Good money drives out bad: Introduction to the featured section on “The evolution of diverse e-money: Digital-community currencies and cryptocurrencies”^*

Abstract

This article introduces the special issue featuring “The evolution of diverse e-money: digital-community currencies and cryptocurrencies,” and argue on diversity and evolution of modern money, including community currencies and cryptocurrencies. How such new “currencies” survive through users’ choice in money and what the criteria of such decision are highly critical issues. We contrast the meanings of Gresham’s law “Bad money drives out good,” and Hayek’s principle of choice in money “Good money drives out bad” and show that there are necessary conditions for either Gresham’s law or the principle of choice in money to hold. For the principle of “choice in currency” to function well, both (1) different denominations for the distinction of money in quality, and (2) the non-fixed exchange rates are necessary. Since cryptocurrencies met these conditions, the principle of choice in money began to work. Cryptocurrencies took the test of users’ choice in money in the search for good money but failed to pass the criteria of stability of currency value. Then, digital-community currencies that involve local and community contexts are the next candidates for good money. We observe that two DCCs in Japan, Sarubobo Coin and Kisarazu Coin are currently challenging toward the realization of good money.

Preface

Monetary theory and policy are currently of particular interest to heterodox economists. Japanese Political Economics (JPE) accordingly organizes two special issues on the fundamental functions and changing forms of money. What is the relationship of money to the market and the state? How are the new forms of money, including e-money and cryptocurrencies, to be analyzed? What is the significance of community currencies for the evolution of capitalism?

This special issue features “The evolution of diverse e-money: digital-community currencies and cryptocurrencies”¹ and collects four articles, including the present article, discussing such questions from various viewpoints and approaches. The first two articles are selected from the papers presented at Biennial RAMICS Congress in Hida-Takayama, Japan, on September 11–13, 2019 and invited to contribute to JPE.

Since I am the editor-in-chief of the featured section, let me introduce three articles, excluding this one. First, Rolf F.H. Schroeder, “Beyond the Veil of Money: Boundaries as Constitutive Elements of Complementary Currencies” shows that community currencies can be best understood not only by focusing on their monetary aspects but by describing their interdependent boundaries such as membership, territoriality, limits to convertibility and credit limits. Such characteristic features of community currencies which distinguish them from Bitcoin, are critical for a post-capitalist alternative economy operating within a variety of different boundaries.

Second, Louis-Maxime Jolyr, “Federalism and cooperation for community currencies: some ideas on the need for intercommunity clearing systems,” to overcome defects of current community currencies, proposes the introduction of a non-market exchange rate with an interest rate mechanism based on intercommunal monetary federalism, which is similar to Schumacher-Keynes’ unrealized concept of “bancor” of The International Clearing Union proposed in the discussion between U.S. representative, White and U.K. representative, Keynes on the post-WWII financial system.

Third, Juan J. Duque, “State Involvement in Cryptocurrencies. A Potential World Money?” characterizes cryptocurrencies as digital commodity money with potential formal use-value as direct exchangeability with all other commodities. The author insists that since cryptocurrencies have physical characteristics required for a commodity to reach the money form, they can function as world money better than credit money and that China would be the first to launch Central Bank Cryptocurrencies (CBCC) thanks to strong state involvement.

These three articles shed new light on evolution and diversity of money in terms of unique concepts such as “boundaries,” “federalism,” and “physicality” of community currencies or cryptocurrencies. They provide us with a new framework to understand the modern tendencies of money such as digitalization, localization, and denationalization. We don’t necessarily have to agree with each aspect of arguments presented in the articles. We must think by ourselves if these concepts are necessary, precise, feasible to our approaches, and these concepts are mutually compatible. I understand it appropriate to maintain the diversity of approaches and methodologies so that we can deliberately choose from them. This is the reason why I believe that the academic journal for economics as a pluralist social science should not be an exhibition place where scientifically verified hypotheses and theories are solely displayed to guests, but a critical space where various participants’ arguments based on different approaches, methodologies and beliefs in value mutually compete, seeking for theoretical validity and practical effectiveness under uncertainty.

This argument is valid not solely for economics but for money. At present, we are witnessing the rapid emergence of new money in the forms of diversifying non-national community currencies and cryptocurrencies. These are fundamentally different from the currently prevailing national currencies that comprise cash or legal tender as central banknotes and coins as well as deposit currencies as private bank credit money so that most people don’t understand such novelties of money. Here I would like to focus on the question of how such new “currencies” survive or become extinct through users’ choice in money and what the criteria of such decision are.

Evolution and diversity of modern money

In 2002, when the European Union (EU) launched the euro as a single regional currency and its expansion of circulation areas was initially observed, many people predicted that a single global currency would eventually emerge and it could be used anywhere on the globe². However, the debt crisis began in 2008 with the collapse of Iceland’s banking system, and it spread primarily to Portugal, Italy, Greece, and Spain in 2009. When the PIGS, which is a derisive acronym of those countries as the weakest economies in the eurozone, triggered the sovereign crisis, and the financial crises in Greece and Cyprus worsened, there arose intense fears that the euro would collapse. Furthermore, with the departure of Britain from the EU and the birth of the Trump administration in the United States, a shift to inward-looking policies, such as protecting domestic industries and curbing immigration, made clear the shift from socioeconomic globalization to nationalization and localization.

In 2009, when Bitcoin appeared in a tiny online community on the Internet, it was barely known to anyone. Only in the past several years, such cryptocurrencies as not only Bitcoin but altcoins including Litecoin, Ethereum and derivative tokens have rapidly spread all over the world, expanded its scale, and increased its number. The innovation of new money became active worldwide. Thus, expectations for cryptocurrencies have soared. However, we have witnessed in the recent bubble burst of cryptocurrencies that their exchange values were quite volatile to the extent that they can no longer be called “currency” or “money” for usual transactions. Cryptocurrencies seem to have become speculative financial instruments that fluctuate in value, which made difficult to use it as the means of exchange to trade goods and services. Since then, global monetary authorities finally began to use the term “crypto-assets” rather than “cryptocurrencies” to express such properties of them as “speculative” financial commodities³.

On the other hand, we are currently approaching so-called “cashless economies” where electronic representations of money replace such traditional currency as coin or banknote, and the transfer of digital information facilitates instant transactions. Sweden is close to a perfect model of a cashless economy since 99 percent of payments are conducted without cash. In East Asia, China and South Korea are well known as advanced cashless economies, where electronic payment systems and digital coins are widely accepted. In Japan, many QR code (two-dimensional bar code) mobile payment systems managed by big private companies such as PayPay, Rakuten Pay, Line Pay, au Pay, merpay and others have finally appeared since 2018. They are now in fierce competition for customers, in which Origami Pay, which had developed their business in advance, was acquired by merpay, latecomer. The current leading system is PayPay with most users, about 25 million as of February 2020. All systems are roughly the same in use: a buyer scans the QR code or barcode of a seller with the built-in camera of a smartphone, input the amount and pay.

Since the 1980s, community currencies had already spread around the world. However, there were defects with community currencies, such as limited distribution areas and users and difficulty in sustaining operations⁴. To overcome such problems, the “Digital-community currencies (DCCs)” have emerged in various forms in Japan and overseas. DCCs fuses superior digital technologies of cryptocurrencies such as blockchains, mining, and smartphones’ QR code scanning with the dual value concepts in community currencies such as the revitalization of a local economy and socio-cultural community. DCCs are various social or community-oriented digital coins for promoting local consumption and social investments in the same spirit of community currencies. They have already been implemented or are currently planned not only in Japan but also in the world. It can be seen as a new movement to create a currency that is useful for corporate activities and people’s lives by stabilizing the value of money and limiting circulation to local and community areas.

In Japan, megabanks, regional banks, local credit unions, railway companies, and local governments have begun to experiment or conduct national, regional, and local “stable coins” pegged to the yen (1 coin = 1 yen) within specific circulation areas of customers or local community. In the cashless economy envisaged in the future, multiple currencies will coexist in multilayered circulation areas at different geographical levels, such as national, regional, and local. On the national level, J-Coin (Mizuho Bank and 30 regional banks) and MUFG coin (MUFG) are implemented by major financial institutions. On the regional level, Kintetsu Harukas Coin (Kintetsu Railroad) is under experiment in the circulation areas along private railway lines. On the local level, Sarubobo Coin (Hida Credit Union) and Aqua Coin (Kimitsu Credit Union) are underway only within the municipal districts of Hida-Takayama, Gifu prefecture and Kisarazu City, Chiba prefecture respectively. Shimokita Coin and Odaiba Coin circulate in Shimokitazawa and Odaiba, the commercial areas popular with young people.

Noteworthily, those coins on a large scale in terms of numbers of users and circulation areas on the national and regional level implement Distributive Ledger Technology (DLT) or blockchain developed for cryptocurrencies, but those coins on a small scale on local levels don’t. Furthermore, the DLT adopted by those on the national and regional level is a private blockchain that is different from Bitcoin’s public blockchain.

In the case of public blockchains, anyone has access to all transaction records without permission and can participate in their operations by becoming a node called “miner.” The presumed developer of Bitcoin, Satoshi Nakamoto, ingeniously incorporated the idea of “Proof of Work” with appropriate design of economic incentives for “miners” who successfully contribute tremendous work for finding blocks through complex computations by using a cryptographic Hash function to reach a consensus over time-stamped transactions. Openness, decentralization, and democracy are the unique characters of such public blockchains as in Bitcoin and altcoins. Such properties of public blockchains enable cryptocurrencies to be self-managed by distributed networks of “miners” without any centralized authority and to become self-sustained independent money. These characteristics do not conform to conventional concepts of security and reliability of networks based on closed and centralized systems in financial institutions such as banks. This is why the digital coins on the national and regional levels managed by banks and private companies can’t adopt public blockchains. However, it might be possible for DCCs by nature to adopt DLT of public blockchains because the organization of DCCs should be open, decentralized and democratic. Moreover, public blockchains must be quite useful for managing DCCs because they can make the system secure, reduce administrative works, and log all transactions so that the alleged defects of community currencies can be considerably overcome.

On the other hand, access to the database of private blockchains is only allowed for the users and nodes with permission by a manager. Then, they are closed, centralized, and dominated networks exclusively managed by a particular group of people or organizations. Consequently, to develop and maintain private blockchains is costly because they need to create their own inhouse network of servers without any cooperation from miners on the Internet. Such high costs must have prevented those coins on the local level from adopting private blockchains. The coins on the regional and local levels can be identified as DCCs since they have communities of participants and use the Internet, smartphones, and QR codes. They don’t need to implement DLT, whether it is a public blockchain or a private blockchain. Generally speaking, public blockchains are compatible with and useful for existing community currencies as above mentioned.

In the 21st century, non-national currencies such as community currencies, DCCs, and cryptocurrencies are expanding in terms of volumes and kinds. Thus, the widespread use of such non-statutory money other than those issued by national central banks has increased the diversity of currencies. These are the observable facts nobody can deny. Nevertheless, we are unconsciously accustomed to the idea that money is created and controlled solely by the state. However, the history of a monopolistic national currency is not so long as we think. It is just over 170 years since Bank Charter Act 1844 commonly known as Peel’s Bank Act, which had made Bank of England legitimate as the UK’s central bank. The idea has been powerful because it is tied up with the centrality implied in such fiscal and monetary policies executed by the state and the central bank. We must release ourselves from such stereotype to seek a new way of adequately understanding the diversity and evolution of modern monetary systems and find a new bottom-up approach for evolutionary theory and policy with a diversity of money, different from conventional top-down approaches found in micro theory without money as well as a macro policy with single money⁵.

Besides, we cannot merely be satisfied with describing such ongoing events of the plurality of money. We should be concerned with explaining how money diversifies and maintains itself; in other words, monetary systems dynamically change with its diversity kept. To the end, we need to consider how participants or users select from many alternatives of currencies so that some of them can only survive in the evolution of money. It is also necessary to focus on diverse monetary and social exchange systems, such as schemes that contribute to economic diversity, social cohesion, democratic participation and environmental sustainability, like community currencies⁶.

Gresham’s law

In this era of diversification and evolution of money, we can no longer see money as given and ready-made and top-down. We should regard it as being bottom-up created and selected by users. Therefore, in the creation and selection of money, the question of what kind of money becomes “good money” is crucial. It’s not just convenient, efficient, and stable. What exactly is “good money”? It is the most fundamental question. The answer is not something anyone can give, but something we have to find by ourselves.

Let us first check “Gresham’s law” that is one of the famous monetary principles in economics claiming that “bad money drives out good.”⁷ The 19th-century Scottish money and credit theorist Henry Dunning McLeod had given the name after the 16th century Tudor Treasury Secretary Sir Thomas Gresham. However, there are many precedents for the law since the Ancient Greek era (Mundell 1998; Selgin 1996, 2003). Nicolaus Copernicus, who is famous for advancing the theory of heliocentric system, is one of such precedents who accurately acknowledge the law (Ziffer 1957)⁸. Accordingly, this law is currently sometimes called “Gresham- Copernicus’ law.”

The meaning of this law is as follows. Let’s assume that there are two gold coins, but silver coins make no difference. The face value of a gold coin is the denomination of the unit of measure, e.g. Pound, and the real value of a gold coin is its content of gold. When the real value of one gold coin is lower than the face value of the other due to debasement, including the issuing body’s mixture of base metals and users’ clipping or scraping, which one will you use to pay first? Assuming users behave selfishly, they are supposed to use “bad money” with low content of gold first and try to keep “good money” with a high content of gold. Then bad money will be circulated, and good money will be hoarded. Thus, Gresham’s law originally meant “Gresham’s law of coinage” in the case of the debasement of minting coins. In general, in the case of any commodity money in which the material has an intrinsic value, good money with the small difference between the face value and real value will be preserved as an appropriate asset, and, as a result, bad money will gradually prevail in the market.

However, if we expand its substantial meaning of the law to bimetallism where both gold and silver are adopted as a standard of value with the fixed exchange rate, the relatively lower evaluated one will circulate among users. Gresham’s law is also valid for the case where gold coins with the same unit of denomination (e.g. yen) and convertible paper money that can be converted into gold coins coexist. For people would tend to keep on hand the gold coins with higher real value and try to use the convertible paper money with lower real value first. Furthermore, even in the case of inconvertible paper currency, Gresham’s law still holds. If there are two inconvertible paper currencies with different inflation rates due to the difference in the amount of currency issued, bad money with a low real value caused by high inflation rate drives out good money with a low inflation rate.

Gresham’s law tells us that it is a very convenient law for minters and issuers of money. If the issuer reduces the gold content of gold coins and reduces the casting cost, the difference between the face value and the commodity value can be obtained as Seigniorage (profit from minting) while bad money continues to circulate. Besides, as a result, if the real value of money decreases and the inflationary trend progresses, inflation has the actual effect of substantially reducing the nation’s fiscal deficit. Because of these dual benefits, the government tends to mint and issue bad money that incessantly causes inflation. And if there is no legitimate choice for users but to use a coin bearing the king’s seal, such bad money will be forced to circulate within the nation, which will be a big nuisance for users.

Next, let’s apply this to the present day. Today, neither standard money such as gold or silver coins nor convertible paper money is in circulation. Inconvertible banknotes issued by the central bank and subsidiary coins minted by the Mint Bureau of the Ministry of Finance are legally designated as legal tender. The production cost of a 10,000 yen note is only about 10 yen at most. Then, the seigniorage for the central bank on issuing a 10,000 yen central banknote would be 9,990 yen⁹. Its real value is ignorable small compared to a gold coin. Inconvertible paper money is a real “bad money.”

From some time after WWII in Japan, the yen could be exchanged for dollars at a fixed rate of “1 dollar = 360 yen,” and dollars could be exchanged for gold at a rate of “1 ounce of gold = 35 dollars.” Therefore, we could say that the yen was indirectly convertible into gold. However, President Nixon stopped the conversion of dollars to gold in 1971 due to the shortage of gold reserves, and all developed countries shifted to floating exchange rates in 1973. Since then, the legal currencies of each country have lost their anchor based on the value of physical commodities such as precious metals and commodity baskets. The floating exchange rate system merely indicates the relative exchange rate between legal currencies and doesn’t show the absolute value as in the gold standard system. Therefore, it often fluctuates greatly depending on the speculation of investors in the foreign exchange market.

In the Asian currency crisis in 1997, investors who expected the asset bubble to end flowed out of the country from Asian countries such as Malaysia, Thailand, and Korea. As a result, in these countries, the real economy fell into a recession by the collapse of currency and assets, and people’s living conditions deteriorated rapidly. Modern money is not only a means of circulation and a measure of value for buying and selling goods but also a store of value and liquidity as a shelter from volatility for investment. In the case of FX (foreign exchange margin trading), money itself is the subject of speculation to make profits from trading. Thus, modern money suffers not only quantitative deterioration due to a tendential decline of real value but also qualitative deterioration due to large value fluctuation accompanied by the nullification of real value.

The Bank of Japan, under its Abenomics policy, has continued quantitative and qualitative easing (QQE), or an unlimited supply of cash currency with negative interest rates, in an attempt to achieve an inflation target of 2 percent. The weaker yen improved the performance of exporting companies and boosted stock prices. However, inflation has not occurred as expected because banks do not increase their lending to supply deposit money to the market. This situation occurs because banks consider that they do not have borrowers considering the risks involved. The government’s inflation targeting policy aims to improve the economy by raising nominal prices through an increase in money stock despite the lack of favorable investment opportunities. It assumes the extreme assumption that people’s expectations of inflation based on the illusion of money will continue. In reality, the rise in wages has been slow, and households whose real purchasing power has declined have tightened their purse strings. The Bank of Japan governor has now stopped short of mentioning a deadline for achieving a 2 percent inflation rate and seemingly has given up on that goal. Centralized issuance of cash by the central bank under the national managed currency system has made such unsound economic policies possible.

Modern legal tender as an inconvertible currency is bad money not only in the quantitative sense that its real value is tremendously smaller than its face value in contrast to gold coins, but also in the qualitative sense that it has become an object of the speculation as a financial asset like a stock and a derivative commodity so that it shows an extraordinarily high degree of capital function and that it also serves an instrument of current arbitrary and risky monetary policy by central banks. We could say here was the culmination of evil. In such a pathological situation of the modern money system, it was significantly expected that Bitcoin, which differed from the centralized issuing legal tender, would potentially become a new original currency based on the decentralized issuing by utilizing blockchain or DLT. However, once cryptocurrencies began to be exchanged with legal tender on the exchanges, Bitcoin and other cryptocurrencies rapidly became speculative. They rose in prices sharply, especially in 2017, as their public recognition of names increased, but made a sudden plunge in 2018. The price fluctuation was tremendously huge, compared with legal tenders such as the dollar and euro. It seemed that cryptocurrencies had become financial instruments with high risks and high returns, just like FX with quite high leverage by a factor of 10, rather than “money” that transacts goods and services. Disappointingly, cryptocurrencies have become indeed “bad money.”

Hayek’s denationalization of money

Friedrich August von Hayek, an economist from Austria, stated in his Denationalization of money (Hayek 1976b) that desirable currency can be found out by coexistence and competition of concurrent currencies. For that purpose, the principle of “choice in currency” (Hayek, 1976a) for “Good money drives out bad” should work instead of Gresham’s law stating “Bad money drives out good.” As we have seen, the Gresham’s law inevitably functions if currencies can be differentiated only by the quantity of real value, amount of issue, and interest rate when they have the same face value or the fixed exchange rate. For the principle of “choice in currency” to function well, (1) multiple currencies should have different denominations of the unit of measure so that they can be distinguished not only in such quantities but also in qualities such as users’ trust on the stability of the monetary value, and (2) the exchange rates between currencies must not be fixed entirely, but they must be somewhat changeable reflecting users’ evaluation of the differences in quality. Since cryptocurrencies obviously met these two conditions, the principle of choice in money began to function. The next problem was whether cryptocurrencies could pass the test of users’ choice in money in search for good money.

According to Coin Market Cap (coinmarketcap.com), the database of cryptocurrencies on the website, there are more than 5000 kinds of cryptocurrencies, including Bitcoin and altcoins and tokens whose total market capitalization is 208 billion dollars as of 19 April 2020. These cryptocurrencies enabled the denationalization and competition of money. Hayek defined the currency with a stable value to mitigate uncertainty as “good money.” The prices of the current cryptocurrencies to legal tenders are so volatile that they are by no means good money from the viewpoint of Hayek. However, it is not clear whether the condition of good money should be based only on the stability of currency value. If the result of the selection made through inter-currency competition is seen as “good money,” the criteria should be continuously discovered and innovated through evolution. For cryptocurrencies to escape from the present state in which they seem just objects of speculation and to become “good money” usable in actual transactions, the stability of currency value with the formation of consumer goods market for them is at least indispensable.

Currency stability usually means that hyperinflation does not cause a sharp decline in currency value. Bitcoin is programed to continually increase its scarcity and value over time by mimicking the “mining” of gold with limited reserves. In that sense, speculation in bitcoin is inevitable. Still, the critical issue of unstable currency value arisen because cryptocurrencies have been in sale for legal tender at real-time floating rates on hundreds of exchanges all over the world. The floating exchange rate system similar to FX quickly enabled speculation aiming at a trading margin by using value fluctuation. In fact, without this factor, bitcoin would not have been as globally popular as currently. However, it is the very factor which prevents bitcoin from becoming good money.

Currently, bitcoin is only available for a small portion of all merchandizes, and altcoin and tokens have to be converted into bitcoin to use them for purchase of goods and services. Even at shops where bitcoin is available, users have to pay by converting the list price in legal tender into bitcoin. If you expect the price of bitcoin to go up, you better to hold it than to pay it for taking appreciation profit. On the contrary, if the price is expected to drop, it will be better to use it than to keep it, but the seller may refuse to accept it. Because of violent price fluctuation of bitcoin, such speculation depending on expectation is always easy to occur, and the factor of speculative investment always mixes in the consumption. It is mainly international hedge funds, investment banks, and corporate and individual speculators who buy and sell these cryptocurrencies globally. Since cryptocurrencies are convenient tools for foreign remittance, illegal transactions such as money laundering, tax evasion, and drug dealings are inevitably involved. It is a world far removed from the vast majority of ordinary people.

The precondition of good money: ordinary people in an actual socioeconomy

To reconsider what criteria of good money are, we should return to the right image of the human nature of ordinary people who daily use good money in an actual socioeconomy. It must be the real precondition for the criteria of good money.

We live by consuming the basic goods and services necessary for food, clothing and housing with the income obtained by working, and decide the lifestyle based on our sense of values, and carry out hobbies and activities depending on our interests, and acquire knowledge and information. Because of emotional and psychological biases, we cannot make the best choice. Nor can all options be known in advance. Not only is there a limit to rationality, but there is also a limit to ability in all aspects such as information gathering, decision-making, and action-taking. Therefore, the place that ordinary people buy consumer goods by money is not a vast global market but a common local market which spreads in the vicinity of one’s own life. In addition to blood relation, regional ties, and neighborhoods, the communities as the active fields of life, labor, and hobby as well as the community as the sharing field of language, value, and interest are considerably related to the local market. A human being is not a rational fool who can make globally optimum decisions all the time, which is actually the image of rational agents assumed in orthodox economics. Instead, it is a decent but emotional animal that judges based on the bounded knowledge and information that are framed by its own value and interests in the local region, and lives belonging to various communities. Thus, we should consider that good money is the money that ordinary people need to live their daily lives.

There is an impression that cryptocurrencies have become far from ordinary people because only speculative capital functions have become independent. To convert such cryptocurrency into good money that enriches people’s lives, a strategy to positively introduce such multi-layered sets of territorial locality and virtual community will be effective. Here we need to learn from the present situations of DCCs that are in practice in local communities, seeking a good hint for criteria of good money.

At present, Kintetsu Harukas Coin under preparatory operation and Sarubobo Coin and Aqua Coin under full-scale operation intend to artificially and selectively create a new type of DCCs or local virtual currencies by successfully combining advanced technologies such as smartphones, blockchains, QR codes of cryptocurrency with essential ideas such as “regional economic revitalization” and “community rehabilitation” of community currencies. Under the Payment and Settlement Act in Japan, these coins are regarded as prepaid payment instruments from the legal standpoint that charge coins in yen via a designated financial institution or credit card, just like IC card-type electronic money. All of them adopt the fixed exchange rate system of “1 coin = 1 yen,” eliminating the possibility of exchange rate fluctuation and active speculation, which are common in cryptocurrency.

Japanese DCCs: Sarubobo coin and aqua coin

Here let us see more details of the activities of Sarubobo coin and Aqua coin as the representatives of DCCs.

Sarubobo coin is a DCC issued by the Hida Credit Union. The full-scale operation started in December 2017. The aim is to revitalize the economy of the Hida-Takayama region, Gifu Prefecture. To increase the number of shops that can use the service, the shop has adopted a system in which customers can use the service only by placing a paper with a unique QR code on it. On the customer side, the QR code is read by a smartphone app for Sarubobo coin, and the payment is made by inputting the price of the product. As of December 2019, the number of participating stores was approximately 1200 that represents 16 ∼ 17 percent of all targeted stores. The Sarubobo app has about 10,000 users. The number of local users is about 9000, which is 12 ∼ 13 percent of the total number of users excluding the elderly and children. The total charge has exceeded 1 billion yen.

Hida City and Hida Credit Union concluded the “Agreement on information distribution using Sarubobo Coin App in times of disaster” to further promote the use of electronic local currency in administration. In October 2018, the Hida City government introduced a model e-payment system in which the municipal health and tax sections of the city can pay fees at various counters with Sarubobo coin. Using the Sarubobo Coin app, users can scan a QR code placed at the counter of each section and pay fees such as a copy of your residence certificate, a certificate of their seal impression, and a tax payment certificate. As it stands, users in both cities are still limited, but it is expected to increase¹⁰.

The current challenge is to promote the use of Sarubobo coin further and to encourage the use of Sarubobo coin in transactions between many companies. For Sarubobo coin to circulate the local economy, materials and goods purchased by stores must also be paid in Sarubobo coin. Since April 2018, companies have been able to pay each other for a 0.5 percent fee. However, the use of the system is still limited to about 15 million yen. (Morikawa 2020).

Aqua Coin is a DCC that can be used in smartphone applications and is being promoted by the Kimitsu Credit Union, Kisarazu City, and the Kisarazu Chamber of Commerce and Industry. The circulation area is limited in Kisarazu City, Chiba. Users can easily pay by reading the QR code installed in the member stores. Member stores can easily and immediately introduce the system by installing only a QR code, reducing the initial installation cost. Coins deposited as sales proceeds can be used not only to be cashed into bank accounts but also to be paid (remittance) to other member stores, thus activating the circulation of money within the region.

As of the end of 2019, there were approximately 500 member shops and more than 9600 applications installed. They have conducted a number of initiatives in cooperation with the government, including the use of points for volunteer activities to invigorate local communities, the use of points to receive fees for issuing certificates of residence, and the automatic recharging for partial salary payments of employees of Kisarazu City, Kimitsu Credit Union, and the Kisarazu Chamber of Commerce and Industry on their paydays.

Conclusion

For DCCs to become good money, the formation of the consumer goods market is indispensable. The utilization of purchasing payment and wage payment by the member retailers is essential as well. If the currency circulation can cover not only the market of consumer goods but also the market of production goods and investment goods, the regional economy will be able to be revitalized through “local production for local consumption.”

For this purpose, it is necessary for DCCs to form a relatively independent market seeking for “local production for local consumption” in which the volunteer domain such as mutual help and share in the community and the business domain such as shopping in the shopping street and transactions between enterprises, which are mutually incompatible at first glance like oil and water, are fused. The activities of nonprofit organizations are indispensable, and the cooperation of local shopping districts, chambers of commerce and industry, and social welfare councils is required. Above all, sustained support from local governments, rather than temporary, will be effective.

In this way, it will be a future challenge whether or not DCC markets rooted in local communities can be created so that local revitalization can be achieved. In the case of Kintetsu Harukas Coin, a vast area across the several prefectures such as Osaka, Nara, Mie, Aichi along Kintetsu railway line is the target region, so it would still take a long time to accomplish the challenge. However, as we have just seen, Sarubobo coin in Hida-Takayama, Gifu and Aqua coin in Kisarazu, Chiba are already in the process of partially creating DCC markets for “local production for local consumption” in their local areas. It is to be noted that the similar project of DCC such as Israel’s Colu initiated in 2017¹¹.

Postscript

We established in 2019 “Good money Lab (goodmoneylab.org/),” an abbreviation for “Senshu University Digital-Community Currency Consortium Laboratory,” to improve people’s living environment and increase their happiness, and to make the natural environment and the economy and society more sustainable. We would like to pursue the ideal way of money in which the principle of choice in currency as “Good money drives out bad” works well, not the Gresham’s law “Bad money drives out good.”

Notes

Notes

1 It would be better to explain in advance that the term ‘digital currency’ or ‘e-money’ in this article is solely used as digital representation of different concepts of money such as commodity money, credit money, and fiat money as well as national currency, community currency, and complementary currency. Accordingly, ‘digital currency’ does not mean any such distinctive concept-based content or functioning of money, but mere formal electronic technology of money that has no physical form of banknotes and coins, and that represents any concepts of money by adopting, for instance, non-contact IC card with the radio frequency identification (RFID) technology developed by Sony under the FeliCa brand that powers them, or any QR cord scanning, Blockchain (Distributed Ledger Technology), wallet applications and the Internet through Wifi. In short, we can have many kinds of ‘digital currencies’ that represent universal commodity money, private banks' credit money, national fiat money or community money. Then, digital-community currencies indicate the various types of combination of the basic concepts and functions of community currencies (CCs) and the different advanced electronic technologies of money that stem from cryptocurrencies and prepaid means of payment using IC card.

2 The euro was introduced to world financial markets as an accounting currency on 1 January 1999, replacing the former European Currency Unit (ECU) at a ratio of 1:1, but most European people haven't yet recognized the existence of euro. Physical euro coins and banknotes entered into circulation on 1 January 2002 when people began to use euro in their daily life. That is why I described in the article, 'In 2002, the European Union launched the euro.'

3 See Nishibe (2016) for the full account on money in general and modern money including Bitcoin

4 For more details on the theoretical implication, the present states of community currencies, please refer to Nishibe (2020).

5 On Plurality and diversity of money, please refer to Gomez (2018).

6 We have constructed the theoretical model of institutional ecosystems to explain and describe the evolutionary dynamics of currently observed diversified money (Hashimoto, Nishibe 2017). In the model, an institution such as money is a game constrained by given game rules, and a variety of institutions such as diversified money constitute a complex institutional ecosystem subject to a meta-rules composed by players’ value consciousness as criteria to evaluate multi-games. Please refer to the article if readers are interested in such theoretical aspects of this topic.

7 The full survey article on history of precedents and transition of theoretical meanings of Gresham’s Law is found in Verde (2008). The author explained three refinements of Gresham’s law in history, but he mentioned Akerlof’s discussion on the lemon’s market of the asymmetric information, but he doesn’t mention the theoretical implication of Gresham’s law for diversifying modern money including community currencies and cryptocurrencies as well as modern monetary policies.

8 Copernicus’s Monete cudende ratio (On the Coinage of Money) is his third version of his treatise on money and coinage written in Latin in 1526. Nicholas Oresme’s On the origin, Mature, La, and Alteration of Money is found more than century earlier works (Mundel 1998).

9 Here some readers might think that it would be, rather, the interest gained on the equivalent 10,000 yen asset such as government bonds held against the banknote, minus the cost of the banknote (10 yen). This is closely related to the debate on the status of modern fiat money, an inconvertible central banknote. There are mainly two views on it. The first view sees an inconvertible central banknote as a debt certificate or IOU because the issue of central banknotes is written as liability on the debt side in the balance sheet, and the other sees it as a kind of asset or non-IOU not only for other economic agents such as people, private companies and banks, and central and municipal governments but for the central bank itself because the central bank has no need of conversion nor repayment to anybody, although the issue of central banknotes is still written as liability in accordance with the past custom of accounting record in the old age of convertible central banknotes. The readers who thinks in the same way as I described stand on the first view, but the author is based on the second view. The difference of views leads to different interpretation of a central banknote and its seigniorage.

10 The total number of cases in which the Hida City Office paid its handling fees was 417 between April and November 2019. It's 167,650 yen. The proportion of processed cases was 6.55 percent at the tax office. During the period from April 1 to December 10, a total of 136 Sarubobo coin payments were made using a statement of payment, amounting to 278,2081 yen (Morikawa 2020).

11 Colu (colu.com), the DCC that took over Israel's first Bitcoin 2.0 and started operations in 2017, is attracting attention. It aims to revitalize local communities in Tel Aviv and Haifa in Israel and East London and Liverpool in Britain, with 3 billion yen raised by ICO.