hill country observerThe independent newspaper of eastern New York, southwestern Vermont and the Berkshires




Banking for the common good?

Group aims to grow alternative financial system in Mass.



Contributing writer

Consumers angry at the U.S. banking system could soon have an alternative way of saving and pooling their resources for the good of the community – at least if some people in western Massachusetts have their way.

Common Good Finance, a group that has been working for several years to craft a model for a locally based, democratically controlled financial system, announced in November that it plans to launch a new local money system in Greenfield, Mass., in early 2012.

The new system, called R Credits, would essentially function as a local currency. Users could exchange U.S. dollars for R Credits at participating banks and spend the credits at participating businesses.

The concept is similar in some ways to the BerkShares local currency that’s been circulating in southern Berkshire County for the past five years. But in contrast to the BerkShares system, Common Good Finance won’t print paper bills. Transactions in R Credits will be tracked electronically over computers and cell phones.

If the rollout in Greenfield is successful, organizers say they plan to expand the program to Berkshire County, where Common Good Finance already has a network of active members and supporters.

“We want Great Barrington to be next,” said Becky Meier, the group’s public relations director.

As with BerkShares, supporters of Common Good Finance say they’re aiming to use their alternative currency to build and strengthen local economies. The “R” in R Credits is borrowed from the unit for insulation value, signifying that the system helps to insulate the local economy from downturns in the larger economy.

“It’s based on an understanding that money is an agreement between people,” Meier said. “Money is a token that represents value. Any group of people can get together and make that agreement.”

The backers of R Credits also are motivated by what they view as the misplaced priorities of the conventional banking system – and the fact that most people don’t have a say in how the wealth created by that system is used.

“We have the same issues as the 99 percent and Occupy Wall Street movements: a terrible inequality of resources, not enough money for human needs, corporate greed, war, and degradation of the environment,” Meier said. “A lot of people are now talking about the problem and defining it as money and its distribution. Common Good Finance has devised a system where local groups can take back control of their economy.”

William Spademan, the group’s founder and board president, said Common Good Finance is based on the idea that people can create a better financial system by taking matters into their own hands.

“It doesn’t depend on altruism, government or corporations,” Spademan said. “We can do it ourselves.”

An alternative economy
Common Good Finance had its beginnings nearly 30 years ago, when Spademan became discouraged with the progress existing organizations were making against the world’s pressing problems. Over time, he concluded that the solution was to create an alternative infrastructure, based on community and cooperation, so that everyone could have good food, clothing, shelter, healthcare, education and fulfilling work.

A software engineer by trade, he knew this was too big and complicated for any one person to solve, so he enlisted the help of people with expertise in economics, banking and finance, business and social investments, technology, law and social welfare.

Spademan and his supporters started a pilot project in Ashfield, Mass., in 2003, creating a small alternative economy in which members voted to spend some of the profits on people in need. But the system proved confusing and, as Spademan put it, “disconnected from the real world,” and the bookkeeping was burdensome.

The group then set its sights on creating its own bank, to be called the Common Good Bank. The plan was to raise the $10 million needed to charter a bank from 3,300 founding members, rather than a few wealthy investors. Account holders, not shareholders, would vote on what sorts of loans the bank would make and how its profits would be spent within the community. A mutual credit system, essentially an alternative currency that could be spent at participating local businesses, would be a key part of the bank.

But raising $10 million proved difficult. So in October, Common Good Bank formed a partnership with e3bank, based in Philadelphia. E3 is a nationally chartered commercial bank with full regulatory approval, with a signed agreement to acquire an existing bank. It has three bottom lines: enterprise, environment, and social equity.

“We’ll collaborate with e3bank to create products and services that will be acceptable to regulators and allow both organizations to fulfill their missions,” Spademan said.

And that, he said, will free Common Good Finance to focus on its mutual credit system, a much less expensive project.

Both Meier and Spademan said that in designing R Credits, they looked at the successes and limitations of other mutual credit systems.

“Many successful mutual credit systems required a huge amount of time to create economic circles so that people have enough places to spend their credits,” Spademan said. “One of our innovations is to do that with computer technology and less effort.”

R Credits will include financial incentives for people to use them. By partnering with local banks, R Credit users will easily be able to exchange R Credits for dollars and back again, and have access to bank services such as checking accounts, ATMs, and major credit cards.

“The design overcomes the restrictions on credit unions, combining the spirit of a credit union with the power and flexibility of an FDIC-insured stock savings bank,” Meier said in a press release.

Testing idealism’s limits
Common Good Finance is introducing R Credits in Greenfield for several reasons, Meier said. The community has already had experience with a local currency, Greenfield Dollars. Several key businesses, including a supermarket, department store and food co-op, are locally owned. With a hospital and community college, the community is a comfortable size and has a history of supporting progressive causes.

The Common Good Finance team has met with a number of local business owners and community leaders and received responses ranging from interested to enthusiastic, Meier said.

But Stephen Sheppard, a professor of economics at Williams College, is skeptical that R Credits will bring about the revolution that Common Good Finance wants to see.

“The idea of having local currency is not really novel,” Sheppard said.

In the mid-19th century, he said, there was no national currency, and any state-chartered bank could issue its own. The system was plagued by counterfeiting and bank failures, which eventually led to the creation of the Federal Reserve in 1915.

“There’s very scant evidence that local currencies make significant differences in local economic development,” Sheppard said.

All too often, he added, people wind up with more local currency than they can spend locally.

That appeared to happen in the Great Barrington area, where the number of BerkShares in circulation peaked at 175,000 in 2008 and then fell over the next two years. Some merchants there, such as the Berkshire Co-op Market, began limiting their acceptance of the alternative currency after discovering that they couldn’t use the bills, which initially carried a 10 percent discount from U.S. dollars, to pay their suppliers.

In an effort to get more businesses to participate, BerkShares Inc. decided in 2009 to change its exchange rate from 90 cents to 95 cents per BerkShare. But that reduced the incentive for customers to use the currency for purchases.

Still, the BerkShares program now has the equivalent of about $2.7 million in circulation, according to its Web site. BerkShares are accepted at more than 400 local businesses and can be exchanged at 13 bank offices in the southern Berkshires. However, the system doesn’t offer checking accounts, electronic fund transfers, access to ATMs, or business loans.

BerkShares supporters note that the printed currency, which is designed by local artists, isn’t intended to replace federal currency. Rather, it’s meant to “build local economies by maximizing the circulation of trade within a defined region.”

Meier pointed out some differences between BerkShares and the planned R Credits system. People have to buy BerkShares, whereas people will get some R Credits free when they join that system. Merchants who accept BerkShares effectively give the currency’s users a 5 percent discount, whereas R Credits will have incentives for both customers and businesses.

R Credits will be governed by a democratic assembly, which will make economic decisions about the community, and the R Credit system will create value, Meier said. If account holders so choose, they can, for example, direct some of that value to hire unemployed people to work on local projects.

Different currency, different values
Sheppard, the Williams College professor, pointed out that credit unions already have democratic governance, and he said people who want to buy at local businesses don’t need a local currency to do it.

Sheppard said microlending, the granting of small sums to local businesses for startup or expansion, “has shown promise in many places, but it’s neither revolutionary nor novel,” he added.

But supporters of Common Good Finance say part of their goal is to develop local economies that embrace a different set of social values from conventional banking.

Chris Schaeffer of Great Barrington, one of the group’s founding members, said the concept has potential if people embrace it.

“I was attracted by an understanding of money that I agree with,” said Schaeffer, who has a background in economics and has taught at Tufts and the Massachusetts Institute of Technology.

“Money is a mutually agreed-upon method of exchange,” Schaeffer said. “We think of money as something real, but it’s really not. You’d think that with credit cards and electronic fund transfers, people would realize money is just an accounting system.”

Schaeffer said he supports alternatives to the current financial institutions and financial system.

“The present one isn’t working to everyone’s benefit,” he said. “In mutual credit systems, depositors can determine who we extend credit or loans to. There’s a lot about the current system that undermines participation.”

Founding member Nancy Hazard, who works with the community group Greening Greenfield, said she’s concerned that conventional banks “aren’t funding projects we’re interested in or local to our community.”

Common Good Finance, she added, “would be driven by its members and able to address those issues.”

Greening Greenfield “recently had a full-day conference on creating Greenfield’s future,” Hazard said. “A recurring theme was a need for a way for people who have money to pool it to benefit the local economy.”

Spademan and Meier say they’re confident that once other communities see R Credits in action, the system will spread.

“Going global is our explicit intent,” Spademan said. “We’ll make it easy for any community to adopt it. It will be so clear to other communities that this is the way to go, selling it will not be an issue.”

Meier said the mutual credit system is based on people extending credit to each other, and there’s not much big banks can do to interfere.

“Why have we created a society where we wait for someone else to make possible what we should be doing ourselves?” Meier asked.

Janet Henderson, the group’s vice president and communities director, said R Credits offer a way for more people to get involved.

“It’s important for people to start to take responsibility and make improvements in their communities,” Henderson said. “There are solutions, there are answers, and this is a good one.”





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