Last week, a colleague told me about a paper presenting preliminary results of an alternative currency project in Kenya. The paper, titled Complementary currencies for sustainable development in Kenya1, highlights the potential of alternative currencies in informal settlement (slums) communities.
The idea of the project was to introduce an additional currency (Bangla-Pesa) to facilitate the trade of excess capacity amongst small businesses. The potential of such a currency is best explained through the following example:
As an example, most households in Bangladesh use maize flour, vegetables, and charcoal for cooking every day. Now, imagine you are a mother of three in Kenya, selling peanuts, a high-demand supplemental food. Your stock has a limited shelf life and will go bad after a certain period. If members of your community do not have sufficient funds to buy peanuts, you will lose the money you spent purchasing your stock, leaving you unable to buy the goods you need.
In informal settlements, the official money supply is highly volatile and unpredictable. This makes it difficult for businesses to know whether customers will have cash on hand on any given day.
Now, imagine a collaborative credit system is introduced into this scenario. You use a voucher to purchase maize flour. This voucher acts as a promissory note (IOU), promising to repay an equivalent value in peanuts or other goods and services. The person selling maize flour can then use the voucher to buy well water. The water vendor can use the voucher to purchase vegetables, and the vegetable seller can use it to buy charcoal for cooking. Finally, the woman selling charcoal can return to you and exchange the voucher for the peanuts you promised to repay when you first used it to purchase maize flour.
In this system, excess stock that might have gone bad—such as maize flour, vegetables, or peanuts—and unused services, like well water collection, are utilized. This happens through the exchange of a voucher, which represents the value of those excess goods and services. Such a system creates a circular flow of resources, ensuring that surplus capacity is put to good use.
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As such, the Bangla-Pesa helps to facilitating trade when cash is scarce. Bangla-Pesa allows businesses to exchange goods and services when there’s insufficient cash in circulation.
Furthermore, excess capacity can be utilised. Businesses often have unsold goods or unused service capacity that would otherwise go to waste. Bangla-Pesa allows them to trade this excess capacity within the local network, generating value that wouldn’t occur with Kenyan shillings alone.
Unlike direct barter, where two parties must want each other’s goods or services, Bangla-Pesa can circulate within the network, creating more flexible trade opportunities.
After the first week of implementation, aggregate sales of the community grew by 22%, highlighting the capacity for local economic growth, independent on national economic conditions.
The potential of community currencies like these is higher in developing economies. However, it makes me wonder about the potential in developed nations as well. Goods and services, particularly those with an expiration date, are just as common here. Having an alternative currency to exchange these might enhance community prosperity, but also the interconnectedness of those who participate in it.
Digital currencies seem particularly interesting, with the added advantage of their dynamic malleability and tracking. For example, assigning an ‘expiration date’ to the (digital) voucher after a transaction will stimulate a steady flow of trade, which helps stabilise its value.
I’m curious to learn more about alternative currencies, especially concerning how they can enhance communities in developing contexts as well. Feel free to share any examples you may have!
