Here is a proposal for a local monetary system which can immediately be implemented in any town.

Maybe together with Ed, we can work it out into something that really can work.

Here is the start conditions. It is mid January, y2k has hit, the "local banks" have been closed for two weeks and it is pretty clear that when they do reopen, it will not be business as usual. Some people have cash, but they are not out spending it. The community desperately needs some form of ad hoc money. Almost everyone is at home, sort of sitting around doing nothing.

The name of the town is Beltwayville. The local township has realized that with this big mess, there is likely to be a great shortfall in tax revenue. Citizens will likely push heavily for tax relief on property taxes. There may even be tax code restructuring on a Federal and State basis. So the town council works out a plan together with a small local bank called Expressway Federal Bank (EFBank for short).

Anyone who pays property taxes to the local township (for example John Doe's last yearly payment was $2,500) is entitled to receive access to that amount of B-ville bucks. Anyone who is a renter in the township is entitled to receive the equivalent of three months rent in B-ville bucks (but the owner is not). This is a program for people who LIVE in the township to give them some amount of access to the new B-ville bucks.

In order to receive access to their money, each person has to present the receipt for their property tax bill, a cancelled check with their last rent payment, or a note issued by the town council which indicates the amount. Each person has to register at EFBank where they will "start" a "new" checking account. If the town is clever (and large) they may allow a large number of banks to set up accounts with customers.

Now, the members who have registered can "spend" their money by writing someone a check on any convenient paper, unused checks from any bank are the first choice. The only difference is that where it usually says "dollars" on the check, this is scratched out and BVB (Beltway Ville Buck) is written. If more than one bank is participating in the program, then the banks have numbers to identify them which must be placed with the BVB. So if I signed up at bank 4 then I would replace dollars with BVB-4. The person who receives this money would then send the check down to their bank (say bank 8) who would then call over (or send a runner a couple times a day) to note the change to the account. Obviously this works best with just one bank and gets hard with more than 10 banks.

Assuming that "all" residents participated, the "new money supply" would be equal to about 1 years local property tax revenue. The "value" of the money would be "tied" to the fact that anyone who was able to earn more of these than they spend would be able to use them to "pay property taxes" in future years (with some limit like 5 years). This means, that anyone who would write a BVB check to pay property taxes would reduce the money supply. John Doe, for example could pay his entire tax bill in any of the next 5 years by paying the township 2500BVB.

The 5 year restriction would be to prevent people from trying to acquire large amounts of BVB without spending it. Since the only real value is to pay local property taxes, the currency will stay local.

The banks would earn something like 1BVB per transaction for the bank of the spender and 1% of the transaction value for the bank of the recipient.

Why might this work?

The township takes a monetary income of one tax year and agrees to forfeit it by granting it back before payment. But since this new money will immediately begin to change hands, this will assure that all of the revenue loss is not placed in 1 year, because people who earn BVBs will pay over more than 1 year and people who simply spend them will be obligated to pay their taxes in a more formal legal tender.

Helping to kick-start a local economy should have the effect of stimulating local recovery which will help to create local business and homeowner value and this should help improve the tax base again.

This is really just a start, but if it seems like it could work, it could be done almost anywhere it was needed. Some towns might even consider doing it just to build a local network of local business interests.

I mean this is what the FED does, they print money so that you can pay them more taxes later on .... why couldn't towns start printing money which can be used to pay local property taxes???

Thom

-- Thom Gilligan (thomgill@eznet.net), September 01, 1999

Answers

Thom,

Interesting concept ... and I'll have to spend some time thinking about why it is that my first reaction is such a dubious one.

Perhaps it's because I think it might be viewed as extremely complicated by the average blue-collar worker who say, "Phooey! I'll use barter with my neighbor to trade essential items like food and clothing. As for the infrastructure that the town council wants to re- build, I'm not willing to spend a penny -- let's wait until the economy improves before we worry about that."

I also think that as a practical matter, you're likely to see a "black market" system operating in parallel with your "official" scheme, much the way we see in other chaotic economies where it appears the citizens don't really trust their government.

And that's something you need to keep in mind: why should the local citizens trust their town council, especially if it's the same old geezers who were in power before the Y2K disruption? Maybe it would have a better chance if the citizens threw the bums out and brought in an entirely new group of "amateur" politicians -- but having watched the way things work in a few small towns, I think that might be a little idealistic.

Ed

-- Ed Yourdon (HumptyDumptyY2K@yourdon.com), September 03, 1999.

That could be a good idea, but what about people who CAN'T pay their taxes? For example, people who have mortgages usually pay their taxes along with their house payment. If the mortgage company computers are goofed up and your tax payment isn't made, it will be hard to come up with the money on your own when you weren't planning to make a payment.

Would your property be taken by the township and offered to someone who COULD pay the taxes? In this type of situation there wouldn't be a lot of incentive to protect homeowners from either the township or from those eager to take advantage of their neighbors.

What would you propose to make sure everyone is protected?

-- Kimberly Hott (ckhott@urec.net), September 02, 1999.

Interesting proposal, but I had a few questions:

(1) Why would anyone accept the money in exchange for goods and services? Money is built on the trust that when I accept it, it will be accepted somewhere else.

(2) How do you propose to get around the Federal currency regulations? If there is no change, this would be a violation.

(3) Although you are essentially "priming the pump" with the initial amount, how do you expect to avoid the inflationary pressures associated with a sudden increase in the money supply?

(4) What does the municipality get out of this? It seems like they will only get their taxes paid...with money that they gave out in the first place! They need to get something in exchange for their money, or the money will be worthless...see #1 above.

-- Mad Monk (madmonk@hawaiian.net), September 02, 1999.

Thanks to Mad Monk and Kimberly Hott for asking some questions.

First in response to Kimberly, who worried about people coming under a failure to pay taxes causing forclosure. Under normal times, the number of people who do not pay their property taxes is usually rather small. Since taxes are paid only once per year, many municipalities will create individual bonds on each delinquent payment which allow them to take payment from someone else (other than the delinquent taxee). The bond carries an attractive interest rate. The taxpayer keeps the home and now owes the back taxes plus interest to the bond holder. Eventually if the taxpayer cannot pay (when the bond term finishes), the bondholder becomes a lien holder on the house just like the mortgage company. If the mortgage is paid (or the mortgage is also in default), it is possible for the bond holder to "foreclose" on the owner and take possession of the house. Generally, this requires lawyers, and there is always a chance for the owner to explain why they are behind and ask the judge to grant them an extension. If y2k only causes small problems, similar to a mild recession, then those who are unfortunate enough to lose their job because they were one of few who were affected directly, may get behind on their taxes and eventually lose their homes if they are not able to get back into a job soon enough (normal hard times). If y2k causes major problems, with banks losing track of escrow tax accounts (those taxes which are part of your monthly mortgage payment), most judges (elected officials) would be quite prudent to stay on the side of the homeowner, since y2k was not caused by negligence of the homeowner. You can bet your pants that there will be a strong political backlash to any judges, city officials, and citizens who try to use severe y2k induced problems to take financial advantage of neighbors and try to get their homes.

Actually, my proposed money program should have the effect of helping to protect homeowners. Let me go deeper into the idea to show this and at the same time answer some of Monk's questions.

First of all, let me say again that the starting point for such a program would be at the point when a township recognizes that most of their homeowners and renters are in deep financial trouble because y2k has caused enough problems that almost everyone is unemployed (meaning they are no longer commuting to work everyday because the companies they work at are mainly closed. It is also important to say that this money creation concept is primarily considered for a scenario where THE BANKS ARE CLOSED AND WHEN THEY RE-OPEN IT WILL NOT BE BUSINESS AS USUAL. For example, during the great depression, although the nationwide banking holiday was not long, the unlucky depositors of many of the worst banks experienced much longer holiday, and in the end (sometimes months later) when they got their money, they were only able to get back about 20% of what they hadthey lost the rest.

Compared to the 7 trillion dollars of digital deposits, the 300-400 billion dollars of physical currency which will be available is very small. Also, it is impossible to put digital money under the mattress. The money is in the bank. It is, however, possible to put physical currency under the mattress. If the banks are not working well enough, many people may decide that holding cash is a good way to keep their savings since it does not require the use of a bank. It is also important to remember that today, payments made between businesses are usually done by check or debit/credit card. Since about 90% of transaction value (GDP) is between businesses and only 10% is between business and individual households, if businesses are forced to start paying in cash to their suppliers, this will put an immense burden on the limited supply of physical cash. Another important point to consider is that in a situation where cash becomes short, there will always be some people who just happen to have a fair amount and others who have almost none. For example, I know a grandma who has at least = a million dollars in CDs (safe) but who writes a check for almost everything she does. At the other end of the spectrum are kids who have all of their savings in the piggy bank. In a severe y2k bank holiday, the kid is richer.

We should also consider that people who do have extra cash may be afraid to spend it because they do not want to be noticed as someone who "still has cash" or because they want to keep it in case they need it later.

So under these circumstances, it may be pretty obvious to the town council of a small town that many or most of their homeowners may be defaulting on their mortgage and tax payments for a few months or even longer. If most of them cannot continue to pay, it is pretty clear that the town council we be in the unenviable position of trying to squeeze blood from a turnip. Also, if y2k drives down the property values significantly, and the homeowners organize themselves politically, they can force the town to reassess the values much lower (which correspondingly lowers the taxes). So in my proposed money program, the town council has to have come to the conclusion that they might be required by default to forget about collecting taxes for a year or two so why not make the loss pay out positive returns.

To make my example more clear, let me introduce some numbers. Let us say that the town consists of 3000 homes and that the average home is assessed at $125,000 and the tax rate is 2% so the average homeowner pays $2,500 per year. The revenue to the township is $7.5 million per year. BASED ON THE ASSESSED VALUE OF THEIR PROPERTIES, THIS IS A YEARLY "LIABILITY" WHICH EACH HOMEOWNER FACES.

The township declares that any resident homeowner or renter who comes down to the participating bank to "register" for the "tax coupon checking account" (Monetary unit called a BVB in my Beltwayville example) will be given a starting balance in BVBs equal to last years tax payment. At this point in the game, the value of a BVB is exactly one dollar, and almost every resident has an equal amount. Instead of being redeemable for gold or silver, it has value because it is redeemable by any homeowner who is paying a property tax bill. This means that to local homeowners a BVB will be valuable. To outsiders, generally not. The only way this money could lose value is if the community were to believe that the local government would not be able to collect taxes and therefore homeowners would be relieved of their yearly liability. But most communities use the local property taxes to pay for local services like schools, police, fire protection, sewage and water management, etc. so most homeowners will want to see some form of local taxes. This means that the goods and services which are exchanged where the buyer is using BVBs to pay are primarily going to be local transactions. Local transactions benefit local communities because they create the wealth of microtrade, they help raise the level of employment locally, they help reestablish local sources of goods and services. Since townships do not usually benefit from income tax (federal and state) or sales tax (state), a "temporary" (5 year) currency which stimulates local barter and yields no income and sales tax is not going to hurt them. On the other hand, people who are able to earn some of their income in BVBs are going to be able to continue to pay some of their property taxes.

Homeowners who do not reside in their home, but rather rent it out (or apartment owners) may appear to lose out on the deal here since the renters who live in the house will get the BVBs. Actually, the homeowner has the option of accepting some or all of the rent payment in BVBs by negotiation with the renter. The reason for giving the renter the BVBs is because the purpose is to allow every resident of the town equal access to this system.

It is obvious that such a system, if used in normal times, would rob the coffers of state and federal tax collectors. We must assume that the y2k economic damage has been severe enough that the state and feds are glad to see anything which any local community can do to get themselves back on their feet without state and fed help. So the idea is that with a 5 year limit on the program, this would allow enough time to allow the program to evolve to maturity but short enough to not be in the way of longer term tax programs at the state and fed level.

So now, everyone has this new money. Nobody is really much richer (those who got more BVBs because they have expensive houses are also burdened with higher tax liabilities). Anybody can take out an old checkbook (the blank checks are a convenient format and many people have them at hand - no need for printing) or they can simply fill out a piece of paper in the proper way to transfer some number of BVBs to someone else in exchange for goods or services. The BVB simply becomes one additional unit of value (along with cash, gold coins, silver coins, cigarettes, toilet paper, etc.). The thing that is unique about the BVB is that at the start, every resident in the local township who registered has almost the some amount. This will not be the case with cash, gold, silver, cigarettes, etc. Thus, it will not be "unusual" for someone to offer to pay in BVBs. This also means that someone who does not have a way to "earn" BVBs (for example an elderly person) may consider "buying" them from someone who accumulates BVBs (for example a handyman or a farmer) by using a gold coin. The sale of the gold coin is private and discreet, allowing the buyer of the gold to have access to a currency which is very common in the local public. This would allow the gold coin owner to pay a barber, a babysitter, the grocer, the gas station, etc. without them all knowing he had a few gold coins on the side.

Although at the start, everyone will have about the same number of BVBs, there are always those people who will spend most of it, and those who will find ways to work for it. By the time the first years tax bill is about due, there should be enough imbalance in distribution that some people will have a lot more BVBs than they need for the first year, so they will keep them for payment in another year. This almost guarantees that NOT ALL OF THE BVBs WILL BE REDEEMED IN THE FIRST YEAR. Besides, if the township finds that too many of the BVBs are being redeemed in the first year, they can simply use some of them to pay their employees, and thereby put some BVBs back into circulation. During the first year, there would be 7.5 million BVBs in circulation. The township would "retire" some fraction of them each year with the target being to retire all of them by the end of 5 years. But, once the system was established, if it was politically expedient to extend the program, the township could continue to issue BVBs by paying for locally acquired services in BVBs. As a matter of fact, when the township understood the value to local economy that a local currency offered, they could even insist that the township pay some fraction of their budget (for example 30%) in BVBs, thereby guaranteeing ongoing stimulus of local businesses who provided services to the township. The local money supply would be managed in an open way with any decisions to increase of decrease the BVB supply being decided by local officials and following any predetermined guidelines. If the township were to act in a way which would debase the value of the money, it would hurt them because they are agreeing to accept them for payment of taxes (i.e. their revenue).

Monk's concern that this additional money would be inflationary should be addressed. Inflation and deflation - PRICE (by theory) are determined by a balance of two things: The amount of money (and monetary velocity) and the amount of goods and services offered. The interesting thing about the BVB program is that until people start "spending" the money it is only a number. There will be one primary and very valuable use for BVBs and that will be for the purpose of paying a future tax liability. Anybody who foolishly offers 1000 BVBs for a can of coke just because they "got it for free" is throwing away a valuable asset which they could use down the road to pay their taxes (or pay their rent). As long as it remains clear that the local government is going to be politically able to collect property taxes in the near future and that failure to pay will have negative results (foreclosure, transfer of tax lien to bondholder, etc.) one would expect the value of the BVB to remain fairly stable.

People preparing for y2k and barter often focus on the trade of physical goods (for example a roll of TP for a #10 can of beans) but they forget the more difficult aspect of labor. For example, let's say that I have a large bit of fertile land and some non-hybrid seeds. I could use my BVBs to pay the hourly wage of some able bodied men who could help work the garden. Later when the harvest arrives, I hope that my vegetables will sell for more BVBs than I paid the help. The whole purpose of the program is to give people a method to monetize labor with each other, one of the keys to developing a local division of labor.

One scenario to consider here is that the collapse of real estate values nationwide causes the township to reassess property values, for example reduce to 50% of former value. Most likely, a major adjustment like this would be done under political pressure to reduce the amount of liability of tax payers in dollars. At the same time, the value of the BVB would be reduced too. The amount of tax liability which a BVB would pay remains the same. The price of a BVB in dollars is reduced by =.

I hope that some of the questions have been answered and I hope to hear some more ideas and comments. If the idea can really be thought through and it represents a valuable option to communities, maybe it should be promoted.

Thom

-- Thom Gilligan (thomgill@eznet.net), September 03, 1999.

I've done a considerable amount of thinking about alternative economic systems in the last 18 months. Did some reading. There are towns who have "town money" systems in place already. I grant you that "town money" does not address much beyond the local level, but there is quite a bit of information out there about places that are doing it. In the event of a collapse of a central banking systems these "locals" might fare a bit better already having another system in place. For a look at what Ithaca, New York did try this site:

Ithaca Hours

-- Donna (moment@pacbell.net), September 04, 1999.

Once at the Ithaca Hours site you can click through to a list of many cities/towns experimenting successfully with local money.

Strictly as an aside, I have for the last 5 years been associated with a number of people who patronize a "free market 'bank'". It is has been in existence for more than 20 years, is not an arm of any governmental agency, and provides its customers with exchange in either FRUs (federal reserve units) or gold. I am firmly convinced that there are many such examples of "alternative" economies in the fair us of a, and as sure that should the fractional reserve system go Pop!, groups of creative people will make something better.

There is some good thinking out there about so called "gift economics"...worth a web search.

-- Donna (moment@pacbell.net), September 04, 1999.

any government entity, or any business, can issue scrip (aka script).

-- jocelyne slough (jonslough@tln.net), September 07, 1999.