Currency Typology – exploring the “Representational Charge” dimension
Trying to understand complementary currency often comes down to trying to sort them into a typology. Many attempts have been made towards that (see for example Blanc, Martignoni, Lietaer/Kennedy/Rogers) but none has so far satisfied theory and practice.
This article won´t fill this gap, but explores the matter propaedeutically from the traditional perspective of the functions of money 1 and proposes a one-dimensional classification of the different forms of currencies accordingly.
This follows the rather practical than epistemological text-book understanding of money, which is commonly described and differentiated through three basic “functions”. Money serves as a:
1) unit of account,
2) means of exchange,
3) store of value.
While all three are, to some degree, fulfilled by the likes of $, € and £, heterodox critiques of our monetary system argue that these different functions, particularly the storage function, are actually incompatible with each others, mutually exclusive or at least in competition 2. In terms of currency design and effects, this leads to a clash of interests and finally contributes to the malfunctions of our financial systems. With complementary currencies, on the other hand, it seems feasible to separate these functions in different currency implementations respectively, adhering to the “design follows function”-principle. This principle does not appear to have been the basis of our current “monœtary” system, which seems more like a historically grown patch-work, precariously balancing vested interests, power struggles and quick and dirty “solutions”. Complementary currencies would enable constellation (or ecosystems) of currencies that are more stable then having one single currency fulfilling it all.3
For the present attempt to use these three functions towards a typology of currencies, I try to plot the three functions as three points on a single axis. The dimension or denomination of this axis could consequently be described as the “representational charge” of a currency. This is, the degree to which a unit of a currency represents a concrete/material unit or quantity of constantly valued assets. For the extreme points on the axis, the difference is rather obvious. As a unit of account, or a financial numeraire 4, the currency unit only represents an abstract convention, the lowest representational charge. As a store of value, on the other hand, the currency unit stands for some quantity of assets directly “coined” into the unit (e.g. a gold coin) or deposited and available upon presentation/redemption of the unit. Mind: Any purely contractual guarantee of future value without a material deposit seems fundamentally fallible even if guaranteed by a state, and consequently moves the currency towards the left end of the scale. This assertion does not mean a lesser conceptual or actual value of the currency, it just makes it a different kind of currency.
The “means of exchange” function is somewhat more elusive and construed by our common experience of “money”. This rather sets it closer to the store of value function as depicted below. We are used to the fact that the likes of $, £, € etc. conclusively settle our obligations when transacted and carry the allure of a transfer of ownership (to an underlaying value).5 The basic condition for a unit to serve as a means of exchange or payment in that sense seems to be that it sufficiently represents a reliable value, at least temporarily. If the payee cannot expect to be able to use the unit for his next purchase (of equivalent value), it would not be accepted as a means of payment in the first place. The timeframe for this value qualification for the “means of exchange” function is rather determined by the frequency and volume of trade of the accepting party, and thus typically short- to mid-term. A “store of value” unit would typically be required to maintain its value long-term or, ideally, indefinitely.
the “Representational Charge” dimension:
none <—– some ——-> full
Unit of Account Means of Exchange Store of Value
Along this typology (or, in the common form, rather a topology), another set of terms which are times and again called upon in complementary currency typology and design questions, can be mapped: “pegging” and “backing” clearly correspond to the extremes along the axis. The pegging of one currency to another provides the unit of account function, while backing a currency allures to the store of value idea. Also, a “FIAT” currency, rather occupies position covering the “means of exchange” and “unit of account” functions, not the store of value. This is were common (textbook) descriptions of our current money go astray.
It is a curious consequence for the perspective of currency design and analysis to realize how the juxtaposition presented here, also helps to elucidate how different currencies at different ends of this scale lead to different effects or dynamics within their respective community of users. A currency that relates only to the “unit of account” domain can naturally help to measure, inform, track and manage exchanges. This in turn can facilitate collaboration between members of the community or partners in a cooperative venture. On the other hand, a currency designed to satisfy the “store of value” function, will most likely depend on the persistent scarcity of the underlying asset(s). By determining future access to these assets, such a currency will more likely reflect competitive exchanges, or those that lead to mutually exclusive end states (e.g. wether you have the coin or asset, or I do). Both scenarios can be seen to exhibit meritocratic features, but the systemic gross outcomes and secondary effects for the individual and the collective will be very different.
Relating more to the practical considerations of currency design and categorizations, the “representational charge” analysis also serves as a departure point for the analysis of one other common, yet seldom explicitly discussed, (design) feature of any currency: the arrangement and/or implementation of “the trusted Third (party)”. This will be explored in this forthcoming article. Combining the “representational charge” and the arrangement of the “Trusted Third” hypothetically promises a comprehensive two-dimensional analytical roster for the categorization of complementary currencies, which might serve both, retrospective analysis and prospective designs.
1: for the delineation between “money and currency” as used here, see this earlier blog-post ,
2: see for example Thomas Greco: The End of Money and the Future of Civilisation, 2010, Floris Books, page 129
3: This is the proposition by the work of Bernard Lietaer, Robert Ulanowicz and Sally Goerner, 2009, recently summarized in Lietaer/Arnsperger/Goerner/Brunnhuber: Money and Sustainability – The Missing Link.
4: for such meterological aspects of currency design see e.g. Stevian Defilla, “Metrological Aspects of an Energy-Based Currency System”, presented at the Tesla-Conference, Split, July 2012, paper or presentation available online.
5: This very perception also seems to be one main factor of confusion between different definitions of “currency” as opposed to “money”, see this blog-post for a clarification of how these terms are used here.