Short on Money, Cities Around the World Try Making Their Own | Hacker News Reader

Short on Money, Cities Around the World Try Making Their Own

bloomberg.com

70 pointswalterbell79 comments

I remember reading an economic history book and they mentioned that the Spanish bringing gold to Europe from the Americas stimulated the European economy, and it struck me all at once that basically none of the economic activity in Europe required gold (they weren't making intricate electronics, after all). Growing food, making clothes, tools, shelter, it all could have been done without the gold. What they needed was "money" that everyone believed was valuable in order to convince people to do work. It's the work that causes prosperity, not the gold.

I think local currency can function similarly. A lot of people in small towns struggle to turn their skills into dollars, partly because the modern economy values a lot of stuff rather weirdly. Just because their skills aren't easily translatable into dollars globally doesn't mean that they can't still make their local community a much better place, provided there's a way for someone in the local community to communicate that they value the service (which they can't do using dollars, because they also don't have any).

>the Spanish bringing gold to Europe from the Americas stimulated the European economy

"Stimulated the economy" is a choice way of looking at it. What it did was create a period of inflation on a scale of size and duration never before seen. It basically led to the decline of Spain as a major world power.

https://en.m.wikipedia.org/wiki/Price_revolution

Interesting! Thank you for the link.

I've just finished Stephanie Kelton's book on modern monetary theory (MMT), The Deficit Myth, which says much the same thing about any fiat currency: The issuer of a fiat currency is not bound by the same constraints as users of that currency. I'm not quite convinced (although I'm no economist), but it was an interesting "read" (audiobook).

The Deficit Myth: https://www.amazon.com/Deficit-Myth-Monetary-Peoples-Economy... (not an affiliate link)

A good MMT primer seems to be a Vox article by Dylan Matthews (TIL he's the son of Jim Matthews, creator of the Fetch FTP client), at https://www.vox.com/future-perfect/2019/4/16/18251646/modern...

Demand for gold primarily was due to trade with Asia. The problem wasn't that people didn't have gold to trade in their local communities. Local economies rarely relied on coinage during this time. They use an informal credit system on the small scales (like IOUs).

The Asian thirst for precious metals was driven by high internal use of coinage where for Europe, it was mostly to buy things from Asia. As the European gold balances dropped, they sought other sources from Africa and later from the Americas to continue trade.

You can learn more here: https://en.wikipedia.org/wiki/Great_Bullion_Famine

If you're really interested, I recommend "Debt" by David Graeber

The modern rebirth of local currencies was probably the Austrian town of Wörgl which having been hit badly by the Great Depression recovered magnificently after creating its own local currency in 1932. The currency was so successful it was later forcibly shut down by Austria's Central Bank.

https://en.wikipedia.org/wiki/W%C3%B6rgl

It's amazing how well a society can function, if you ensure that the money that circulates in it doesn't leak out of it, fueling further investment and purchases. I think it's worth actually re-examining our view of globalization and global trade with this in mind.

I'm no economist, but wouldn't this lead to greater wealth disparity?

When money leaks out, it leaks in to somewhere else. Sort of like connecting bodies of water will lower the water level of one body and raise it in another. One place will lose out and another will gain.

Unless differences in local taxation/laws/amenities/other lead to wealth/poverty hotspots. With some areas vacuuming up wealth and others repelling it. Is that what this is really solving? Unable to compete on local taxation/laws/amenities/other, cities have to find another way to prevent their wealth being repelled.

Sounds like just another wall though. Which can surely never last

Like entropy, wouldn’t this lead to greater disparity in the short term but uniformness in the long run?

To stay in the metaphor, what if a group of people discovered how to create negative pressure? This means they know how to suck money out of a community, probably to enrich themselves.

With the experience of the Euro and the vastly different countries under different legislation, I think this is far too naive.

The common currency was a bad decision in my opinion. Sure, now legislation is getting "normalized" (I love the jargon), so that nobody is happy with it anymore. I don't think I would want that for anybody. It is like a marriage that doesn't really work.

Complete detachment of capital that was created in one place is not a great idea. That doesn't mean other places cannot grow and it doesn't mean there is no exchange.

The Euro was and is not as bad IMO as many people make it to be. I'm half Croat, half German and I remember when visiting Croatia pre-Euro rollout that you had to do three currency exchanges along the trip - from Deutsche Mark to Austrian Schilling to Slovenian Tolar to Croatian Kuna. Today? It's only the Croatian Kuna which is probably going away in 2023-2025. Everywhere else I can pay with a credit card without paying any "currency conversion" fees or exchange rates far away from actual market rates. And especially you don't lose hours upon hours on useless border control any more (with the exception of the SL-HR border and the idiocy at the German border).

And it's not just tourism. Euro + SEPA + free movement between countries are what fueled the growth of the European economy pre-rona. That all of this got attacked in the recent years (no matter if Italy/Greece threatening/being threatened with Euro removal or Germany's Seehofer introducing border controls again to "combat immigration" aka get rid of refugees) is saddening.

The people who want to dial back European unification are going to cost Europe a lot, especially the ability to compete with the US on the global stage.

Do note that this does not mean there are no problems relating to the Euro - especially the economic disparity between the powerhouses Germany/France and the (South) Eastern European countries - but these should be solved by wealth transfers and nation building, not by risking all progress of the last decades!

Eliminating the costs of currency conversion was the most obvious change for the average European, and very welcome. But economically it was insignificant compared to the effects of establishing a common monetary policy.

Remain-voting Briton here.

The Euro has nothing to do with border control or free movement, free trade, standardisation or fishing quotas. It has nothing to do with immigration policy, the Dublin treaty, or even the Maastricht treaty.

There is no doubt that central European monetary policy has harmed Italy and Greece. It likely contributed to the Catalonian vote for independence, too and is also squeezing Portugal in ways that are making the citizenship sit up and take notice.

Britain was successfully showing it was possible to have free movement & trade and significant collaboration inside the EU's organisations and projects without a single currency or monetary policy.

Sadly, the Dublin treaty was not being enforced that led - and still leads to this very day - to hysterical media coverage that turned public opinion against the whole project. The EU's inability to flex on that was one of many contributory factors to the Brexit vote, but so was the drive for tighter political and economic unification.

That is now causing other countries to have their own exit movements gain attention. If the EU does not pull back there is a real risk those movements will gain more momentum and the project will end.

People aren't interested in competing with the US on the global stage. They want a home, a family and fulfilling work and social lives. The technocrats trying to wave their genitals don't care about the damage they do, as long as the EU rises in league tables with ever bigger numbers.

I believe a reformed EU is the only future where we get any of the benefits of the original ideals. It's not clear to me you need to have a common currency to do that. It's not even clear to me you need a Parliament to do that, never mind one that moves between two cities regularly.

It leaks into crusty oligarch coffins

> fueling further investment and purchases

Well, yes; this is standard velocity of money stuff. It is detrimental to the economy to hoard money, and even more in a ""hard money"" situation to hoard the hard money, whether that turns out to be gold and silver or just dollars in a collapsing non-dollar country.

But if you try to close the economy as a result you end up with mercantilism, and having to forgo all sorts of opportunities for cheaper, better products because you have to buy from the local entrenched elite producers instead.

Plus it basically doesn't work in the oil age for most countries because they have to import oil.

>if you ensure that the money that circulates in it doesn't leak out of it, fueling further investment and purchases. I think it's worth actually re-examining our view of globalization and global trade with this in mind.

Where do you draw the boundaries? Is money leaking outside the globe?

Wow.

What they mean, I presume, is that when money earned locally can only be spent locally, it encourages re-investment at the source.

This is dangerous and limiting in some ways, but an interesting thought in others. The world doesn't need to be all one or the other, and just like any other currency, a powerful enough local one (NYC Bucks or whatever) would establish an exchange rate against other currencies anyway.

What do you mean by the money that circulates in it doesn’t leak out of it? Do you mean having no forex markets? i.e. capital controls?

Until you need TVs, refrigerators and anything that takes a nation to build rather than things a small community is capable of achieving.

These schemes always remind of Paddy’s Bucks from Its Always Sunny in Philadelphia.

They are a monetary solution sent in to fight financial problems. The solution to those problems usually lies outside issuing your own money; it instead compounds your problems. There’s probably a case to be made for them if you could find and administer an optimal currency area, which is a monumental challenge.

Thus creating the self sustaining economy

“I don’t understand how _finance_ works.” - Dennis Reynolds

It is a bit weird that cryptocurrency folks talk about "disrupting" financial system when they actually talk about rolling monetary policy back to about middle ages. Come up with a currency anyone can create and there you have a real disruption.

More modern doesn't necessarily mean better. That's a fallacy.

For instance, it's possible that a currency based on long chains of debt is prone to massive blow-ups. That's modern day fiat currency. In contrast, cryptocurrencies like Bitcoin are not based on debt.

> Come up with a currency anyone can create and there you have a real disruption.

If I've understood you correctly, something like that does exist. See Ethereum and its ERC-20 tokens.

If I interpret beefield correctly, they're not talking about being able to create new currencies but rather a currency that anyone can mint.

Here's an interesting one, an attempt at decentralized UBI where each individual gets issued individual "coloured coins" and participants accept currency based on a web of trust: https://handbook.joincircles.net/about/whitepaper.html

I think this direction is very worth exploring. Today fiat currency is generated through creation of debt between banks. Most cryptocurrency is generated through validation of transactions (be it PoW or PoS). The idea of moving currency minting down to individuals in a way that can maintain a sustainable inflation is very attractive to me. The really hard part is squaring the triangle of no privileged centralized parties with censorship capabilities while neither being vulnerable to sybil attacks or locking out disenfranchised minorities from the economy.

Circles is the only serious attempt at that I've seen and I'd love to see more innovation and critical analysis in this venue.

You can create currencies that anyone can mint on Ethereum.

That's the trivial part, but without the conditions I laid out above they're neither useful nor interesting, at least to me. FWIW Circles is implemented on Ethereum, if you didn't click the link.

Interesting. How is the value of that currency maintained so that it actually would be an usable currency?

There is a GNU currency that is like that but I dont understand how it will ever work with the "honor system" lol I dont see whats stopping me from poisoning the well.

GNU Taler is electronic money, not a currency. Neutral, every one can make its own currency. Transaction is secure (trust in the e-money) because of GNUnet; it even addressed the Sybil attacks concerns.

Trust on the currency comes from real life trust. A bank for the Euro. A human for a novel human-made currency.

Then, Exchanges that trust 2 different currencies can buy/sell those currencies.

Exactly this.

I'm not an economist but this also seems like an indirect, peer to peer, way to establish 'credit' of an individual, rather than relying on centralized institutions with dubious security practices, like Equifax. Is this obvious or has someone already thought of this and I'm being dumb? I don't typically hear about this type of application of digital currencies in mainstream media but it sounds interesting in certain applications of peer-determined credit.

Your last sentence is possible since about 2015

https://www.amazon.com/dp/B01M22NTCT/ref=cm_sw_r_cp_apa_9eOm...

It's a bit of a hard read, but the author proves that Bitcoin is pushed by far right activists who have extreme views of how money should work.

I, and many others I know, aren't far right and support it. We just don't want the government to print money at will.

That is a far right viewpoint. Modern economics requires a government to actively maintain a steady value in its currency. Removing this control is, by definition, far right.

Bitcoin is also pushed by far-left extremists, anarchists, nihilists, centrists and adherents to loads of other schools of thought. From the BTC-maximilists I've come to known, some very active in the community, I'd say it's not representative of BTC proponents in general.

Though I don't think I'd like the top BTC whales of today to effectively run the global economy.

Isn’t that the point of an ERC-20, and the reason that Ethereum is still relevant?

I would argue not the only reason Ethereum is still relevant but definitely one of the solid reasons why.

As far as I understand complementary currencies are not supposed to disrupt anything (as their purpose isn't to replace fiat), not a new idea and in no way linked to crypto currencies. Crypto comes into play to support a more modern and secure transactional system to an idea that's already existed for decades.

Are you aware of the fact there are thousands of cryptocurrencies?

>Come up with a currency anyone can create and there you have a real disruption.

Indeed. One of the most bizarre arguments coming from the crypto-world is "there's a finite amount!". Why would you want your currency to be limited?

Scarcity creates an illusion of value "at rest". Currencies aren't very useful "at rest", though. (As entertaining as it is to imagine to go diving into a Bank Vault Scrooge McDuck-style, it isn't very practical in reality.) It's in how they flow that inter-personal value happens. I feel like one of these days we'll truly discover an economic calculus based on the second and third derivatives of "value", and maybe scarcity is holding us back. (I often use an electrical circuit analogy. Our conception of wealth is "instantaneous voltage", and while high potential voltage sometimes has its uses in some types of circuits, it's the wattage/amperage that does real work over time.)

> currency anyone can create and there you have a real disruption.

Why? Anyone can make their own currency. Whether electronic or quite literally, on a printer. No one's going to take it.

My guess is they are going to owe the IRS a lot of money.

In real USD.

https://www.irs.gov/newsroom/four-things-you-should-know-if-...

Heh, good point. I suspect that one of the features of these currencies is that they're not taxed in practice, even if the letter of the law says that they should be(?)

This right here shows how much the value of USD depends on the power of taxation. Even if you barter goods with no USD used, the IRS will still force you to find a way to obtain USD to pay taxes on that barter.

I wonder what is wrong with the USA's economy, because the FED is printing dollars like never before to provide liquidity to the economy and still cities have to fall back to initiatives like this one to keep their local economies going.

Where did all the dollar liquidity of those cities run away to?

In the US, almost every of the 50 states must balance their budgets. They can't spend what they don't have without selling debt (municipal bonds that pay interest). They can't manufacture money as that is handled at the Federal level.

https://www.ncsl.org/research/fiscal-policy/state-balanced-b...

Sure, but the FED money is going somewhere in the USA. Either to banks or other companies. Those companies are located in states. So eventually the FED money flows to those 50 states.

But it apparently doesn't reach local companies and people, or maybe it does but then it quickly leaks away again. I wonder why that is.

FED money goes into banks and stocks. Cities do not get any of that FED QE money.

Fed has been buying munis

I haven't been paying close attention and I'm wondering if you know: Are they buying newly issued munis or buying them on the open market?

It's both. Here is some information on the Municipal Lending Facility:

https://www.federalreserve.gov/monetarypolicy/muni.htm

A lot of it is going into prop-ing up corporate debt. I remember that they even bought junk rated bonds.

I don't think they ended up having to buy them as the mere promise to buy them was enough to get private investors to boost junk bond prices.

Looking at the most recent balance sheet [0], corporate bonds look to be under the other securities section which has 86 billion in assets or about 1.2% of the asset sheet. Most of the balance sheet is taken up by U.S. Treasury securities and Mortgage-backed securities.

[0]: https://www.federalreserve.gov/releases/h41/current/h41.htm

My understanding is that the FED is printing money for international demand.

Not sure where they are getting the wir-currency facs from. But they are definately wrong about 1/5th of swiss companies using it. 60‘000 members of wir (private&company) versus ~600‘000 businesses in switzerland cant match up with that statement.

This seems like a horrible idea. How does nobody realize that you can't just "will" a currency into having value? A piece of paper won't produce value... At least bitcoin gains it's value from traders buying USD with BTC.

Utah Goldbacks seem like an interesting alternative https://goldback.com/

You should tell that to the folks at Japan and North America who have been using complementary currencies since the 1990s.

Local councils can create some value by allowing people to pay council taxes, fees and fines with the issued currency. Enough to peg it 1:1 with the USD? I'll be honest, I don't know how countries like panama manage that, so hell if I know how a council would do it.

Fundamentally, this is what underwrites the US dollar as well. If you don't pay your taxes you (eventually, provided you aren't connected enough to avoid it) get arrested. You can generate your wealth in corn or software or boat building, but you have to pay your taxes in US dollars. You can't barter your boats for corn and pay your taxes in corn. Thus, (almost) everyone in the US needs some US dollars to avoid being jailed. This is the foundation upon which the value of the US dollar is built.

Of course, making sure it doesn't blow up in the councils face in a few months/years time due to lax issuing controls is a different matter.

I suspect there may be a psychological effect giving these currencies value as well, considering they've only been rolled out in small towns. Imagine living in a 2000 population town like in the article where everyone is socially connected. If you refused local currency because you doubted its future value, your business could very quickly become a local pariah.

Taxation is necessary to maintain the value of currency when dealing with a country of millions of people, but somewhere on the sliding scale as the population numbers we deal with decrease social factors outweigh purely economic factors. One of the biggest impacts modern capitalism has on human society is its ability to strip away all social considerations from financial decisions. In the premodern world your shopkeeper was also your neighbor, and every transaction was filled with social considerations like your relative wealth, recent hardship, or length of acquaintance. In the modern world, everything has a fixed price regardless of whether the buyer is a foreign stranger or childhood friend. Only by stripping away messy individual social connections does trade among 7 billion people operate efficiently.

I'm not sure if you are doing some serious meta-trolling about fiat currency or are actually sincere.

"Willing" a currency into having value is exactly what all currency is. I assume you're saying it isn't easy.

Sure, and more to the point, currencies tend to be bootstrapped by some value that backs it (gold, oil or even just faith).

This is pretty much what we're doing at https://cambiatus.io. We have a handful of successful communities that use the platform to a very useful degree, and we're expanding the platform to be able to accommodate other community shapes and needs as well.

That domain doesn't resolve for me, https://www.cambiatus.com/ works.

Thank you. We use the io domain for our stating platform so I always get them mixed up :)

My grandpa didn’t get the opportunity to empathy much wisdom on my before he died. But, he did tell me “Never take wooden nickels” and that sounds like good advice to me.

I understand that this is expressly forbidden in the US.

Is it? Nobody is stopping Tenino (the city in the article)... nor did they stop them back in 1931.

I'm not an expert of constituional law, but Article I section 10 says:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit;

https://constitution.congress.gov/browse/article-1/section-1...

Huh, interesting. I'm also not a lawyer, but I guess that means that states can't (but cities and towns can)?

Yeah, I thought the silver surfer quarters that came out a while ago ended up with a fine:

https://www.coincollector.org/silver-surfer-quarters-declare....

Although, I suppose someone has to go after them to make it a problem for them.

Any city can create an ethereum token and use it. That's a fundamental aspect of blockchain

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