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article Complementary Currency & Sustainability

By Alex Zorach, April 19th, 2009

The blind acceptance of the global financial system as merely a "neutral accounting system" has been pointed to as a misconception and a hurdle which needs to be overcome if humanity is to achieve the goal of sustainability.1 One aspect of the global financial system that is often accepted without questioning is the idea that economic growth is both necessary for, and synonymous with prosperity. The Rocky Mountain Institute, a non-profit organization committed to integrating entrepreneurship, prosperity, and sustainability, has put forth a different viewpoint, arguing not only that economic growth is not necessary for prosperity, but that it is often at odds with it. The institute argues that achieving sustainable development requires abandoning the idea that growth is required for prosperity.2, 3

Thomas H. Greco, an authority on the subject of complementary currency, makes a similar argument in his book "Money: Understanding and Creating Alternatives to Legal Tender", arguing that national currencies require continual growth by their very design, and that complementary currencies can be designed differently so as not to require growth.4 Complementary currencies have been proposed as a means of promoting sustainability and stimulating local economies, with positive impacts for both human welfare and the environment. 5, 6 LETS (Local Exchange and Trading System), a local currency based on the idea of mutual credit, has been hailed as a possible way for communities to counteract the negative consequences of the globalization of capitalism.7, 8 The success of complementary and community currencies in times of economic crisis (such as Argentina's hyperinflation) have demonstrated that people do not need access to conventional money (through wealthy lenders or donors) in order to work to better their economic situation.9

Merit Exchange is a new idea within this same framework. Its mission, in encouraging long-term thinking and bringing prosperity to all people, is one of sustainability. Merits lose value over time through a demurrage fee, a fee on the holding of currency. Greco and others, through citing the historical success of currencies that have used such fees, and through an appeal to Gresham's Law that "Bad money drives out good", have argued that such a fee not only stimulates use and circulation of the currency, but also leads to a more equitable distribution of wealth by allowing the currency to function as a medium of exchange without being a long-term store of value.4, 8 Demurrage fees have also been pointed to as promoting long-term thinking and sustainability.10

The current financial system, with its constant drive towards growth, creates a disincentive for sustainable activities. For example, insulating buildings, upgrading to more energy-efficient appliances, or generating electricity through wind or sunlight all yield a certain return on investment. However, in a growth economy, people can typically earn a higher return by investing in the stock market. The average compounded annual return from the U.S. stock market from 1926-2000 was 10.70%11, and many sustainability-boosting investments cannot compete with this rate of return. But activities which might not offer a competitive return on investments in dollars could be very attractive when the investment is made in a currency such as merits that loses value over time and cannot be invested to earn a steady return.

Another way in which Merit exchange promotes sustainability is to encourage the use of local goods and services; the movement to buy local is a key aspect of the sustainability movement in the U.S.12 The fine-tuned local classifieds and the networking tools are designed to encourage people to work and trade with people and businesses in their immediate vicinity. Together with merits, these features facilitate people working towards sustainability through activities such as improving the energy efficiency of buildings, reducing fuel usage through ridesharing, buying locally-produced goods, and possibly through activities we haven't even imagined yet. It is our hope to not only help people achieve sustainability in their own lives, but also to make people more aware of how the global economic system shapes their decisions, so that together, we become empowered to influence the economic system and ensure that it serves the common good of all people.


1. Stefan Brunnhuber, Alexander Fink, Jens-Peter Kuhle, "The financial system matters: future perspectives and scenarios for a sustainable future", Futures, Vol. 37, No. 4, May 2005, pp. 317-332.

2. Michael J. Kinsley, "Sustainable development: Prosperity without growth", Rocky Mountain Institute, Snowmass, Colorado, USA, (1997).

3. Michael J. Kinsley, L. Hunter Lovins, "Paying for Growth, Prospering from Development", Rocky Mountain Institute, Snowmass, Colorado, USA.

4. Thomas H. Greco, Money: Understanding and Creating Alternatives to Legal Tender, Chelsea Green, Nov. 1, 2001.

5. Robert Costanza et al., "Complementary Currencies as a Method to Improve Local Sustainable Economic Welfare", University of Vermont, Burlington, VT, Dec. 12th, 2003.

6. David Boyle, "Sustainability and social assets: the potential of time banks and co-production", Grassroots Initiatives for Sustainable Development, Jun. 10, 2005.

7. Michael Pacione, "Local exchange trading systems—a rural response to the globalization of capitalism?", Journal of Rural Studies Vol. 13, No. 4, Oct.1997, pp. 415-427.

8. Margrit Kennedy, Transl. Claudia Vispo & Hildegarde Hannum, "Regio Complements Euro: New Paths to Sustainable Prosperity", Complementary Currencies in Europe, European Forum, Jul 18-22, 2004.

9. Karl Birkhoelzer, "Local Economic Development and its Potential", Local Economic Development Seminar, Network of Local Authorities of South-Eastern Europe, Apr. 14-15, 2005, Brcko Bosnia and Herzegovina.

10. Bernard Lietar, Interview, "Beyond Greed and Scarcity", Yes Magazine, Summer 1997.

11. Roger G. Ibbotson, Peng Chen, "The Supply of Stock Market Returns", Yale School of Management, June 2001.

12. Cohen et al., "Sustainability in the American Marketplace", Sustainability: Science, Practice, & Policy, Vol. 1, No. 1, Spring 2005.

Cite this article:

Zorach, Alexander C. "Complementary Currency & Sustainability," Merit Exchange Newsletter, Vol. 2, No. 2 (2009). http://meritexchange.com/article.php?article_id=12

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