- Feasta is making a determined effort to set up a system that allows participants to exchange goods and services with each other without anyone going into debt. Although our system will operate in parallel with the existing money system, it will not be a money system (See Note 1). The units used within our system will be units of measure analogous to kilos or metres. Like these measures, they will have no intrinsic value and will only operate as a counting device to give participants a way of comparing and expressing the value of the goods and services being exchanged and ensuring that some participants do not take more value from the system than they put in. Participants will not own the units in their account at any time.
The proposed system is urgently needed because the current debt-based money creation system is failing and, in any case, is unsuited to a world in which the total value of trade being done in a year is more likely to contract than expand. If trading in a contracting economy is to stabilise at a level which at least allows basic needs to be met, the introduction of a new exchange system which is not based on the continued willingness of people to go into debt is required.
- The new exchange system will be owned and controlled by the participants as it is they who give its units their value. It is envisaged that the users will elect a management committee which will operate under a trust deed setting out the basis on which the system is to be run. It is also envisaged that the management committee will operate the system through the commercial banks, who will set up and maintain quid accounts if their regular accountholders request them.
- As the system's aim is to give participants the liquidity they need to be able to trade with each other, it is to be called the Liquidity Network. Its units are to be called "quid".
- As currently envisaged, the system will be launched in conjunction with one or more of the Dublin local authorities. A Currency Trust will be set up both to represent the interests of all the currency's users and to work with banks, retailers, the unions and the councils to set up the system. If Dublin City Council is taken as an example, when everything was ready to go, the Trust would authorise the council to spend, say, €75 million into use over the course of a year by paying 10% of its wages and salary bill (approx €400 million annually) and 10% of its other costs (€350 million excluding loan and mandatory charges) in quid. The Trust would have already got the agreement from those involved to accept payment this way and the banks would already have special accounts open to receive them. The council would announce that it was prepared to accept the new unit at par with the euro in payment of its charges. These amount to about €380 million a year, of which almost €100 million is business rates. Since businesses would know that they could pay their rates in quid, they would accept them in payment of their bills, and if major retailers accepted quid, workers would be happy to be paid in them too.
- If the system worked as expected, the €75 million would be a free gift to the council, a reward for piloting the system. If the system failed to take off, the only obligation on the councils would be to take back in payment for their local charges as many quid as they had spent into circulation. So the worst outcome for the councils would be what they hoped would be a free gift turned out to be an interest-free loan.
- Quid will only exist electronically. There will be no notes and coins, as small transactions can be carried out in euro currency. Nor will there be cheques. Transfers between accounts will be by mobile phone, a Laser card or equivalent, and by standard e-banking methods.
- Once trading begins, the velocity of circulation in each account will be monitored by the system's software and, if an account's velocity is tending to rise, more quid will be assigned to that account. If the velocity is falling, quid will be removed. Accountholders will be provided with information so that they can know when to expect quid to be added or removed. The overall number of quid in the system will be adjusted by the Trust to keep them scarce in relation to the total amount of trading going on and thus maintain their value.
- Quid must not be used for capital investment. Funding for that must be sought in the conventional money system. The network is to provide working capital rather than investment capital.
- No credit will be extended in the system. Accounts will not be allowed to go into deficit. Credit will be avoided in the following way. A participant dispatching goods or providing services to another member of the network will issue an invoice immediately the goods are dispatched or the services performed and enter the charge against the customer's account in the way hotels sometimes do with credit cards to ensure that their bill will be paid. The quid involved will be placed in escrow and will no longer be available to the accountholder for other trades. When the goods have arrived and been checked, the recipient will notify the system that the sum held in escrow should be released to the supplier's account.
- If the local authorities ever ceased to accept a quid as equal to a euro, it would be impossible to prevent an exchange rate developing between the quid and conventional currencies The Trust will, however, never sell quid for euros or euros for quid. It will not recognise any parity. Exchange rates are for others to determine.
- The Network members will pay, in quid, a percentage of their monthly turnover to cover the system's operating costs. The management committee will set these charges.
- Taxes on transactions in quid such as VAT will be paid instantaneously in quid to a special account held by the local authority in whose area the trade was made. Businesses registered for VAT will get an immediate refund of their VAT payment. Similarly, income tax on quid wage and salary payments will be paid automatically in quid to the local authority account. It is up to the local authority, the |Revenue and the government to offset the income from these payments against the euros the government would have paid it from central funds during the year.
Quid will not be "money" in a strict (ie legal) sense. One dictionary requires money to be legal tender that is, a form of payment that, by law, cannot be refused in settlement of a debt (ie the debtor cannot successfully be sued for non-payment). Quid will not be legal tender. Wikipedia defines money as "anything that is generally accepted as payment for goods and services and repayment of debts." Quid will not be "generally accepted" as only accountholders will be able to take and use it. Nor will it be used for the repayment of debts, since no debts will arise in the proposed system.
The system will be designed so that the Network is not a credit institution as defined by the EU as this would allow it to stay outside the mass of regulations governing such institutions. It should not be difficult to avoid being a credit institution as Directive 2000/12/EC(5) says "credit institution" shall mean "an undertaking whose business is to receive deposits or other repayable funds from the public and to grant credits for its own account" and our system would neither receive deposits from the public nor grant itself credit. It will not be possible to purchase quid from the system. (Such a purchase might count as a deposit) Nor will quid be cashable. If someone had more quid in their account than had been issued to them during its operation when they came to close it, they would not be paid anything for them by the system. If they wished to get value for them they would have to use them to buy goods and services from other participants.
The design must also avoid the Liquidity Network being classified as an "electronic money institution" when private individuals begin to operate accounts and use their mobile phones to transfer quid. This is because, amongst other impediments, the Network would have to have €1m. capital under Article 4 of Directive 2000/46/EC. However, the risk that the Network will be classified as such seems small because:
The Directive says that electronic money institutions have to be credit institutions and that "Member States shall prohibit persons or undertakings that are not credit institutions, as defined in Article 1, point 1,first subparagraph of Directive 2000/12/EC, from carrying on the business of issuing electronic money."
Quid fall outside the definition of electronic money. Electronic money is defined by the Directive as something which is
(i) stored on an electronic device;
(ii) issued on receipt of funds of an amount not less in value than the monetary value issued;
(iii) accepted as means of payment by undertakings other than the issuer.
Quid will meet criterion (iii) but not (I) or (ii) because they will not, as presently planned, be stored on a mobile phone, nor will they be issued in exchange for conventional money. All the units will be given into circulation. They will not be sold into use.
The Directive says that "electronic money can be considered an electronic surrogate for coins and banknotes, which is stored on an electronic device such as a chip card or computer memory and which is generally intended for the purpose of effecting electronic payments of limited amounts." Quid will replace more than notes and coins and be used for large transactions.
The Directive says that "It is necessary for electronic money to be redeemable to ensure bearer confidence. Redeemability should always be understood to be at par value." Quid will not be redeemable, since no money will have been paid for them. They will not have a par value.
January 2009 version
Discussion forum for the Liquidity Network