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PaulS's picture

Liquidity Network

developing a complementary currency
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This is an interesting and well developed system designed to address the Irish national liquidity problem - but the principles and perhaps also the tools apply to any other economy - for example a local Cornwall economy.

Just substitute' Cornish' for 'Irish' as you read it.

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The aim of the Liquidity Network is to address the Irish national liquidity problem - the slow down in economic activity triggered by the credit crunch.

Currently virtually all economic activity is powered by debt based credit - individuals and businesses borrow in order to finance their activities. Using the credit released by these loans they employ or do business with other individuals/ businesses who in turn do business with their suppliers and so on. There is thus a multiplier effect whereby the initial credit fuels transactions worth many times more than the value of the initial loan.

When the ’seed’ credit from banks dries up, as in the current crisis, the multiplier effect which normally helps to create liquidity efficiently acts in the reverse way and removes liquidity quickly.

FEASTA’s Liquidity Network aims to address this problem by creating an alternative ‘liquidity stream’ which is not based on debt.
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The idea that you can give away Quids to get the Network flowing is somewhat counter-intuitive (at least to a non-economist). When people spend their Quids, another member of the Network will have earned them and will go on to spend them, circulating the Quids and creating the multiplier effect referred to earlier.

If everyone ‘use and sit’, then there is a problem - similar to a barter problem with winners and losers.

The challenge for the Network is to generate quickly an extensive range of Quid-accepting products and services. And the strategy for this is a combination of:

a) starting with a large number of accounts rather than starting small and growing organically

b) creating some ‘no-brainer’ ways of spending Quids (e.g. paying your tax bill with them) to create Quid-confidence

c) prioritising the operational side of the network by partnering with organisations who have infrastructure to manage the Quid accounts (Network-Partners). The Network doesn’t have time to develop these systems from scratch.

d) developing and sharing ‘meta information’ about Quid-usage options via directories and member marketing support
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A key objective of the Network is to keep the Quids circulating quickly. It is this ‘velocity’ of circulation that gives us the multiplier effect that eases the liquidity.

It is therefore vital to reward quick spenders and penalise Quid-sitters.

Therefore unused Quids devalue over time: key aspect of this system is demurage (negative interest):
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Potatoes have a shelf life.

Converting real wealth (the ecosystem and peoples goodwill and skills) into notional items ($,£ etc) so as to hoard the notional item ("fiat money" $,£) is not useful. If the token devalues it will only function as a tool for exchange, not as a hoard, so less ecosystem and good will (environmental and social capital) will be converted into notional items (imaginary ticks in a banks computer).

Real Wealth = Good. Notional Wealth = Imaginary.
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For much more on this fascinating subject click here: http://theliquiditynetwork.org/about/

Another project the Cornwall Council could perhaps undertake?