Case Study: A New Strategy to Keep Money Local

The Dutch National Programme for Quality of Life and Safety is an innovative approach to regional development, with multiple government departments and ministries combining their funds to invest in vulnerable neighborhoods and regions for a ‘generation-long’ 20-year period. Across the country, there are 20 areas in which this programme has set up shop. In Amsterdam, we have two neighborhoods that are part of the scheme.

Thanks to the efforts of Commons Network and our partners and others, the 20-year plans that have been made here also include a focus on democratic, social-economic innovation. For instance, both area plans include an impressive focus on Community Wealth Building. Today, we zoom in on one of these neighborhoods, Nieuw-West, to look at one particularly interesting aspect of the 20-year plan: their efforts to set up a complementary digital money system that is meant to strengthen the local economy.

Across the world, we see local governments sometimes support such complementary currency schemes. But it is rather unusual for local governments to start a new currency themselves. Our colleague Diane Golenvaux, who is investigating different experiments with neighborhood currencies, went to Amsterdam City Hall to interview researcher Thomas Siderius, who is the project coordinator for this new scheme in Nieuw-West. For this blog, we focus on the political-economic context and the model that was chosen for the network. How could this network contribute to Community Wealth Building in Nieuw-West and what critical insights does it offer on monetary governance?

A municipality-led project

There is momentum for local currencies in Amsterdam. Next to the public initiative in Nieuw-West, at the same time, two more currency networks are being developed in two other neighborhoods. The decision of the municipality to launch a pilot for a local digital financial network can be understood in this context and as resulting from the research and political lobbying of different organizations (like Commons Network). One of the influential voices in this field is Henk van Arkel, who has been advocating for such a project since the early 2000s. He founded the Social Trade Organization (STRO) in Utrecht, through which he developed a model and a software for ‘circular money’. Thomas Siderius worked for STRO before joining the municipality as a civil servant.

Nieuw-West & the vicious cycle of capital outflows

Born from an urban expansion project in the 1930s around Sloterplas Lake, Nieuw-West is a highly populated residential area, home to a young and culturally diverse population. According to the Samen Nieuw-West report (the official document for the aforementioned 20-year plan), the neighborhood is facing greater challenges than the rest of the city, specifically regarding the quality of life, safety and unequal opportunities. ‘Residents experience barriers, stigmatization (…) such as institutional racism and negative representation of the residents and their neighborhood. But also because of a living environment in which loneliness, poverty, different lifestyles and youth nuisance lead to passivity, discomfort, distrust and exclusion.’

The report highlights the need for greater inclusion, emancipation and responsibility for the community. One axis of the programme focuses on job opportunities and local entrepreneurship: ‘A strong neighborhood economy contributes to quality of life, safety, identity and social cohesion’. Indeed, in our conversation, Siderius explained that there is a lack of meaningful jobs and diversity of shops in the area as a consequence of the money flowing out of the neighborhood towards the center of the city. This creates a negative feedback loop through which Nieuw-West, like a lot of suburban areas from big cities, loses its economic clout and a lot of social capital. With the local financial network, the neighborhood wants to ‘break the vicious cycle, this dynamic of streets or neighborhoods being stripped of the diversity of shops because less money is flowing in, and more and more money is flowing out’.

A digital network of local bank accounts for the neighborhood

In setting up the local financial system in Nieuw-West, the municipality opted for a digital network of bank accounts that would stay tied to the Euro. The model that Siderius is working on resembles that of the ‘Utrechtse Euro’ developed by STRO. It operates as a network of local bank accounts. ‘We’re taking Euros and we’re putting them in this network so they will circulate locally’, says Siderius. The municipality plans to create an online platform through which you can purchase and spend these local credits, the value of which is at parity with the Euro (one Nieuw-West Euro = 1€). This money can only be spent inside the network, at shops, companies and organizations that also have a designated, local bank account. This ensures that the monetary flow does not leave the neighborhood and is circulating inside the community.

Localizing the capital flows of Anchor Institutions

In order for the project to work and to have an impact on the local economy, the network needs to provide a variety of services and build partnerships with a number of companies and organizations that are economically important in the neighborhood. Indeed, beyond just local shops and entrepreneurs, the aim is to ‘involve the government and some bigger organizations and create structural, substantive money flows into the system so that it will become automatically interesting, on a very basic economic level, for a lot of smaller organizations to join as well. (…) We’re attempting to connect these bigger money flows and smaller players, which right now seem to be missing each other.’ These ‘anchor organizations’ would range from public and semi-public institutions, such as hospitals, schools, housing corporations, to companies that support the socio-economic development of the neighborhood.

The specific rules and mechanisms to govern the system are still being determined. But according to Siderius, there will be a bank account with the same amount of Euros as the credits that are in circulation in the network, in order to protect the back-up value with 100% coverage. To disincentivize the members to leave, there would be a small fee that they have to pay if they would want to take the money out of the system before a defined time period (e.g., for the first six months after they joined the network). Next to that, there might be a small fee to open an account, but it will probably be free for small organizations as it should stay accessible to all. The structure would be that of a cooperative, in which the anchor organizations are a member. Together, they hope to form a ‘starting alliance’, as part of the local Community Wealth Building efforts. Therefore, although the local government is the initiator of the project, the network would be governed by the members once it is established.

Community Wealth Building – embedding local procurement and solidarity in the monetary system

Now that I have painted a picture of the context for this public initiative and of the structure of the network, let us move on to the analysis. Community Wealth Building holds both an economic and a social aspect. Next to strengthening the neighborhood economy, local procurements and redirecting capital flows, it is also about democratization of the economy, ownership and participation, and creating stronger community ties. And this requires the collaboration of public, semi-public organizations and communities, in order to create structural change. Quite straightforwardly, the Nieuw-West network would encourage local consumption and ensure that specific capital flows do not leave the neighborhood economy. According to Siderius, this model offers a way to embed local procurement and solidarity in the monetary system.

By involving ‘anchor organizations’, in the longer run it could connect bigger players in the local economy and smaller shops and entrepreneurs as well as provide a variety of services for basic needs and daily consumption. This structural change could have an important impact on the neighborhood economy. However, the current top-down approach could also result in the network not being completely embedded in the local community and not ‘trickling-down’ to the smaller businesses and average inhabitants. Time will tell if the community takes ownership of the network. If that is the case, a local payment system could indeed strengthen community ties and foster greater solidarity. There would be more frequent interactions between anchor organizations, local businesses and inhabitants; and by virtue of engaging oneself to consume locally and support the neighborhood economy, it could create a social network with a sense of collective identity and responsibility.

The income that the network would generate could be used for ‘all kinds of community projects, or as a starting capital for cooperatives and social enterprises’, as Siderius puts it. Once it is well established and generates an income, it could work as a credit cooperative which would support its members or invest in the community economy in Nieuw-West. Lastly, the cooperative structure is a way to ensure that the network is democratically governed. The members would participate in the decision-making process, and the network’s tie to the Community Wealth Building group would also protect it from being co-opted and ensure that it is community-driven.

Talking about his own experience as a user of the Utrechtse Euro which has a similar structure than the project he is developing for Nieuw-West, Siderius shares how it has changed his behavior and understanding of money. ‘You start to behave differently with this kind of money. I am way more generous with it. Even though it’s maybe not that strong or big of a network, it gives you that feeling, being part of this, I’m not only spending my money locally, but I know for sure that company is also gonna spend it locally in turn. (…) I really hope that we can get people and that they’re also going to start feeling this, thinking about money in a different way and learning about the different types of money that exist.’ His conviction is that ‘you can design a bank account to work optimally for the community. There’s bank accounts that work very well for spending everywhere, bank accounts that work really well for banks so that they can invest your money. (…) I want to show that it is possible for it to be designed specifically to benefit the community.’

Tensions & transformative potential for monetary governance

With regards to the transformative potential of the project, the prospect of a municipality-initiated digital payment system tied to the Euro raises critical insights for monetary governance. On the one hand, the city of Amsterdam is reclaiming monetary governance for Community Wealth Building. A monetary union like the Eurozone leaves out regional needs and marginalizes communities; and this initiative sheds light on the room that there is for local governments to experiment with democratizing monetary systems and creating a counter-weight to neoliberal globalization.

The municipal government believes that monetary governance can be shaped to empower Nieuw-West and build a stronger community economy. I hope their efforts in Nieuw-West prove that there is a way for the municipality to actively support experiments with local currencies. On the other hand, this digital payment system is still tied to the Euro. Therefore, the room for autonomy is limited by the governing institutions and formal economic environment, that is the Euro ebbs & flows and central bank policies.

Contrary to some local currency networks which issue their own currency, this model consists of a system of local bank accounts. Siderius even raises the question of whether this can be considered a local currency, as the local credits are still technically Euros. This implies that some of the mechanisms that fuel crises and social injustices in official monetary systems would not be necessarily countered with the chosen model. Indeed, the issuance of the local credits takes place as members put Euros in the digital system, which makes it unclear how the community can directly regulate the quantity that is circulating in the network.

And more straightforwardly, inflation and instability of the Euro would have a direct impact on the local network. All of these factors, the quantity in circulation, accumulation and inflation are crucial issues for the proper functioning of a currency network as well as for it to benefit the community; and they would be shaped by institutions exterior to the network, for better or worse. To this critique, Siderius answered: ‘if you have this network in place and people are part of it, and something bad happens to the economy on a global or national scale, then this network could be immensely valuable. Because you could maybe change some of the rules a little bit to accommodate the situation. Maybe you want to increase the spending or the circulation, or maybe because of the income of the network, there’s some money that we can use for recovery funds for specific people or organizations that are hit more than others. Then people can really start to see the value of building something up. You build your roof when the sun’s out.’

Therefore, the transformative potential of this model is nuanced. Although the room for autonomous governance is limited, it finds a way to involve public institutions and local communities in alternative monetary governance by not completely breaking away from the formal economic environment. Beyond contributing to Community Wealth Building by embedding local procurements and solidarity in Nieuw-West, the point is that the network might create greater resilience and autonomy in the long run, if the community’s trust in the network is solid enough to empower it with more direct governance or if the institutional environment fails the local economy.

Overall, this project holds promises with regards to building a more dynamic and resilient neighborhood economy. The collaboration of the local government with semi-public organizations, small businesses and the Community Wealth Building group on this project could potentially create a structural change and embed local procurement and solidarity in Nieuw-West. At the end of the day, the economic and social impact will depend on whether the network will successfully expand and be governed by the community. Whether this case can be considered a local currency with all its transformative potential, it shows more importantly that there is some agency for local governments to support the democratization -and localization- of monetary governance.