Tao of Money



Latin America’s Quiet Monetary Reform


INFORMATION EXTRACTED FROM ARTICLES PUBLISHED IN URUGUAY, APRIL 2009

The Executive Power prepares details for a new system of payment which will be adopted to stimulate micro and small businesses.

In two months, the government will release a new way of payment, a transaction network, which will allow micro and small business to interact among themselves, through a new alternative currency, and at the same time to face their obligations with the State.

This was announced recently by the Minister of Work, Eduardo Bonomi, during his participation in the talk “International Crisis and Uruguay 2009”, organized by Montevideo City Council.

Minister Bonomi said that the development of this new system is the result of working together with the Ministries of Work, Economy, Industry and Energy, and with other governmental organisms, as well as state banks and state insurances and city councils of Montevideo and Canelones. Moreover, state companies will take part in this new system as well.

“This new network of transactions will allow small and medium businesses access to credit through an alternative currency, but it will be exchangeable throughout the whole country, where they will be able to pay for petrol, taxes and it will be redeemable into money”, he confirmed.  Nevertheless, he made it clear, that this project is about giving support to the production and it’s not a credit for consuming. “Next week I’ll have a talk with the Meyer of San Jose (neighbour city), so that he enters the whole metropolitan area to the system. The idea is that city council providers can also trade through this currency”, said Bonomi. In a first stage, this system would include just micro, small and medium businesses, but in the future it could also absorb privates to the network.

This initiative counts with the support of the ILO, IADB (Inter-American Development Bank) and the General Inter-American Secretary. This project aroused a lot of interest among the region countries such as Argentina, Bolivia, Ecuador and Venezuela, which means that in the future inter-regional transactions may be possible.

Mechanism

All over the world similar systems already exist.  In this case, the different element is that the administrator will be the State. It works as a network of payments through electronic debits and credits. To join the system the companies must request approval of the State Bank.  From there on, the company will be assigned an account in the system. This company will be able to order the payment from its account to be credited in favour of a state organism or a private member of the network.  Accounts will be balanced periodically and participants advised of their trading position.

This amount will be redeemable into national currency or used to pay for petrol or taxes. Bonomi said that this idea was presented to the National Association of Micro and Small business and to the Uruguayan Confederation of Cooperative Entities and other cooperatives, arousing great interest among them.

Implementation

The development of the network doesn’t create any costs for the country, since it was originated in cooperation with the STRO Foundation from Holland, which supplies the network model, known as C3 (Consume and commerce circuit). The name for the virtual money circulating through this payment scheme is called “internal liquidity”, although the technicians working on its development adopted a more native denomination: “charrua” (name of the Indians, that inhibited Uruguay before the colonisation, and who were completely exterminated, therefore it is ironic that the Uruguayans are called like that even nowadays, and more that this name it’s used as a icon of local identity)*.
However, in Uruguay STRO chose a new approach, which might also work out well for other C3s. Small businesses cannot obtain the same payment guarantees that large businesses receive. C3 Uruguay is going to work with a guarantee fund that will assure small businesses of payment on delivery in internal C3 money. In such case these small businesses do not have to wait for months until they receive payment and are therefore able to maintain their stock level. In the capital Montevideo, where over a half of the Uruguayan population lives, the same method of payment on delivery in internal C3 units to small businesses will be followed.

For STRO this new C3 approach is a fascinating experiment, because large partners have joined in. We therefore hope to gain more insight in what a C3 business network can do with a complementary currency in a poor country.
Access to the credit
Operations would be 100% guaranteed and the system will allow access to low cost credit -around 10 to 12% to small business that aren’t currently covered by the traditional banking system. This will also improve competitiveness of this economic unit and its formalization will be stimulated, reducing administrative and transactions costs at the same time. This network won’t create inflation dilemmas, since the financing will be channelled towards production, which will broaden the supply of goods and services.
National System of Guaranties
A guaranty fund of 5 Million US$ is planned to be established as the initial capital to stimulate the credit for small businesses. (What backs this fund?)
Interesting information about Uruguay’s current financial situation

Mario Bergara, President of the Central Bank pointed out that: “the main message from the finance system is one of tranquillity, since it is dealing with levels of solvency and liquidity unknown for the last six years. The liquidity level of the system is currently 60% of deposits, while in the worst financial crisis in our history the withdrawal of money reached 47% of total deposits.
Moreover, in contrast to the 2002 crisis, where the foreign deposits were 42% of total deposits, nowadays this amounts to 18%.  The Argentinean deposits among these went from 40% to 16% in the same period.

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Comments

  1. * Sepp says:

    Thank you for a very interesting article.

    Way to go – Uruguay.

    We might learn something for our own countries from this experiment.

    | Reply Posted 8 years, 4 months ago
  2. “a transaction network, which will allow micro and small business to interact among themselves, through a new alternative currency, and at the same time to face their obligations with the State.”

    Jct: Wonderful. Any local currency that can be used to pay taxes will be treasured by all.

    “All over the world similar systems already exist. In this case, the different element is that the administrator will be the State.

    Jct: Wonderful, no counterfeiting problems like they had in Argentina’s local currency experiments.

    “It works as a network of payments through electronic debits and credits.”

    Jct: With government backing, tbey should print up some paper credits to facilitate trade without having to register each transaction, the true valuable use of of tokens.

    “low cost credit -around 10 to 12% to small business that aren’t currently covered by the traditional banking system.

    Jct: Too bad they are going to pay for it with a usury charge instead of a service charge. that means that according to Turmel’s Miracle Equation, 10%/110% will be knocked out of their mortgage deathgamble contract due to the demand for 10% more than was created.

    Fortunately, if the local currency is pegged to the Time Standard of Money (how many dollars/hour child labor) Hours earned locally can be intertraded with other timebanks globally! In 1999, I paid for 39/40 nights in Europe with an IOU for a night back in Canada worth 5 Hours.
    U.N. Millennium Declaration UNILETS Resolution C6 to governments is for a time-based currency to restructure the global financial architecture.
    See my banking systems engineering analysis at http://youtube.com/kingofthepaupers

    | Reply Posted 8 years, 4 months ago
  3. Thanks for this very useful News . May we post it at http://www.EthicalMarkets.com ?
    Keep up the good work, Hazel

    | Reply Posted 8 years, 4 months ago
    • Jct: You may post it and glad to have you aboard the community currency railroad.

      | Reply Posted 8 years, 4 months ago
  4. * Mark Herpel says:

    Dear Chris,

    Great article. I would like to reprint this in our next issue of Community Currency Magazine. May I have your permission to reprint with full credit and links? I could not locate a contact email on this web site, so I’ll leave you the message here. So much forward progress in Latin America, why is the U.S. so far behind?

    Please email me or Skype me editor@ccmag.net Skype ‘digitalcurrency’

    Many thanks.

    Mark Herpel

    | Reply Posted 8 years, 4 months ago
    • * Chris Lindstrom says:

      Hi Mark,
      This article actually was sent to me via email with no author or source on it. So it may be a little faux-pas that I re-posted it. Apparently it was translated from some newspaper in Uruguay. So by all means you can put it up on your site but I don’t have any source for you.

      | Reply Posted 8 years, 4 months ago
  5. * Mark Herpel says:

    Thanks Chris I will be out later today.

    Mark

    | Reply Posted 8 years, 4 months ago


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