Time to consider new currencies?

Nobody would dispute that money provides a great way of influencing people’s behaviour. To mention but one example, by taxing cars according to their emission level, people will only consume the level of pollution they really value, and as a result transport emissions fall.

However, money, or rather what we typically understand by money, is too universal – it can be exchanged for anything of value (or almost) and anything can be exchanged for money. While this is a great feature, on the other hand it is also difficult for policy makers to manage such a versatile commodity. Going back to the example, you might be able to influence the choice between car A and car B but not what is done with the saved money.

One way of obtaining more influence is by creating new currencies: imagine you get Eco money (a new currency) for buying an economic car which in turn can be exchanged for gym subscriptions, energy saving appliances, solar panels, bicycles, etc. What is great with this approach is that you are hitting many birds with one stone: encourage people to buy efficient cars, live a healthy lifestyles, and lower their energy consumption, etc. Put differently, one policy tool would be able to influence multiple incentives simultaneously.

This idea has been used in the slums of Brazil where most people were so poor that they could not afford to travel by bus. As a consequence, buses were underutilised while unemployed people could not find jobs elsewhere. There was also another problem: the streets were littered with garbage. The solution? A currency which exchanges garbage for bus tickets! Soon people started collecting garbage to earn bus tickets, resulting into cleaner streets and increased mobility for the people who could not afford it.

Obviously such schemes do have their pitfalls. Perhaps the major disadvantage is that the state takes a more paternalistic role in society, telling citizens that “it knows best” when it comes to their personal consumption. This undermines the tenant of consumer sovereignty which in a market economy is crucial for economic efficiency as consumers send signals to producers to produce their preferred commodities by ‘voting’ for them through purchases, hence resources are automatically diverted towards commodities in high demand. Secondly it presumes that government failure does not exist, clearly quite a tall order since policy-makers do not always possess some kind of higher knowledge/wisdom and unfortunately history has shown that public officers could have vested interests which may be in conflict with the common good.

This being said, alternative currencies could provide policy makers with a formidable policy tool in instances where consumers’ individual actions are making each and every one of them worse off, compared to a situation where collective action strategic guidance would provide opportunities for real gains in quality of life.

This article is co-authored with Nicholas Ellul

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