Transitioning

Although it would be theoretically possible to transition to a new monetary system in one go with the proper preparation, the probability of that happening is rather low. Therefore we need a way to transition smoothly or to at least introduce diversity in the currency models in use. Diversity creates resilience and a resilient economic eco system is something we can hardly have anything against.

The next sections describe possible methods that introduce Circular Money in today’s economy.

1 Transitioning with governance support

Cooperation of governance would be the fastest way to implement a transition. As soon as governance accepts this system, starts paying jobs with Circular Money and eliminates taxes as a source for their income, everyone will automatically make the switch.

2 Incremental introduction

Let’s assume that we envision the following if people would be willing to participate for 100% in the CMEE:

  • Basic income: 2000 coins/month
  • Start capital: 5000 coins
  • Savings limit: 25000 coins
  • Demurrage fee: 2%

1 coin is the equivalent of 1 coin in the current monetary system. In the US 1 coin = 1$, in Europe 1 coin = 1€, …

2.1 Setup

Circular Money can be introduced incrementally in the following way:

  • Give everyone a free personal account with 5% of this start capital, being 250 coins in this case.
  • This capital sits in the account until it is activated.

2.2 Activation

  • Upon activation the following happens:
  • The activated account, including the commitment level becomes publicly visible in a ledger.
    • A basic income equal to 5% of the target 100% basic income, being 100 coins/month is gained.
    • A savings limit of 5% of the 100% savings limit, being 1250 coins, is gained.
    • The account holder can now use the available money to pay up to 5% of the price of services/goods purchased from others who accept it.
    • The account holder commits to accepting 5% of the price of his/her own offered services/goods in Circular Money. This ensures reciprocity and at the same time expands the available offer to be purchased with Circular Money.

The account is now activated and can be used freely with others in the CMEE. All active accounts are visible in the CMEE network.

2.3 Increasing commitment

At any one time the account holder can opt to increase his/her commitment to the CMEE by increasing the percentage that is being accepted for their products/services. Then the following happens:

    • Extra start capital is deposited on the account. This amount is a percentage of the 100% start capital. The percentage is equal to the new percentage – the old percentage of commitment.
    • The basic income is raised to the new percentage.
    • The savings limit is raised to the new percentage.
    • The percentage that can be spent, with people who are willing to accept that percentage, is raised to the new limit.

For example, if someone decides to raise their commitment from 5% to 20%

  • Basic income rises to 400 coins/month
  • Savings limit is raised to 5000 coins
  • Start capital is raised with 750 coins (20% – 5% = 15% of 5000)

2.4 Effects and conditions

Due to the built in transparency and reciprocity, abuse of the account (spending without willingness to receive) is excluded. The public ledger shows a list of available goods and services purchasable with Circular Money, including the max percentage that can be paid this way.

In order to have a successful start it is important to assess which initial services/goods would be sufficient to entice people to participate in the CMEE. Being first is practically risk free since the people spending the currency will automatically accept an equal percentage.

It is also possible that people commit to the CMEE under certain conditions. Someone might say they are interested in participating in the CMEE but only if they can purchase food, beer and web services for example. That way they could commit without actually activating their account until these conditions are met. They could even have their initial commitment level be dependant on the commitment level of the providers of these goods/services.

2.5 Introducing employees

One challenge is introducing employees to the system. If too many people who do not directly offer goods or services are introduced to the CMEE this may cause problems. One solution for this is to only allow goods and service providers to enter the CMEE on their own accord. Once they have committed to the CMEE their employees are also allowed to commit to it but only to the same level as their employers. This setup could introduce internal pressure from employees to get their employers to make a commitment, thereby enriching the CMEE.

3 By way of a transitionary currency

Another possibility to introduce Circular Money is through a transitionary currency based on the Community Way, as explained in the video below.

3.1 Setup

It would work as follows:

  • Determine the minimum amount of money, henceforth called Community Coins or just coins, that needs to be brought into circulation. This amount can be large, for example 100 million coins.
  • Find entrepreneurs and organisations who are willing to sponsor a certain amount of coins. Sponsoring the coins expresses a willingness to accept the coins in return for goods and/or services.  The amount that is sponsored is equal to the amount that they are willing to hold on their accounts. Note that this is not the same as the amount that is received, as will be explained below.
  • Once enough sponsors have been found so that the pre determined amount of coins has sponsoring backup the coins can be brought into circulation.

As an alternative to determining a minimum amount of coins, every sponsor can also state a set of conditions that need to be filled before their sponsorship is activated. This can be the size of the economy expressed in number of coins or this can be a selection of goods and services that need to be available for purchase with the coins. In either case, coins can be issued as soon as a closed subset of conditions is met.

For example:

Say we have 5 potential sponsors A to E, each with their own set of goods and services. For the sake of simplicity each of them is willing to sponsor the same amount, being 5000 coins. Each one of them has their own set of conditions, as follows:

  • Conditions for A:
    • Minimum size of the economy: 15000 coins.
    • Must be able to purchase goods from C and E.
  • Conditions for B:
    • Must be able to purchase goods from A and D.
  • Conditions for C:
    • Must be able to purchase goods from A and E.
  • Conditions for D:
    • Minimum size of the economy: 25000 coins
    • Must be able to purchase goods from B and A.
  • Conditions for E:
    • Must be able to purchase goods from A and C.

Now imagine that sponsor B is still hesitant and wanted to think it over for another week or even a month. We can already start with sponsors A, C and E because their conditions are all met. Sponsor D’s conditions are only met when B also commits to sponsoring 5000 coins.

3.2 Issuing Community Coins

Once a group has fulfilled all of each other’s conditions the coins can be issued. This can be done in several ways.

3.2.1 Issuing the coins directly to the sponsors

The coins could be issued directly to the sponsors for the amount they have sponsored. This is not the most optimal way though because the incentive to work with the coins instead of the regular currency is not that big. People don’t have the habit and they might just stick to what they know, even if the coins are the equivalent of extra cash. The power of habit is a strong one!

There is another disadvantage to this which becomes clear in the section about receiving coins below.

3.2.2 Issuing the coins to potential clients

The coins could be issued to potential clients. This creates an incentive for those clients to spend them with the sponsors. The availability of the coins might trigger these potential clients to spend more than what the coins can buy them, thereby delivering an advantage to the sponsor.

The client might also become interested in becoming a sponsor, thereby enlarging the parallel economy.

3.2.3 Issuing the coins to social causes

The coins could be issued to organisations that work on social issues. This would give them access to goods and services they might have otherwise no money for. And it helps create a positive impact on society.

3.3 Receiving Community Coins

There are a couple of ways that receiving the coins can be regulated.

3.3.1 Receiving a percentage

Sponsors could agree to receive a certain percentage of the price of their goods and/or services in Community Coins. This percentage does not need to be the same for everyone but should be declared before the coins are issued so that it can be included in the conditions if someone would desire to do so.

For example, sponsor A could commit to receiving 20% of the price of their goods in Community Coins while sponsor B could commit to receiving 50% of the price in Community Coins.

3.3.2 Receiving up to a fixed amount in reserve

Sponsors could opt for having only as much coins in their reserves as they have sponsored. Once they have reached that number they could refuse to accept any more Community Coins.

Note that this is not the same as the total amount of coins received. If sponsor A would receive 5000 coins for a purchase and then spend 3000 of them to buy something from sponsor E, they would only have 2000 coins in reserve. Meaning she is still willing to accept another 3000 coins at that point. It’s circulation of the coins that matters. It’s also circulation that creates value. In the simple case mentioned here, 5000 coins have created 8000 coins worth of value.

If this method is used then issuing the coins to the donors is not a good idea. Everyone’s reserve would be at full capacity and no one would be willing to accept ant more coins, killing the intent of a parallel economy.

Note that sponsors are allowed to receive more than they sponsored for. This is voluntarily though and can not be enforced.

3.3.3 Receiving a percentage up to a fixed amount in reserve

It’s also possible to mix the 2 methods mentioned above. All sponsors only accept a predetermined percentage of their prices in Community Coins and they only accept them up until they have the amount they sponsored in their reserve.

3.3.4 Preventing lockdown

When sponsors are only willing to receive Community Coins up to the point when they have the amount they sponsored in their reserves, there is a potential case where everything would lock down. This happens when every sponsor has the exact amount they sponsored for in their reserves. At that point the parallel economy grinds to a halt due to no one willing to accept anymore coins and thus eliminating the possibility to spend them. This scenario can be easily avoided by issuing less coins than have been sponsored. If only, for example, 80% of the sponsored coins are actually issued, it becomes impossible for all sponsors to hold their complete amount in their reserves. Thereby guaranteeing spending options of the coins.

3.4 Transitioning to Circular Money

Once a large enough economy is going there might be the wish to transition to a CMEE. It is preferable that this option is brought up, without it being an obligation, when introducing the Community Coins.

Transition would be easy and could happen in 1 of two way. Either a full transition happens or a partial commitment takes place as in the first transition method described above. In both cases everyone keeps the Community Coins they currently have in their accounts, a basic income is issued according to their commitment level and a savings limit is brought into place.

Start capital would be optional and only be issued to those who are below the start capital threshold. For example, if someone commits for 100% to the transition and at the moment of transition he has 1000 coins in his account, he would receive an extra 4000 coins. This with the setup we used above. If however he would have had 6000 coins in his account, he would receive nothing.

Optionally the sponsors could be granted a bonus equal to their initially sponsored amount. The demurrage fee would take care of any excess money introduced into the system this way.

Note that it is a good idea to limit the maximum amount of sponsoring to the savings limit after transitioning. Otherwise this could have an adverse effect on the willingness to transition to the CMEE by people who have amassed large amounts of coins.