No currency will work unless people accept it from each other so this novel money will be put into circulation as a way of rewarding those who are accepting and spending it most.

Around the world, conventional currencies such as the euro, the dollar and the pound are in short supply because of the current economic crisis. A liquidity network (LQN) is designed to ease this shortage by creating and distributing a supplementary debt-free currency so that businesses and individuals can trade locally without needing the conventional sort.

Money essentially performs three functions: it acts as a means of exchange, as a store of value and as a unit of account. A liquidity network aims to fulfil only the first of these. It would enable people to buy and sell goods and services in a specific geographic area. The generic name for an LQN’s electronic currency is the quid but each local system will probably give a special name to its own version. For example, the emerging Kilkenny LQN group has named their unit the Katz after a very successful local hurling team, the Cats.

As quid can be spent only inside the local area, a healthy quid supply will boost local trade. If euros become scarcer and scarcer, the relative importance of an LQN will increase. Quid will free up euros for ‘out-of-area’ transactions and places with an LQN will become more competitive than those without.

Imagine if a million euros went into circulation in your town overnight but they were super-euros — euros that could be spent only in your area and which spawned extra super-euros in your account if you spent them quickly. A much higher level of trading would take place as the new currency passed rapidly from person to person and from business to business. This super-euro is the quid.

Liquidity Network structures and design

Each LQN will be run by a local organisation within a framework and guidelines set down by a national support organisation to which they all belong.

An important function of both the local and the national organisations is that they recognise and reward Positive Behaviour — behaviour considered to be beneficial to the specific LQN or to the acceptance and success of the LQN movement in general.

The key aspects of the LQN design are:

• Accounts are not allowed to go into the red. Transactions are processed instantly and because there is no debt, there is no need for credit checks nor a legal process for debt recovery.
• Quid are given rather than lent into circulation, the only condition being an expectation of (defined) Positive Behaviour by the recipient.
• Some Positive Behaviours — for example, spending one’s quid quickly after one gets them or dealing with an increasing number of people — are rewarded after the event.
• If someone fails to maintain a trading level for which they have been rewarded, the quid they were given can be gradually withdrawn. This is to ensure that the supply of quid can be reduced to maintain its value if the overall level of trading falls.
• All trading is carried out electronically by mobile phone or over the Internet. This enables the LQN to calculate rewards or account reductions. There is no paper currency.

The LQN design team also have strong preferences:

1. for Open Source software development and Open Hardware
2. for organisational structures recognising the advantages of the Viable Systems Model and sociocratic approaches
3. for the development of publicly visible Trading Reputations based on Positive Behaviours, as a means of building mutual trust among LQN users

The detailed design of each LQN will be developed with local LQN partners and local circumstances may dictate specific tactical decisions. The team’s preferences above should be seen in that context.

Wherever the LQN concept is discussed, people are excited by it. The challenge now is to design and implement strategies that will create the critical mass of earning and spending required for a successful LQN. The Feasta group is concentrating on two particular approaches:

1. A local authority–backed LQN: The LQN would give the local authority a specific amount of currency, for example 1 million quid, to spend into circulation by paying a portion of its staff salaries with them. In return, the council would agree to carry on accepting quid, at par with the euro, in payment of local rates, rents and service charges until it had either earned-out its advance in performance rewards or had returned any unearned advance to the LQN. We are currently discussing this arrangement with councils in Dundalk, Kilkenny and Ennis.
2. The ‘TradeTrust’ route: A trade exchange network using euros is set up with the support of the local Chamber of Commerce. This network has all the features of an LQN, i.e. instant electronic transactions and no credit, except that the transactions are in euros, so users have to provide (or be provided with) a euro float. Once the exchange is running, the trading levels provide a good guide to the amount of quid that each account needs to provide the liquidity for the amount of trading it is doing. The appropriate quid amounts can then be issued and the euros withdrawn. A group in Cork intends to follow this route.

The drawbacks of free money

The fact that in both of the above cases quid are given into circulation is one of the obstacles facing an LQN, as the idea that money can be ‘given away’ encourages the thought that quid are of no value. In addition, there is an initial worry that there is no way to sanction participants who retire from the scheme immediately after spending the quid they have been given. But then the penny drops and the worriers realise that all the quid already spent are in other accounts and will be spent again and again and again around the local network.

Once an LQN is operating on a reasonable scale, fear of losing trade to rivals will be a key factor in encouraging traders to stay in the network and others to join. Getting people to join in the start-up phase may be more difficult. It is becoming more obvious that we need to appeal to both intrinsic and extrinsic motivations. We have been somewhat surprised recently to notice that while our own motivations for developing LQN are largely intrinsic, we have assumed that we needed exclusively extrinsic (economic) motivations to encourage participation. But does an LQN project grounded squarely in a distrust and dissatisfaction with mainstream economics really need to couch its propositions solely in terms of economic benefit?

For traders the advantages of joining — their extrinsic motivations — are administrative efficiencies:

• instant transactions with no credit. If insufficient funds are in place the transaction doesn’t happen.
• simplified electronic transactions with well-designed User Interfaces.
• low transaction costs (compared to banks) and maintenance fees.
• and being on the inside track of a new growing local marketplace, such as that offered by the members’ directory section of the LQN website.

However, we are beginning to suspect that intrinsic motivations — support for one’s local community, local activism vs. national “sitting on hands,” building trust via transparent transaction behaviour — may be as or more important than extrinsic ones and that LQNs should harness these feelings in their marketing messages.

Rewarding positive behaviour

A progressive and proactive local council will want to be seen as a driving force at the heart of an LQN initiative that embodies the social cohesion needed for competitive modern localities. To earn their advances, councils will be required to pay a portion of their employees’ wages in quid. The advantage of this is that it enables the council to avoid redundancies and reduce short-time working. Other positive LQN messages should also be adopted and communicated by the council, such as the extra quid given when users spend quickly.

Individuals and traders are rewarded when they accept quid for the first time, quickly spend the quid they have earned, increase their monthly quid turnover and have more quid dealings with more people. They will also be aware that although some of the quid they are given as a reward may be taken away if they fail to maintain the performance for which it was given, quid that they have actually earned through their wages or trading will never be taken except to pay the normal monthly account maintenance fee.

Limitations of the quid

I noted at the start of this article that the quid is not a store of value. It is designed to incentivise local spending. Of course, individuals and businesses need to save — for retirement, to even out good and bad years and for capital purchases — but they will need to use currencies (or goods) other than the quid for these functions.

Nor is the quid suitable as a unit of account except within an individual LQN. Quid are not ‘backed’ by the euro or by any other source of value. LQNs will not offer formal quid-exchange services between LQNs, although we expect to see such services being offered by LQN participants and would see their emergence as evidence of success.

Over time, quid will almost certainly lose their value against the euro. If the euro gets scarcer, its value in terms of quid will rise and the one-for-one parity maintained by a council will need to be broken. The quids used by different LQNs will acquire different exchange rates with the euro and thus with each other.

The urgent need to get the first LQN running

The Feasta group has already completed much of the groundwork to enable communities to get started on developing their own LQNs. We have written the basic software, demonstrated the transfer of quid from mobile phone to mobile phone, defined and modelled the reward algorithms and drafted the legal documents under which a local LQN and the national support organisation would be set up. We also have an opinion from a senior counsel that an LQN would comply with Irish and EU law. All we need now is a sound, broadly based invitation from a community.

So far, though, community leaders seem not to regard their situations as desperate enough yet to overcome their reluctance to try novel solutions and risk failure. In fact, that was exactly what we were told at a meeting with officials from a Regional Development Authority. In any case, the officials said, the unions would reject the idea of their members being part-paid in quid even if they knew that all the major local shops would accept them.

Nevertheless, the group believes that the liquidity crisis will worsen and that communities will increasingly want to respond locally rather than wait passively for national interventions that may or may not arrive.

Sometime soon, then, we expect the first visionary community leader from among the councils and communities where LQN dialogues are taking place to ask for help. He or she will realise that the risk to their personal credibility is unimportant compared to the potential beneficial impact of an LQN to their friends and neighbours. They will see that ‘business as usual’ is not an option. When they do, the LQN team will use all the energy, commitment and creativity at its disposal to make sure that these pioneer adopters gain the maximum benefit for the places from which they come.