A presentation for the Small Business Commission
Text of Bay Bucks' presentation at San Francisco Small Business Commission on Monday April 28th, 2015, at the San Francisco City Hall, Room 400.
Good afternoon, my name is Dr Chong Kee Tan. I am a founder of Bay Bucks, a complementary currency for the San Francisco Bay Area and I am here to report on the benefits that a complementary currency can bring to small businesses.
As you know, money has seen rapid innovations in recent years. We all know about Bitcoin, and the many other crypto-currencies based on the blockchain technology. You may know about Ripple, a different kind of digital currency headquartered here in San Francisco. In fact, San Francisco has been at the forefront of monetary innovation, hosting an annual Future of Money conference since 2010.
I want to tell you about another kind of monetary innovation that is also happening here but is not yet well known, and how it can have direct beneficial impact on small businesses. It is the innovation called complementary currency. It is called complementary currency because it operates in parallel with the national currency, in a way that strengthens both.
What is a complementary currency? It is simply a means of exchange that a community has agreed to use among itself. Here is an example. In 1934 Switzerland, in the throes of the great depression where many local businesses there were folding, a group of Swiss business owners had this realization: the reason why demand for their goods and services plummeted was not because people suddenly no longer needed to eat, wear clothes or paint their houses, but because they no longer had the Swiss Franc to do so. They solved the problem of the lack of Swiss Franc by creating another currency called WIR (WIR in German means We or Us). WIR is notionally 1-1 with Swiss Franc but not convertible to Franc. Each business in the WIR network can create the WIR they need by first pledging an equivalent value of their unsold goods and services for sale in WIR. Soon, businesses that are WIR users started doing brisk trade among themselves and it quickly spread. From the initial 16 members, by 2005, WIR network has 62,000 members, collectively doing annual transactions of 6.5 billion CHF. It spawned something called the barter exchange industry that is now global. These commercial barter exchanges have a global association called the International Reciprocal Trade Association, and I sit on their executive board.
That is complementary currency working in the business-to-business arena. Complementary currency also works well in the consumer-to-consumer or Business-to-consumer arena. You may be familiar with Time Banks. Local residents join a time bank and trade work hour for hour. For example, an hour of guitar lesson for an hour of massage, or gardening help, or dog walking, and so on. Time banks have also sprout up all over the country and the world, enabling people to build self-help communities. Other well-known complementary currencies include: Berkshares in Massachusetts, Bristol Pound in the UK, and Bengla-Pesa in Kenya.
So far, the B2B arena and the C2C arena have remained distinct. Bay Bucks' innovation is in realizing that a complementary currency that works across B2B, C2C and B2C arena will be even more powerful.
There are many benefits of using an integrated complementary currency. I will now outline three to illustrate.
1. First benefit of complementary currency: It fosters business community self-help.
From the WIR example, we see that during a downturn, besides struggling alone or asking the local or national government for help, businesses now have another option: coming together and helping each other. Here is a real life example that happened in Bay Bucks: Michael is an architect in Berkeley who used to work in a large architectural firm. When he joined Bay Bucks, he just started his private practice and needed a website. He found a web developer Jay in San Francisco, and by listing and pledging his architectural services; he could create the Bay Bucks he needed to pay Jay to create a web site. For quite a while afterwards, he had a negative balance in his Bay Bucks account but he was OK because it is 0% interest and there is no minimum monthly payment. Then Paulo's café in the SF Mission district needed to renovate, and they were short on cash. So Paulo pledged his coffee beans, and created Bay Bucks to pay Michael. Now, Michael has covered the money he spent for his website, and he could created some more and used it to pay for advertisement on East Bay Express in Oakland. What about Jay? He used the Bay Bucks he made from web development to hire a bookkeeper, Victoria, in Sunnyvale to file his taxes. And Victoria used her Bay Bucks to buy an ergonomic chair from a chiropractor in Santa Rosa, and wine from a winery in Napa. It goes on in a spreading collaborative web of regional Bay Area business helping each other.
2. Second benefit of complementary currency: It can shorten economic downturn because of its counter-cyclical property.
We have seen how after the 2008 financial crisis, the reluctance of the banks to lend to small businesses had greatly slowed recovery. If the Bay Area had a complementary currency during that time, the suffering could have been shortened. The Swiss economy is so stable, not because of its banking industry or its chocolate or watches, but because of it complementary currency WIR. Various economists, including Prof Bernard Lietaer, had published papers pointing out the counter-cyclical property of WIR. During boom time, businesses focus on making profits in the national currency and transactions in complementary currency decreases. During a bust when cash is in short supply, transactions in complementary currency increase to pick up the slack. In Switzerland where their complementary currency is wide spared, the significant increase in WIR transaction during a dip helped many businesses stay afloat and reduced the dip in GDP. A quick note about Prof Bernard Lietaer's credential: He is one of the main architect of the European currency system, the co-founder and manager of a top offshore currency hedge fund, and was name by Business Week as "the world’s top currency trader" in 1992. Prof Lietaer understands deeply the shortcomings of the current monetary system and is an ardent proponent of complementary currency as a mechanism to plug that gap. He has written many books on this subject.
3. Third benefit of complementary currency: It builds local prosperity and gives the Buy Local campaign more panache.
By definition, a local complementary currency only has value in the geographic location where it operates. For Bay Bucks, this is the bioregion of the Bay Area, comprising of agriculture to the North, technology and entertainment in the Center, and manufacturing and industry in the South. Such currencies will not end up in Wall Street. Instead, they circulate locally, facilitating local commerce and building local prosperity. Imagine what happens when the local residents can also use such a complementary currency. When they use a local currency to shop local, the multiplier effect to the local economy will be much greater, and such buy local campaign can create a lot of excitement and color.
All these benefits and more are within reach for the Bay Area with San Francisco taking the lead. Bay Bucks was started as a grassroots TransitionSF project in 2012 and had been operating for more than 2 years based on volunteer efforts. It grew by 60% in 2014, already has more than 250 local businesses in its network. We are now filing to become a workers' own co-operative and have plans to incorporate our users as members as well into the co-op in the future. It is a great start that has demonstrated feasibility.
The next step is for it to take off. But it cannot do so on its own. It needs your help to overcome some challenges. Many people do not understand or are suspicious of it. They do not want to get involved because they are afraid.
I would propose that we continue our relationship with SF Small Business Commission so that you get to know us more, and feel comfortable listing us as a resource for local businesses, giving out our brochure to the businesses you advise, and perhaps even become partner in the future to initiate events such as buy local fair. I am also open to any suggestions from the commission on how we could work together.
In conclusion, complementary currency is a key missing piece of the puzzle for building a sustainable and just local economy. It fosters mutual collaboration between businesses, it makes small businesses more resilient, and it is ideal for promoting buy local to builds local prosperity. Like Switzerland, San Francisco Bay Area now has its own complementary currency built by its grassroots and local business community. What it needs now is for a visionary leader in the local government to be its champion and help it scale up so that it can bring the same benefits that WIR brought to Switzerland.