Bitcoin may disintermediate banks, but that will not change the economy, save the environment or make society fairer. One peaceful way to prevent our governments driving us to collective suicide is to get behind a new generation of P2P credit projects.

No economic reforms expected

As the recession drags on and on and on, disgruntled citizens are calling for various kinds of change: a re-branding of capitalism, tighter regulation of banks, austerity or Keynesian stimulus or a Tobin tax, Ending fractional reserve banking, even debt forgiveness. Very few reformers are voicing concerns about money itself. Specific criticisms are myriad, but for me, the fact that 97% of legal tender money is interest bearing debt issued by profit making corporations, goes a very long way to explain humanity's present malaise. The slimy yes-men in who 'lead' our sleezy governments are paying no attention to alternatives but instead engineering new bubbles and deepening our debt in order to preserve the appearance of 'growth'. The level of fraud needed to keep the banks functioning is only possible because regulators are owned and governments are plucking their own eyes out not to see.

Bitcoin's volatility problem

Meanwhile Bitcoin has given us all an instructive lesson on money creation. With no face value and a fixed supply, Bitcoin's market value shot up when the media discovered it in 2013, and again in response to the Cyprus bail-in. Many entrepreneurs and activists are eager for Bitcoin to 'disrupt' the banking system, but adoption is sure to be slow while the price is so unstable. There's no solution to the volatility problem, and lets face it, most of the money which goes into Bitcoin is from people looking to make a profit from volatility - speculators. They do not care how well Bitcoin might function as money. Big speculators can easily push the price around in a small market for day on day profits. Global banks who have been suppressing the price of gold and silver for decades can easily suppress the price of Bitcoin.

Elites always manipulate free markets

Market manipulation is a game as old as markets themselves. By scheming in groups, by sending in muscle, by spreading false rumours or by destroying or buying the competition, by owning the market and charging rent, by issuing the currency and forcing people to use it, powerful people know very well how to extract more value from markets than they could otherwise create. This is what the US hegemony is really doing, prizing open national markets like oysters, and using dollar denominated debt to suck all the value of it back to Wall Street. It is not a conspiracy theory to observe that the people working and creating wealth are not the people locking that wealth in tax havens. Yet the media, the courts, the economists, the policy-makers cannot bite the hand that feeds; these things are trivialised, obfuscated and overlooked. That's why we need Max Kaiser to constantly remind us that all prices are manipulated, and all markets are now rigged and swimming thick with sharks.

Commodity money always a tool for elites

None of the aforementioned reform strategies will prevent manipulation in a free market, not even the mass adoption of Bitcoin. Bitcoin's innate purpose is to disintermediate the banks as a global payment system and bring the cost of global payments to near zero. However, adopting Bitcoin as a national or even global legal tender currency would do little to change the balance of power and build a more equitable society. The fact is that history shows frequently that when the supply of money is tied to a commodity, or the supply is restricted like a commodity, then by buying up or limiting the supply, the rich will manipulate the supply of money to the economy in their own interests.

Interest free credit money

But there is a way of thinking about money, not as a commodity, and not a tool for the rich. Modern money is scarce and thus has commodity value because it is created when banks lend it into existence. The amount owed to banks (the amount borrowed plus the interest) is always more than the amount borrowed, so money is in short supply by definition and can be traded as a commodity. (Money as Debt 3 explains this the best). If money was backed by your reputation, and issued interest free in the quantity that reflected our trust and interdependency, we could expect the economy to display entirely different characteristics:

  • 30 year mortgages would become 10 year mortgages
  • prices would plummet as interest was subtracted right through the supply chain
  • zero unemployment
  • two or three days working week
  • No inherent 'need' for growth
  • governments wouldn't be slaves to banks!

Seriously? Can we really issue credit to one another and not have it create imbalances of power? Has it ever happened in history? Is anyone designing such markets for the modern era? Perhaps some 18th or 19th century economists have already expressed these things in their very essence before capitalism became an unquestionable axiom?

A very old idea

Happily the answer to all these questions is yes. At this moment in monetary history, neoclassical economics admits no alternatives, yet alternatives abound in past and present. No time for an ancient history lesson, but starting in the 19th Century we can point to many 'social' innovations which have some kind of credit-issuing power built in. While businesses were paying each other with 'self issued credit' notes, the cooperatives, building societies and credit unions, were doing p2p lending just as Zopa is today or the savings pools in New Zealand. However these institutions create no new credit, they just help people to lend money to each other without banks. Keynes proposed an international 'mutual credit clearing' system after WWII which was rejected in favour of a dollar/gold standard. But local mutual credit systems exist in a pure form in LETS today; members lend favours amongst themselves, using a ledger to balance the units of credit. Similarly Time Banks, but the favours are measured in hours which most governments then don't regard as lost taxable income. There are many other projects like Banco Palmas, Zumbara in Turkey, or BanglaPesa in Mombassa, or the Cooperativa Integral Catalonia. Online business barter (B2B) exchanges across the developed world help goods and services to change hands without money.

Thomas Greco has a quiet following throughout transition towns and further afield. He talks about building a new network of business barter systems, which declare their own unit of value and issue credit to each other. The B2B sector has never seen itself as a network of payment service providers, and the competing barter businesses make a very fragmented system instead of the joined up public service it should be.

All of these initiatives are called peer-to-peer credit. Instead of a central authority issuing units of 'money' into circulation according to a policy or algorithm, peers extend credit to each other, obviating the need for money. Outside interests cannot limit the amount of credit available. P2P credit simply requires members of a network to trust each other rather than the bank.

Two most promising P2P credit systems

On Ripple you can settle debts by issuing credit backed by your specific friends - there is an internal cryptocurrency XRPs but you can denominate your promises in anything, and as long as payments are within the network, no money is required. You simply promised to back your friend for x bananas, and your friend can 'spend' or promise your x bananas to anyone who trusts you or anyone who trusts anyone who trusts you, ad recursam. If a member defaults, the members who backed that member must cover for them. All Ripple needs is for everyone to go there; the Revolution would be over before it began and we would have as much money as needed to build a sustainable society, interest free.

Community Exchange Systems has over 50,000 (more or less active) users, in 600 LETS and Time Bank projects. Each group has its own currency and manages its own credit limits - which means local sovereignty, yet the shared infrastructure means there transactions are possible between the communities. If a member defaults in one of these 'mutual credit' systems the loss is shared equally in the group but not the network. After many years with only one developer, this project is finally moving to open source (Drupal 8) where it hopes to give member communities even more sovereignty and interoperability as well as allowing software developers to build a really free payment infrastructure as they have with bitcoin.

Better than Bitcoin

For social justice we must disrupt more than the payments services industry, we must take back the credit issuing power and give it to producers and trusted entities. This should be the first principle of the solidarity economy. The challenge is partly technical - we need blockchain technology and apps and APIs and identity management and better reputation systems. But the real challenge is the evolution of consciousness necessary to transfer our trust from the sinking state to our swimming peers. From money as as pure liquid wealth, to money as a tool for exchange. From credit consumers to credit issuers. As well as a distributed transaction ledger, we need distributed credit issuance. The crypto-revolution must pave the way for the credit-revolution.