A tale of two currencies: the euro and Argentinian peso compared (2002)

It was the best of times, it was the worst of times. — Charles Dickens

The euro coins and notes were introduced on 1 January, with mildly euphoric expectations of a new era for Europe. The national currencies of twelve countries, which had been linked together for some time, now ceased to be legal tender, being replaced by what is in effect a federal state currency like the dollar. By contrast, at the other end of the world in Argentina, the crisis of the peso, which is linked to the dollar, provoked a proposal for a parallel currency, the argentino. This lasted no longer than Adolfo Rodriguez Saa, one of five presidents in less than two weeks, who announced it. Then the peso itself was made new, this time at a dollar price 30 percent lower than before.

Both cases are an admission of the failure of national currencies and involve coining new currencies to remedy this. I would like to reflect here on some inadequacies of national currencies and the possibility that their eventual failure can and does open avenues for ordinary citizens to take initiatives in their own hands with community currency systems. Such a topic is worthy of anthropological investigation, which is why I am writing a book about it.

Kublai Khan pioneered state money as worthless scrip, when he issued a currency made from mulberry bark imprinted with his seal. Refusal to accept it carried the death penalty. An impressive public works programme, including a new capital, was financed in this way. Foreign traders, however, preferred commodity money containing precious metals whose real asset value was recognized across political borders. Marco Polo tells us that the Khan tried to pay him too in bark currency, but he managed to get away with some real money and his life.

As during Kublai Khan’s time, states cannot always prescribe their own money for all transactions. Indeed, in the face of economic globalization, state control over national currencies is weakening, prompting the move to the euro, the dollar and the yen, as well as the failure of the peso which had already made that move. Currencies not absorbed by the euro, such as the Swedish kroner and the British pound, are part of this monetary experiment whether they like it or not. Willem Wolters’ piece on the euro (Anthropology Today 17,6) stimulated me to reflect, in the light of the obvious limitations of national currencies, on the options available besides joining ever larger currency blocs. Might the deficiencies of central bank money improve prospects for the take-up of community currencies? What might money issued directly by and for the people look like?

The euro

On Friday, I was stopped outside the Banque de France by a platoon of soldiers, armed to the teeth, guarding a shipment of euros. An indomitable old lady — white hair, shades, big fur coat and sensible shoes — ignored them and kept on walking. They let her pass. The euro is protected by the combined armies of twelve states, I thought, but they can’t stop a Parisian matriarch in her stride. The whole charade — guns guarding this stuff, our money, from us, the people — was redeemed by one person confident enough in herself to call their bluff.

I live in what I like to think of as the Amsterdam-Brussels-Paris-Geneva-Milan corridor, a world of public order, fast trains and multi-lingual people. The French press this week celebrated a European unity more complete than any known since the Roman empire. The euro leads to a United States of Europe and offers us the best chance yet of limiting the excesses of national governments. The banks did their best to slow the change down, of course: serving only their own customers, ATMs out of order, levying foreign transaction charges on euro cheques from other countries. But then the habit of supping copiously at the trough of national monopoly money dies hard. The television news had shots of bemused but happy punters fingering their euros in supermarket queues. There was no economic analysis. The birth of the euro was a practical matter of handling change; but above all it was a political symbol — apparently some people did not spend the starter kit, but made a display with it on their living room table.

The economic implications of introducing the euro have as yet hardly been considered. The euro’s management is likely to be less democratically accountable to the public even than its national precursors. The twelve central bank governors of the participating countries represent what is in effect a league of states. The euro may not be a national currency, but it does aim to be a federal state currency, like the dollar. The essence of state money is that currency of little or no worth is offered to a people by the government in payment for real goods and services, as the sole legal means of exchange within the territory and with the obligation to pay taxes on all transactions using it. Central banks jealously guard the national monopoly, policing the banks who actually issue most of the money and restricting circulation of rival currencies to narrow spheres of exchange.

The legacy of Maastricht is that the economic destiny of 300 million Europeans is now tied to the fortunes of a single currency whose management cannot possibly meet their varied needs and interests. The euro is in principle a throwback to the Bretton Woods era of fixed parity exchange rates, at least for the participating countries, and it does not take much imagination to figure out that the deflationary consequences for some parts of the European economy might be occasionally unpleasant. The constituent governments of Euroland will come under pressure from their own people for more flexible instruments of economic management. The euro cannot do the job all by itself. National monopolies of money have in any case only been around since the 1850s. Now would be a good time to recognize the need for a variety of monetary instruments, for as many in fact as our communities.

The peso

Europe is stable and prosperous, as Argentina was once; around 1900 Argentina had the sixth highest per capita national income in the world and was considered to be a potential rival to the United States. But today the monetary crisis there could lead to civil war. At the beginning of the 90s, the peso was pegged to the dollar as a way of ending hyper-inflation. This produced a measure of economic success for a while, but Argentina’s ruling elite has a world-class record for fiscal irresponsibility and it soon piled up $132 billion in national debt. The peso was overvalued, trading in New York at three-quarters the official rate. Argentinians acquired debts in dollars and on every street corner pesos were off-loaded for dollars. Local products became uncompetitive and were replaced by imports, leading to a deflationary downward spiral. Liquidity, cash in circulation, became even more scarce than usual and provincial governments issued their own money as interest-bearing bonds.

The argentino was proposed as the nationalization of these provincial currencies (not in the form of bonds, but as paper paying no interest). It was hoped that this measure would provide interim purchasing power while the government worked out how to devalue the peso without triggering off hyper-inflation. But who would buy money from this government? The idea was quickly dropped. And a drastic devaluation could be postponed no longer.

Ordinary citizens floated their own ‘social money’ in the late 90s, forming an association, Red Global de Trueque Solidario (Global Solidarity Barter Network or RGTS), which issued 15 million currency units (creditos) and then split into a more money-minded organization, Red Global de Trueque, and one stressing egalitarian community, Red del Trueque Solidario. The RGTS credits are a single-issuer scrip like the national currencies that they aim to complement. They are given away or bought cheaply as tokens of exchange within a closed circuit. These and the provincial government experiments in local currency are a response to the rigidity of the fixed dollar exchange rate which squeezed the life out of the domestic economy, when profligate debt and capital flight made devaluation inevitable.

The member states of Euroland and the Argentinians are acutely aware of the inadequacies of national currencies. Both are taking extreme measures to address these, but, whereas they have been forced upon Argentina, the Europeans have been proactive in anticipating them. Dollarization and euro-ization, becoming members of larger currency blocs, are both ways of trying to cope with ‘the markets’ — the global tide of virtual money which threatens to swamp the independence of national economies.

Community currencies

But, as Wolters rightly suggests, there are other ways of addressing the failures and inadequacies of national currencies. Community currencies are complementary to conventional money, being issued by voluntary associations constituted as networks. They have come a long way in the last two decades since Michael Linton invented LETS in British Columbia. The idea of LETS is that any network can constitute itself as a community of exchange by nominating a currency and recording all transactions through a central register. The totality of transactions at any time sums to zero. The money is issued by all the members, whenever any of them has a negative balance. They make a promise to honour such commitments in future. The loss of individual members to the circuit does not impede the ability of the others to trade, as it does when the supply from a single issuer dries up. The currency itself is simply a virtual measure. It has no commodity value, therefore no price (interest), no reason to become scarce nor to be hoarded.

Most LETS systems to date are unique, self-sufficient organizations providing a minor economic alternative without, as Wolters implies, much prospect of replacing the role of conventional money and markets in our lives. But recent developments, especially in the use of information technologies, have made community currencies a faster, cheaper and more effective means of carrying out normal commerce. Smart cards registering transactions in up to fifteen currencies, linked to businesses and non-profit organizations as well as individuals, allow these circuits to become integrated into the market economy. National domain name systems and multiple currency clearing platforms open the way for the banks to handle LETS business (although none has yet done so). Community currencies also offer one solution to the problem of electronic micro-payments, a possibility being explored with the European Commission at this time. In Japan large corporations are participating with grassroots democratic organizations in LETS experiments. A collaborative project of software engineering and social innovation is maturing to the point where talk of a revolution in money is not just the self-deluding hype of enthusiasts.

The desperate attempts of Argentinians to maintain a market economy in the absence of liquidity evokes nothing so much as the Social Credit movement in North America during the Great Depression. The result was that citizens, the provincial governments and the state all experimented with new currencies. Within Europe, as well as in North America and Japan, where the economic climate is generally not yet so dire, the community currency movement is also picking up momentum. So far LETS systems and others like them offer a limited economic opportunity, complementary to the conventional economy. A combination of improved technology and economic failure might be the stimulus they need to gain wider acceptance.

Eastern European countries joining the euro later, with its single centralized exchange rate, may find themselves in a bind similar to the dollar/peso arrangement. The same could happen with Europe’s diversified regions and, unlike in the states of the USA, there are national bureaucracies keen to measure these effects. This in turn should lead us to explore a variety of social mechanisms for organizing money, rather than rely on just one. Ironically, by suppressing their national currencies, some EU countries may encourage the formation of parallel exchange circuits, employing virtual deutschmarks or francs as community currencies. We have already seen that Argentinians have started creating their own money at several levels of society. In his article on the euro (Anthropology Today December 2001 ), Willem Wolters suggested that community currencies are a topic of intrinsic interest to anthropologists. I agree. They point to a fundamental reassessment of the conditions for economic democracy contained in relations between states, people and money.

Radical change today hinges on the digital revolution. But the forms of money are only superficially technical: notes, coins, cheques, plastic, digits. The most important forms are social and, after several thousand years of only two kinds (commodity money and state money in various combinations), it takes some effort to embrace another, people’s money. Willem Wolters’ essay drew our attention to the growing separation between society and landed power. I have suggested that embracing community currencies as a complement to national or federal money would enable us to take fuller advantage of that potential.

The euro involves only a limited break with the territorial principle. Its logic is still that of a central bank monopoly within an expanded territory. There are other democratic possibilities. We can make our own money rather than pay for the privilege of receiving it from our rulers. Europeans may not yet be reduced to the desperate measures of the Argentinians, but we too have some way to go before we can afford to rest content with the money forms at our disposal.

Paris, 8th January 2002



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Category: Money