A digital currency to redistribute wealth in Scotland.

Money is not metal, it is trust inscribed.” Niall Ferguson

Digital Currency

Six weeks ago Scotland held its breath. A second, snap referendum on independence suddenly switched from pipe-dream to possibility. But since then a new consensus has formed – the next Indyref campaign will be as tough as 2014, and to win we’ll need better answers to the questions which sowed seeds of doubt among the electorate.

Top of the list is currency. Today the prospect of a currency union is even less appealing than it was two years ago. A proposal to join the Euro won’t win many votes either.

The creation of a Scottish pound is the obvious choice, but that shouldn’t be the limit of our ambition. We should grab this opportunity to create a new digital currency, one which radically reshapes our relationship to money.

The Common Weal, in association with the New Economics Foundation (NEF), have outlined a viable blueprint for a Scottish digital currency; the ScotPound issued by a newly created BancaAlba. This issuing bank, and the payment service used to transfer (spend!) the currency would be publicly owned but operated independently of the Scottish government.

NEF’s paper suggests the ScotPound is run in parallel with the British pound, where the ScotPound is a smaller supplementary currency. If Scotland forged ahead with an entirely new physical currency it may be a case of running two Scottish currencies, one digital, one physical. Alternatively, the properties of the digital currency would be amended to make a viable stand alone currency.

It’s important to understand a digital currency is not just a move away from coins & notes. The ScotPound would be a token to facilitate the trade of services and goods, but with fundamentally different properties from money as we know it today.

Common NEF

We’d see changes to how money is created, circulated and ultimately how money shapes society. Far from being immutable, the properties of money are designed, and now is the time to design a currency which works for our whole society.

Currently, the vast majority (97%) of new money is brought into existence at the point of lending, when commercial banks lend to you, me or to businesses. This is contrary to the common assumption that governments create money, or that money is still tied to a physical commodity like gold or silver. The banking sector’s ability to conjure money and endless debt led to the runaway economy and subsequent financial meltdown of 2008. Retaking control of money creation would be a central tenant of the ScotPound.

The NEF proposal sees every individual on the electoral role receive 250 ScotPounds (S£250) which can be traded for goods and services among a network of businesses who agree to accept the currency.

The billion pounds required for this is issued (brought into existence) by BancaAlba, but any subsequent money creation would be tightly controlled. The ScotPound will also have in-built properties which guard against economic recklessness.

payphone

ScotPounds could be spent in a range of ways, most likely via phone app or a text messaging system. A telephone banking option would also be available to ensure the currency is socially inclusive.

The ScotPound would be valued directly against the Sterling at £1 to S£1, but this can’t be thought of as an exchange rate – the ScotPound cannot be exchanged into Sterling, or any other currency. Here is where the interesting properties of this new currency begin.

Properties of the ScotPound:

– The ScotPound can only be spent in Scotland. Only Scottish citizens or Scottish business can hold it, and they can only transfer it to other Scottish citizens or businesses. It cannot be exchanged into any other currency. This ensures the boost to the economy remains within Scotland. ScotPounds can’t be funneled offshore or used to evade tax.

This aspect of the currency requires that we’d still be using the UK Pound along with the ScotPound. If Scotland were only using the ScotPound we’d need to amend this property to allow the transfer of the ScotPound to other currencies, but maintain a level of transparency to avoid wealth being siphoned out of the country. You’d still be able to get Euros for your holiday, but financial chicanery would result in some pointed questions from the taxman.

– The Scotpound decreases in value when it’s not spent – hoarding the ScotPound is discouraged with a negative interest rate. This technique, known as demurrage, incentives spending to keeping the economy active, and also gently redistributes wealth by taking it from those with too much to spend. The money collected through negative interest can be passed to those with the greatest need, or to charitable causes. Alternatively, this pot of reclaimed money can be turned over to local groups to spend within their community – a new way to promote citizen participation in local decision making.

– The ScotPound is free to use at the point of spending, unlike your credit or debit card where you’re paying for the privilege of spending your money.

More precisely, the retailer who you pay incurs a small charge with every card transaction. This charge is calculated into the price of the retailer’s goods and services, so ultimately it’s being passed back to the customer. The charge is taken because the hardware and software used to process the card transactions are provided by a profit making company.

The ScotPound would operate on the publicly owned ScotPay system, free from any charges to ensure the Scottish business kept 100% of the transaction.

The ability to take payments for free also levels the playing field for small businesses. There’s still lots of small businesses who can’t afford the startup costs and charges to take card payments, so they lose out on customers. Even the small businesses who do take card payments are at a disadvantage, larger retailers can negotiate better rates with the processing companies because of the volume of card payments they take.

money sterling

 What other benefits would the ScotPound bring?

  • Cash in all our pockets, the equivalent of £250
  • A boost to Scottish businesses as we have up to an extra billion to spend
  • A free payment system which serves all Scottish businesses fairly
  • Reduction of household debts. For some the newly acquired £250 can be spent on essentials the money they would have used for these items can pay down existing debt
  • Creation of new, skilled jobs required to introduce the ScotPound
  • Promotes Scotland as a place for technology innovation
  • Clear and public records of the revenue companies make in Scotland, and their subsequent tax obligations.
  • Redistributes wealth in a slow, controlled manner
  • Gives communities the chance to spend reclaimed income democratically
  • Increased voter registration as people want to be eligible for their S£250 windfall

But perhaps most importantly

  • Transparency & security. The economy would be laid open to examination as we track the flow of the ScotPound. Fraud, tax evasion and suspect business practices would be easier to detect. We’d have far greater insight into how money moves within our economy so we could make more informed decisions when intervening, be it with further distribution of money or changes to government policy.

Helicopter Money

Stimulating economies with a direct cash transfers to citizens (referred to as ‘helicopter money’) has previously been successful in the USA & Australia.  The method we currently use, handing tax-payers cash to banks in the hope it trickles back into the wider economy, has been thoroughly exposed as a failure and little more than crony capitalism.

Geographic digital currencies are already in use in the UK – the Bristol pound has been running for almost four years. Much like universal basic income, a digital currency increasingly feels like an idea that’s time has come. Indeed, both projects dovetail together perfectly.

We have the all the technology required for a digital ScotPound, we just need the bravery to implement it.

For more information on the ScotPound proposal check out the Common Weal and the NEF sites.

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