City Crypto: Can we program in a new structure to our economy?

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As a city strategist and recovering economist, I am, from time to time, consulted on ideas for economic transition. In the South African city context this is quite complex: we aspire to be modern, but we are stubbornly unequal. Political leadership wants new ideas, but also needs ideas with mass appeal. This is how I found myself on a call saying, “but, you can’t campaign on a coin”. Because, apparently, I (very rarely) have rather hare-brained ideas – such as a City cryptocurrency. I’ve just lost half of you – and gained a bunch of Bitcoin-bros. Oh dear!

The “how” of economic inclusion

Economic historian Johan Fourie doesn’t predict the future at the end of his book, Our Long Walk to Economic Freedom, but he does pose some interesting and provocative questions, including: “How do we make more people shareholders in the economy?” Development economist Ayabonga Cawe presents a similar challenge in his book, The Economy on Your Doorstep, when he suggests we need to “secure the base” by creating a currency or voucher system that keeps grant monies in tighter circulation in local economies – before they are efficiently extracted via the vertically-integrated machinery of South Africa’s retail and food giants. In this regard, the digital voucher schemes that have emerged in Covid-19 food relief programmes are the thin end of the wedge. We know that there are inefficiencies and inequities in the distribution of gains in our economy – what has been called a “team surplus”, accumulating to those high earners at the top of vertically-integrated sectors – that keep new entrants out, profits high and internal wage gaps wide. In South Africa, we know this all too well in our retail space, with significant impacts on both food affordability as well as inclusion in manufacturing and retail small businesses. I recently had the opportunity to contribute to the State of the Cities Reports for South Africa. In doing so, I expanded my own frameworks on what is inclusion, as well as what mechanisms local governments have with which to contribute towards greater levels of productive inclusion in the economy. There are many ways in which exclusion is reproduced, chief among them (and there are a host of structural and historic reasons for this) being inequality within firms, as well as between enterprises and between places. Cities have several levers to intervene, but are often shy about only playing an “enabling” role in the economy.

Bringing together these different ideas – what reproduces exclusion and inequality in South African cities; what types of production in (and of) the city do and could exist; and, ideas for securing “shareholdership” in all of this – I found myself sketching away on my whiteboard:

The concept of a CITY CURRENCY is not new

Towns with their own currencies have existed at many periods in time. I must be honest and admit I’ve never really “gotten” it – beyond a cutesy tourism gimmick, if the currency can be exchanged for the national currency, I don’t get how it really works to reduce leakage. There is a reliance on people’s pride and “shop local” until, well, someone is not that into it and exchanges the local for the national currency and spends it externally. How quickly that happens is dependent on the level of pride and the value of local offerings, not the currency itself, so why not rather focus on “support local” campaigns and boosting local offerings? Some of the arguments for these local currency initiatives, however, include that they can be useful mechanisms for directing local spend. In other words, don’t just launch a local currency, but use it for your social spending programmes. Additionally, having limitations on who can receive them, keeps them in circulation longer. This can be informed by who is more likely to have higher local “multipliers” in their business; who is, effectively, bringing about the most direct inclusion in the economic benefits of the spend. So it is both a redistribution tool as well as one for directing the flow of redistribution several times over.

CityCrypto

Cities with their own cryptocurrencies are something slightly different. These initiatives are normally less about a new currency per se and more about a new financing mechanism, a way for the City to raise funds for projects and get ordinary citizens to buy into new projects. Similar to issuing bonds, but now individuals can buy coins, or portions of coins for small amounts that they can afford, making the barrier to participation much lower than traditional bonds. Trust in the currency is key for it to work. Stability in value is also key for there to be stability in the associated public goods (infrastructure or service projects). As a result, most cities exploring their own cryptocurrencies are pegging the value of these to one of their own assets, or to the national currency. Some have explored pegging the value to property values – a controversial idea in a world where rising property values have many negative impacts for those seeking access to the city, at risk of eviction and so forth. Now, however, a proposal is put forward for a distributed mechanism for shareholdership in a value store linked to rising property values. (Another example that was shared with me is CityDao – not quite a crypto, this is an urban land market with distributed ownership enabled via blockchain. An interesting concept, but in our context I would like to see radically smaller parcels/portions of ownership for meaningful participation, and the coding-in of agreements regarding rent control, or other inclusionary factors). CityCoins is an initiative that recognises this potential – they say it better than I could: “CityCoins communities will create apps that use tokens for rewards, local benefits, access control (to digital or physical spaces), trading, lending, smart contract execution and more. As one simple example, local businesses can provide discounts or benefits to people who show they “stack for their city” by stacking their CityCoins.” One of the potential risks of cryptocurrencies is that too few users use these benefits to program and “stack” them, and too many users just use them as a value store – keeping them out of circulation and hoping to get rich on a speculation driven increase in value. One way around this is apparently to program in mechanisms for depreciation if coins aren’t spent within a certain period – incentivising circulation.

Returning to South African cities

What the concept I have sketched above does (and let’s be clear, the concept is as well developed as a sketch) is combine elements of the traditional “town currency as a redistributive and circulation tool” with the concept behind city cryptos as a mechanism to stimulate investment in City services and public goods. Grants and other funds intended for public projects are used to create coins, and individual members of the public can also purchase them. Some members of the public (indigent households and other targeted beneficiaries) receive coins. These coins are then used to procure a range of things. The City might use them to pay for mega projects (and invite the public to add coins – potentially for a future return, given the traceability of investments that Crypto offers), commuters might use them to pay for transport, and households might use them to pay for electricity. Decisions about where these coins are redeemable becomes an important part of economic policy, and potentially also is an incentive for other systems, such as: minibus taxis who subscribe to a governance model; informal traders and spaza shops who need a leg up against competition from encroaching firms; companies which subscribe to localisation of benefit; providers of urban management services; creches; and others.

What are the thin edges of the wedge?

I can imagine a few places where this might start. It might first be property developers tired of knocking on the barely-open doors of institutional funders, and keen to tap into the crowd of people hungry for a piece of the land market. It might first be co-operative energy ledgers using crypto as their currency. It might first be a small municipality keen to present itself as both smart and open to tech-business, and supportive of an inclusive economy. What I’d personally want to avoid, is the establishment of more assets that are simply stores of value – tools for speculating and storing wealth. Our cities need tools that drive innovation, productivity and mechanisms for including more people in the ownership and benefits of those processes.

What do you think? Is this edging into black mirror territory? Or could we effectively leverage the procurement power of the city, social grants and subsidised access to services and a coalition of the willing who subscribe to mining and stacking their coins towards the same project, to code in a new structure for our economy?

Thanks to Simon Dingle @SimonDingle who shared some of the examples used in this blog

By Jodi Allemeier @urbanjodi

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