos Fieiie, Naiusa (2u11) 'Noeuas Sociais: Contiibuto em Piol ue um Naico Legal e Regulatiio paia as Noeuas Sociais Cii- culantes Locais no Biasil', Boctoial uisseitation, LSE. INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 45-57 GROPPA 57