cofi:collaborative_finance [Knowledge Commons]

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This topic is part of [[gt:economy|Economy & finance]].
====== Collaborative Finance (CoFi) ======


![](https://lowimpactorg.onyx-sites.io/wp-content/uploads/Money-main3.jpg)

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> “The study of money, above all other fields in economics, is the one in which complexity is used to disguise truth or to evade truth, not to reveal it.” - J K Galbraith



===== What is low-impact money? =====

This is a complicated topic, so to understand the answer to that question, first we have to define money. What you’ll often read is that money functions as:

1. a means of exchange – a way of buying and selling;

3. a store of value – money as wealth;

5. a unit of value – a way to show how much something is worth.

But that’s what money does, not what it is. Most people probably imagine coins or notes if they're asked to think of what money is. But money is really a huge system, of which coins and notes are only a tiny, superficial part.

Money could be described as something transferable that can give us access to things we want.

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![](https://lowimpactorg.onyx-sites.io/wp-content/uploads/Money-coins-notes.jpg)
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_Probably what most people think of when they hear the word ‘money’._
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==== History of money ====

Many economics textbooks still claim that money evolved from barter – but it’s not true. There’s [never been a society in which barter was the means of exchange](https://www.theatlantic.com/business/archive/2016/02/barter-society-myth/471051/) (it’s too difficult to find someone who wants what you have and has what you want).

Money appeared in many forms at various times in different parts of the world; but here are three important ways that money originated.

**Tax tokens:** this was a way of building empires stretching back to ancient times. A king stamps his head on coins, pays soldiers with them and demands them as taxes, so that all subjects have to provide goods and services to the soldiers and to the king, to obtain the coins. [More...](https://www.lowimpact.org/categories/money/further-info/brief-history-of-money/#tax-tokens)

**Goldsmith’s** **receipts****:** goldsmiths kept valuables in their store-rooms and provided receipts that could then be passed around as, in effect, money – because everyone knew the receipts were good for real gold or jewels. Goldsmiths saw that people didn't often come to collect their valuables, so started lending money backed by gold in their vaults. They eventually realised that they could lend out more than they actually had, and became fabulously wealthy. This is the basis of ‘fractional reserve’ banking – i.e. they only had a fraction of what they lent in reserve in their vaults. [More..](https://www.lowimpact.org/categories/money/further-info/brief-history-of-money/#goldsmiths) 

**'Common tender':** this can include traders' market money, or informal mutual credit. Imagine a medieval village in which everyone is a producer and a consumer, and knows everyone else, but no-one has any money. Everyone manages to obtain the services of thatchers, carpenters, farmers, fishermen, blacksmiths, bakers, brewers, cheesemakers, weavers, leatherworkers, basketmakers etc. because everyone keeps a tally in their head (or maybe in a more formal way), of what’s been provided to the community (including by you). If anyone is lazy or unreliable, people won’t want to provide things for them, and so everyone plays the game, and they all get what they need. [More...](https://www.lowimpact.org/categories/money/further-info/brief-history-of-money/#common-tender) 

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![Low-impact money](https://lowimpactorg.onyx-sites.io/wp-content/uploads/Money-alexander.jpg)
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_During Alexander the Great’s conquest of Persia, he looted silver and used [half a ton of it per day](http://projects.exeter.ac.uk/RDavies/arian/war.html) to pay his army. Subjects of his empire then had to obtain silver coins from the soldiers to pay their taxes._
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In 1694 the Bank of England was founded, which brought together the state and private issuance of money (the first two examples above). The state gave monopoly control of the money supply to banks, the entire economy was monetised, and common tender was squeezed out. Since then, all countries have formed central banks, and the [state-bank partnership has come to dominate](http://lowimpactorg.onyx-sites.io/why-the-banks-have-so-much-power-and-how-we-can-take-it-away-from-them/) everywhere.

Here's our '[brief history of money](http://lowimpactorg.onyx-sites.io/infoarticle/brief-history-of-money/)'.
==== Where does money come from now? ====

Most people probably believe that the state creates money. That’s true for about 3% of money – coins, notes and central bank reserves. The other 97% is created by banks when they make loans. If you borrow £10k from a bank, they haven’t taken that money from anywhere else. They’ve just created it from nothing and deposited it in your account. [More...](https://www.lowimpact.org/categories/money/further-info/brief-history-of-money#__RefHeading___Toc41879_2618143146)
It’s not even a ‘fractional reserve’ system any more, in that that no portion of the money banks lend out needs to be held in reserve anywhere. Their decisions are solely based on confidence that the loans will be repaid (with interest). This is proven by [Richard Werner](https://www.sciencedirect.com/science/article/pii/S1057521914001070) and confirmed by the [Bank of England](https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/quarterly-bulletin-2014-q1).

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{{url>https://player.vimeo.com/video/71074210 640,360 frameborder,0}}
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_A flaw in the monetary system? Excellent video that explains how the money system, and compound interest, funnel money from the majority to a super-wealthy elite._
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==== Low-impact money... ====

… is money that’s created and controlled by us, not by banks. Originator of LETSystems, [Michael Linton](http://lowimpactorg.onyx-sites.io/lets-origins-michael-linton-letsystems/) said: ‘we all use their money, and it always goes away’. Where does it go away to? To tax havens and the accounts of the majority shareholders of giant corporations. We can only prevent this if the money we use is not the kind of money that can be sucked out of communities and delivered to tax havens. For that to be the case, it’s important that our means of exchange is not also a store of value. Truly low-impact money would be used to trade within communities, but it wouldn’t be possible to extract it and store it away.

Let’s talk more about the benefits of this type of money, and then explore the various types of non-bank-created money.


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![](https://lowimpactorg.onyx-sites.io/wp-content/uploads/Money-cayman.jpg)

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_The [Cayman Islands](https://www.theguardian.com/us-news/2016/jan/18/the-cayman-islands-home-to-100000-companies-and-the-850-packet-of-fish-fingers). Population, c. 65,000. Registered companies, c. 100,000. Tax havens have allowed corporations and wealthy individuals to stash away [somewhere between $8 trillion and $36 trillion](https://www.imf.org/external/pubs/ft/fandd/2019/09/tackling-global-tax-havens-shaxon.htm) that they’ve extracted from business activities all over the world. Small businesses have to pay tax. Large ones can avoid it. We need to level the playing field._
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===== What are the benefits of low-impact money? =====

Well, nothing we do to try to move to a sustainable, healthy and democratic society will work as long as we have the current money system, because money has those two conflicting functions – i.e. it can be used to buy and sell things, and it can be used to store, hoard, accumulate and become wealthy with. As long as that’s the case, money will gravitate towards stored wealth, because money attracts money and gives access to the political system. This continues until so much money is concentrated, and so little is circulating that the economy crashes - as it has many times - and will continue to do so until those two functions are separated. During crashes, communities are devastated and ordinary people suffer. During booms, nature is destroyed. So there’s never a ‘good’ part of the ‘boom-and-bust’ business cycle.

It’s important to understand the difference between a [commodity-based economy and a money-based economy](http://lowimpactorg.onyx-sites.io/capitalism-free-market/). In a commodity-based economy, people do useful work, for which they receive some means of exchange, which they use to purchase the results of other people doing useful work. In a money-based economy, people with money invest in the production of commodities, which they sell in order to make more money. They don’t produce anything, and they have no interest in the commodities produced – they’re only interested in the money they can accumulate.

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{{url>https://www.youtube.com/embed/bmR4qtEdu0I 560,315 frameborder,0}}

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_10-year-old girl explains to her teddy where money comes from. I’m not sure he believes her – but she’s right. [More introductory videos from Positive Money](https://positivemoney.org/videos/introduction/)._
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Low-impact money, as a means of exchange, is useful only in a commodity-based economy. Here are some advantages of this kind of economy:

- it doesn’t require perpetual GDP growth ([which damages ecology](/stea/steady-state_economics))

- it doesn’t concentrate wealth in very few hands ([which prevents democracy](/demo/democracy))

- it prevents the means of exchange from being sucked out of communities and stored (which reduces [community resilience and well-being](/comy/community))

- it doesn’t require interest, banks or bailouts

- if the means of exchange is generated within communities themselves, it solves the scarcity of money / poverty problem and protects communities from wider economic crashes


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![Low-impact money](https://lowimpactorg.onyx-sites.io/wp-content/uploads/Money-gold-mine.jpg)

<caption>
_Gold mining destroys landscapes and involves the leaching of toxic waste including cyanide, mercury and sulphuric acid. [One gold mine in Papua New Guinea](https://actnowpng.org/sites/default/files/The%20environmental%20effects%20of%20mining%20waste%20disposal%20at%20Lihir%20Gold%20Mine,%20Papua%20New%20Guinea.pdf) alone is pumping millions of tonnes of tailings containing toxic waste into the Pacific Ocean each year, contaminating the food chain and wiping out life on the sea bed._
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===== What can I do? =====

It’s a complicated subject, so there’s a lot to learn. See further resources, below, for a few free resources we recommend.

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{{url>https://www.youtube.com/embed/3HdmA3vPbSU 560,315 frameborder,0}}

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_The goldsmith’s tale – an ‘origin of money’ story._
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After that, the first thing to do it to avoid commercial banks. Use [[bsoc:building societies]], [[crun:credit unions]] or [[rosc:ROSCAs]] instead. Click on the links for why they’re better.

However, this still involves using conventional money. Some support conventional money if it’s backed by gold, or if it’s issued by the state rather than banks. But why dig gold out of the ground (in environmentally-damaging and exploitative ways), just to bury it again in bank vaults, where it has to be guarded, and some people can still hoard it all? And state control doesn’t change the money monopoly, it just puts it under new management (and not that new, really, when bank CEOs are recruited as US Treasury Secretaries).


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![](https://lowimpactorg.onyx-sites.io/wp-content/uploads/Money-yap-stone.jpg)

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_[Rai stone](https://en.wikipedia.org/wiki/Rai_stones) on the island of Yap in the south Pacific. Believe it or not, these were used as money for hundreds of years. They came in different sizes, but some weren’t very portable at all. Legend has it that one large stone fell from a boat and lay at the bottom of the ocean – but was still used for monetary transatctions (ownership of the stone changed, even though it didn’t move)._
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No – we can take control of money ourselves. So the next step is to try some alternatives, like:

**[Local currencies](/lcur/local_currencies):** not conventional money, and they stay in local communities longer than conventional money; but they have to be bought with conventional money, and so don’t represent a real separation from bank-issued, debt-based money.

**[Cryptocurrencies](/cryp/cryptocurrencies):** represent a real separation from the banks; but they come with problems of their own – a) Bitcoin requires huge and growing amounts of electricity (crypto enthusiasts will tell you that there are new coins that don’t require much electricity at all – but most crypto activity is still Bitcoin); b) it’s mostly used for speculation, not trade; c) they don’t separate the exchange and store of value functions – you can still become a Bitcoin billionaire. But at least they show that we can have a money system without banks.

**[Credit clearing](/crcl/credit_clearing) and [Mutual credit](/mucr/mutual_credit):** genuinely do separate the means of exchange and store of value functions. They're reviving the informal networks of medieval villages, but with the internet, a looming scarcity of conventional money, and the software to federate local groups up to the global level. Clearing / mutual credit networks exist in many parts of the world, including [Colombia](https://www.quipumarket.com/search/posts), [Kenya](https://www.grassrootseconomics.org/), [Australia](https://www.tradeswap.net/) and [Italy](https://www.sardexpay.net/). Now [Mutual Credit Services](https://mutualcredit.services/) are helping to build local mutual credit groups in the UK, and the [Credit Commons](http://www.creditcommons.org/) protocol can connect all these groups together, anywhere in the world, so that they can intertrade.


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![](https://lowimpactorg.onyx-sites.io/wp-content/uploads/Money-bank.jpg)

<caption>
_Virtually all new money is created by banks, as debt, with interest attached. The money system is not designed to promote circulation, but [accumulation and concentration](http://lowimpactorg.onyx-sites.io/why-the-banks-have-so-much-power-and-how-we-can-take-it-away-from-them/). But we really don’t need this kind of money system, when we can issue credit to each other in communities, and those communities can trade with each other. The technology exists to supersede the existing money system in ways that promote trade and work, rather than extraction and speculation._
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As Henry Kissinger said: ‘Who controls money controls the world’. So unless we’re happy with a financial elite controlling the world, we have to control it ourselves.


===== Forum =====

This topic belongs to the section [[gt:economy|Economy & finance]]. You can ask questions or add information on the corresponding [Forum section](https://forum.growingthecommons.org/t/economy).

===== Further resources =====

- Glyn Davies’ (2002) _[History of Money](https://lowimpactorg.onyx-sites.io/wp-content/uploads/HistoryOfMoney.pdf)_ (pdf)

- David Graeber’s (2011) _[Debt: the first 5000 years](https://lowimpactorg.onyx-sites.io/wp-content/uploads/Debt-first-5000-years.pdf)_ (pdf)

- Matthew Slater and Jem Bendell’s (2015–16) _[Money and Society MOOC](https://matslats.net/money-society-mooc)_

- Tom Greco’s (2024) _[The End of Money and the Future of Civilisation](https://beyondmoney.net/welcome-to-the-new-2024-edition-of-the-end-of-money-and-the-future-of-civilization/)_

- Brett Scott’s _[Altered States of Monetary Consciousness](https://brettscott.substack.com/)_

- Positive Money’s [video series](https://positivemoney.org/videos/)






===== Related topics =====

- [Blockchain](bloc:blockchain)
- [Building societies](bsoc:building_societies)
- [Commons economy](coec:commons_economy)
- [Credit clearing](crcl:credit_clearing)
- [Credit commons](crco:credit_commons)
- [Credit unions](crun:credit_unions)
- [Cryptocurrencies](cryp:cryptocurrencies)
- [Local currencies](lcur:local_currencies)
- [Mutual credit](mucr:mutual_credit)
- [ROSCAs - rotating savings & credit associations](rosc:roscas)
- [Use-credit obligations](ucos:use-credit_obligations)

===== Specialist curators of this topic =====