A simulation of risks involved in Community Currency Shemes
A slum business using Community Currency in Kenya
We're very happy to start the year with a visit from our Director of Risk Management Jimmy Heyns from Belgium with over 18 years of international experience in the Financial Industry. As our community currencies move more and more toward cooperative toolsets for creating liquidity based on assets, we've been seeking to have a stronger and stronger credit policy.
As of 2016 there are thousands Complementary Currency Programs worldwide. Given this is still an unregulated industry the collateral requirements of the organization issuing community currency don't really exist. In the worst cases organizations can issue much more credit than they have any tangible backing for.
If a community currency is being used in a commercial business – there must be some assurance that, that business won't get stuck with too much community currency. In the simulation there are enough cascading defaults that there is a critical system failure. Essentially the currency was a bubble that could not be sustained. This is bad for businesses and the economy at large.
When we first started we used mutual guarantee. Where members would back other members. And disputes were moderated. This was great at small scale but hard to implement for more than 100 business. So what we did was being to create cooperative businesses that were the liquid and asset collateral basis for the community currency.
So what do we recommend?