Overview | How | Basis | Name | Backing | Implementation | Paper | Presentation | Risks | Benefits

Implementation

For transactions involving checks or the bank's local debit/credit card, part of the transaction will be in dollars and part in Common Goods, with the proportion optimized automatically. This is an enormous advantage over other local currency systems, which generally require a full-time administrator to manage circulation.

The payer (customer or employer) does not have to pay with Common Goods consciously. The receiver (merchant or employee) does not have to receive them consciously nor set a limit on how many will be accepted. All this will be optimized and managed automatically. As a participant in the system, that's all you really need to know. But, if you want to understand the nitty gritties, read on.

For transactions between participants and non-participants (foreign trade, in a sense, with the dollar being the "foreign" currency), the bank will also convert Common Goods to dollars and dollars to Common Goods at the going rate, automatically, as necessary. Total dollars received from non-participants must generally balance the Common Goods converted to dollars, so that there is never a shortage of dollars in the system. This can be managed by not creating too much local currency in the first place.

The entire local currency system will be handled by the Depositors Associations, separately from the bank itself. The bank's Common Good Accounts will make the local currency system possible by providing timely information about pending transactions to the Depositors Association computer and by accepting prioritized transaction requests. From the bank's point of view, all transactions take place in dollars.

Upon opening a Common Good Account, each participating depositor signs a covenant with the other local depositors. Participating depositors agree to make loans of dollars to each other, as needed, in exchange for Common Goods, which act as an IOU. These IOUs bounce around from one depositor to another automatically at the computer's discretion, as dollars move the other way. The Depositors Association guarantees that these discretionary loans will be in every depositor's best financial interests.

With each depositor's Common Goods balance tracked by a separate organization, there is very little unusual or complicated about the bank's role in the proposed system. A payment by check or by Common Good card will often involve two separate transactions. For example, suppose a friend, Jo, writes you a check for $10. Let's say Jo has plenty of Common Goods but only two dollars. Jo must borrow some dollars from another depositor, so that the check can go through. The Depositors Association requests an immediate transfer of $8 to Jo from Chris, who has plenty of dollars, and gives Chris an equivalent IOU in Common Good credits. The bank then processes the check in the usual way, by transferring $10 from Jo's account to yours. Under the Common Good Account agreement, the bank calculates interest based on the minimum total balance in all the related Common Good Accounts, distributing it to individual depositors in proportion to the sum of their dollar and Common Good balances.

The Depositors Association creates local currency either by granting it or by lending it. Approval and management of any loans made by the Depositors Association will be outsourced to the common good bank. Like the bank itself, the Association will charge interest on these loans sufficient to cover the administrative costs (including overhead) and the occasional default.

Example

For example, consider a Depositors Association with just three participating Common Good Accounts: a school and two individuals, Al and Betty. Let's assume that each of the three participants has a checking account and a savings account, containing $5,000 each. Before the local currency system starts, the dollar and Common Good balances for the account are as follows at both the beginning and end of the month:

Al teaches at the school, Betty is a student there, and Al often buys Betty's paintings. In a typical month, they all spend about the same amount as they earn, so their transactions with each other and the rest of the world look like this:

Note that the dollar figures in the diagram represent the VALUE of credit transferred, regardless of whether that value is accounted in dollars or in Common Goods credits.

When the local currency system starts, the Depositors Asssociation votes to make a grant to the school. The school receives $10,000 in Common Goods -- the amount of its gross income in an average month. Then, after a typical month as shown above, the account balances would be something like this:

The school does not need more than $5,000 in its checking account, so it can put the surplus in savings or perhaps buy a painting from Betty. The community as a whole is $10,000 richer.

Notice that overall in the checking accounts $10,000 has been replaced with local currency, but the total value is the same. In each account, only the total value of dollars and Common Goods matters. Dollars and Common Goods are traded automatically, as needed.