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A brief introduction to open money.

We've all grown up with the idea that there's only one type of money. Imagine if we'd grown up thinking that apples are the only type of fruit. What would we think when we met an orange? Conventional money is one type of money and it's certainly very useful when there's enough of it around, but when there's a shortage, it gets difficult to buy and sell things. The familiar shortages of conventional currencies are not because it evaporates, just that it tends to go somewhere else, to leak away. Typically, only about 20% stays in a locality for more than a few transactions and the rest flows straight through.

An extra money

Open money is a different kind of stuff, in much the same way as an orange is a different type of fruit and you can use it alongside conventional currency. There's always enough of it to go round and when you spend it stays around. Open money is used by people, businesses and organisations in communities where they issue their own, internal community currencies, so there's lots of them. Community currencies are not exchanged for conventional currency (as happens with some local currencies) but issued in addition to it.

The amount of open money (community currency) in circulation is directly related to trading activity, so there can never be too much or too little. Community currencies cannot leak away from the communities that generate them. Using them helps to build stability in communities by increasing the proportion of local trading and makes it easier for businesses and communities to care for the natural environment as well as more likely that they'll want to.

A practical way to get to grips with the idea of community currencies is to play the open money game [if it's called LETSplay ... we get sidetracked ... though I guess it's not a 5 min job to switch that over.]

It's money, but not as we know it.

To use open money effectively you need to manage your accounts in a different way from how you're used to managing accounts in ordinary money. It's a bit like cooking a dish using a different set of ingredients, you use different techniques and you produce different results.

1. You don’t need to be in credit to be able to spend this kind of money so unlike the type we've grown up with, there's no advantage in building up a large credit.. If you do, all that happens is you reduce the flow of money in your community rather than adding to your ability to spend. With this type of money you've got that anyway.

2. The money we're used to is easier to spend than to earn. Open money works the other way round. It’s much easier to earn though spending it can take a bit more effort than ordinary money. A key part of managing your use of open money is to take care not to earn more than you can make good use of. As you get started, the best way to get this right is to spend first and then you'll know how much you can usefully accept.

3. We encourage this because the accounts in each community currency always add up to zero so for some accounts to go into credit it's necessary for some others, to go below zero. Imagine if everyone tried to go positive.

4. Similarly, every account can't be below zero though you'd be right to wonder about some people just spending, not earning and running up massive negative accounts. When something like that happens with ordinary money we call them bad debts. People get whatever they've bought and don't pay. The nearest equivalent with the mutual credit type of accounting used for open money would be someone doing a runner with a large negative account and if that happens a lot it would reduce confidence in that currency. If it happens at all, it's not the same as a conventional bad debt in that the people who are owed money have already been paid – if they hadn't, there wouldn't be a large negative balance in the runners' account. However, to maintain confidence in community currencies, to guard against this happening, to regulate their balance, open money has another novel feature.

5. With an ordinary bank account, only you and the bank get to find out how much is in there. With open money this works differently. Information about your balance and turnover is open to other account holders in each currency. This helps you to decide whether to accept payment in a community currency. Access to this information puts you in a position to be able to make an informed choice about whether to let someone who wants to buy something from you, to issue some currency.

6. This open accounting arrangement is what community currencies use to regulate themselves. In contrast to the conventional system, the regulation of how much money to allow to be issued is done by the users on an ongoing basis on the ground, rather than by a central administration and has the benefit of giving them involvement and responsibility for their currencies, for their communities.

7. Another reason for the name 'open' money is that users also have an open opportunity to start another community currency for free. Any community can have it's own currency and as the self regulation works better at smaller scales, as currencies get larger, new ones will be formed and so the size of currencies is also self regulating. This is similar to how email groups grow and subdivide.

8. By spending before you earn, you help yourself and your community. You help yourself by getting an interest free loan and you help your community by creating community currency. A negative balance (known as a commitment) simply means that you have issued community currency that others can spend and in return have made a commitment to repay the other members of the community. You don't have to do that by a specific time and there is no charge for this, it's interest free.

9. Because it's interest free, and because of the way that open money is issued within mutual credit networks, being below zero is not the same as being in debt with ordinary money so that's why we call it commitment.

10. We suggest you review all your outgoings and try converting some of them to open money. Anything (from wages to decorating) that you start to use open money for, or partly for, will save you some hard currency that you can use on other things.

11. Once you've got going, the best way to manage open money accounts is simply to aim to have them pass through zero from time to time. Sometimes, during a project or business start up, an account may go a long way into commitment and that's fine.

12. Everyone takes hard currency and that's not the case with open money. It takes a bit more effort to spend but when you do, you’re helping your pocket and each of the communities that you use it in, in ways that ordinary money cannot.

thanks to Andy Ryrie for this

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