Monetary innovations can be of great help to governments in both ordinary circumstances and times of crisis.

By helping to introduce or support complementary currencies, governments help address a wide range of socio-economic problems by helping to bypass the need for scarce national currency as the necessary fuel for all solutions.  In a number of countries, local and city authorities have encouraged the use of complementary currencies to solve many kinds of social problems, from caring for the elderly to dealing with juvenile crime, and to help revitalize communities. For instance, 40 states in the US are using someone of their staff to start or administer Time Dollar  systems that address local pockets of social problems.  Many cities around the world collaborate with local NGOs to encourage the development of similar small scale local  systems.   Many case studies like Time Dollars in the United States and Europe and Banco Palmas in Brazil have proven successful in creating local jobs, and these experiments are being replicated in many places.

All these tools can shift form useful to vital if and when a monetary or financial crisis hits.  Governments often feel powerless when facing such crises.  What they learned during  the 1930s is that they should save the banking system when it gets in trouble, because the entire economy will otherwise sink with the banks.  As I explained in a paper about options for managing the current banking crisis, however, saving the banks is not a structural solution, and it will not produce the desired effects in the long run.  The paper presents better options.

It is essential to understand that governments enforce a monopoly of bank-debt money (i.e. our national currencies) as medium of exchange in all sectors of the economy.  They do so by requiring that all taxes and fees be paid only in that country’s specific currency.  This idea of a monopoly of a single type of currency is an old one, and over the past centuries, it has been used and technically justified on the basis of overall economic efficiency.   However, this monopoly is the product of a major collective blind spot which is now hindering our capacity to see systemic solutions to our predicament.  Furthermore, it has now been been proven scientifically (via the conditions of sustainability of any complex network) that this higher efficiency we so value in our culture comes at the cost of systemic brittleness, of which we also have ample empirical evidence through the “hardy perennial” of financial and monetary crashes.

The most effective support that a government at any level can provide for any currency is to either accept it in payment of taxes, or to require a contribution payable only in that currency.  The first country to have chosen that approach is Uruguay, which has decided to accept a second currency in payment of taxes.  That currency is generated for use among businesses.  It is called the Commercial Credit Circuit (C3) system and is now being introduced in several other countries.  It is one of various powerful ways to reduce unemployment by providing working capital to small and medium-sized firms.