Digieconomist has a look at the massive waste of energy that Bitcoin mining represents - Bitcoin Energy Consumption Index. Bitcoin is the opposite of an energy backed currency (one of the useful forms of alternative currency proposed in the past).

NPR has an article on local currencies in Germany - Fiscal Localism On Rise In Germany.

The Havelbluete, the Augusta and the Chiemgauer might sound like the names of locally brewed beers, but they are in fact micro-currencies which, like micro-breweries, are in abundance in Germany. There are more than two dozen local currencies in circulation, and 40 or so initiatives are about to start printing their own banknotes. These notes are not gimmicks. They're recognized legal tender -- at least within each local region. More than two dozen local currencies are in circulation.

NPR's Eric Westervelt went to southern Germany to try to find out why such monetary localism is on the rise in Europe's largest economy.

The Harvard Business School has a post a "Finance 2.0" by Umair Haque looking at some necessary reforms to keep capitalism functioning - The Finance 2.0 Manifesto. It links to my post on locabucks in the section on micro-currencies, in yet another example of my failure to remain completely disreputable (though the publishing date was April 1, so maybe this is the HBR's idea of an April Fools joke).

Here are nine paths to igniting the next financial revolution.

Edge funds.

An edge fund is the opposite of a hedge fund. Where hedge funds are opaque, edge funds are transparent. Where hedge funds are closed, edge funds are open. Where hedge funds are run for near-term gains, edge funds are in it for the long run. Where hedge funds create artificial book value, edge funds create value that accrues to real people and society. Where hedge funds focus on long and short transactions, edge funds focus on relationships. Think Marketocracy on steroids.

Macro and microcurrencies.

A currency tied to national interests determined by a political elite? That's so 20th century 16th century. A better financial system needs better currencies. Finance 2,0 will be built on microcurrencies and macrocurrencies: currencies which operate hyperlocally and transnationally. Why? Because people shouldn't have to bear collective responsibility for bankers looting or regulators cahooting. In the 21st century, the quiet tyranny of economic collective responsibility is intellectually bankrupt: it is fundamentally unjust, deeply inefficient, and vastly value-destructive.

Social banks.

Despite what marketers tell you, banks do not exist to maximize profits. They exist to maximize the safety of deposits. We've been taken for a very expensive ride. Next-generation banks will be structured as social enterprises — because the incentives to safeguard deposits and reinvest profits for the common good perfectly converge to a dominant strategy for long-run value creation.

Fair markets.

Markets are free like a fish is a shark. Anyone can play — but only at the risk of being manipulated, looted, and defrauded by the deepest-pocketed. The anonymous arms-length transactions orthodox economics lionizes are, in practice, just a hyperefficient mechanism for front-running, predatory trading, and bid rigging. Next-generation markets aren't just free: they're fair. They are markets where information about reputation, reliability, and relationship thickness are hardwired into the DNA.

Stakeholder communities.

Institutional investors are so 20th century. Centralizing control over our biggest corporations in the hands of a bunch of old dudes asleep at the wheel was as good an idea as the spork: interesting in theory, useless in practice. Tomorrow's radical innovators are already updating corporate governance for the 21st century, by letting communities of stakeholders shape managerial decision-making. Think mega-Etsy.

Whisper bullhorns.

Why is trading such a great business? Because traders have access to info that you don't. Why can't everyone get in on the whisper circuit that powers prop desk profits? Because no radical innovator has taken on the challenge yet of amplifying the secretive whisper circuit into a blaring bullhorn. But imagine if the rumours that drive share prices up and down on trading desks were Twitterfied. The result would be a financial revolution: the market power Big Trading enjoys would vaporize faster than you can say "insider info."

Googlizing financial instruments.

What business is Wall Street really in? The business of hoarding information: to seek a so-called informational edge. Of course, markets don't work if everybody's hiding info — they only work when people are revealing it. Google can help me find a tennis racquet, Match can help me find a date, and Last.fm can help me find some tracks to rip — but who can help me find a better place to put my cash that effortlessly? No one. And that's a massive reason why we're stuck with a 1.0 financial economy.

Anti-ratings.

Your credit is rated mercilessly. But does anyone rate lenders — not to mention brokers, banks, and investors? Today's crisis would have been far less severe if consumers had access to knowledge about who was a trustworthy lender — and who was going to sell them the financial equivalent of a roadside bomb. Credit ratings alone cannot create more efficient financial markets — doing so requires better information about both buyers and sellers of every kind of financial product.

Open source modeling.

Every bank built the same models. Every bank built the same flawed models. Every bank built the same flawed models on similarly erroneous assumptions. How dumb is that? Incredibly. Unleashing the power of open source to vaporize this black hole of incompetence is going to be a tremendously powerful path to innovation. The peer review, voluntary contribution, and always-on negotiation at the heart of the open source model create powerful incentives for quality — which is exactly what the hare-brained quants at banks lacked.

Finance 1.0 cannot power growth 2.0.

Yesterday's finance cannot power tomorrow's prosperity. Bailouts, taxes, nationalization, regulation are what your discussions this week are focused on. These can limit the depth and intensity of the crash. But what they cannot do is build a radically more efficient, productive, and effective financial system.

That requires a better kind of finance altogether — one designed not merely to make the worst among us richer, but to make us all authentically, meaningfully wealthier. That's why finance 2.0 is the future.

Douglas Rushkoff has an article in ArthurMag describing the downturn as a good thing and wishing for a complete collapse of the current economic system (and actively promoting locabucks while he is at it) - The Economy: Let it die.

With any luck, the economy will never recover.

In a perfect world, the stock market would decline another 70 or 80 percent along with the shuttering of about that fraction of our nation’s banks. Yes, unemployment would rise as hundreds of thousands of formerly well-paid brokers and bankers lost their jobs; but at least they would no longer be extracting wealth at our expense. They would need to be fed, but that would be a lot cheaper than keeping them in the luxurious conditions they’re enjoying now. Even Bernie Madoff costs us less in jail than he does on Park Avenue.

Alas, I’m not being sarcastic. If you had spent the last decade, as I have, reviewing the way a centralized economic plan ravaged the real world over the past 500 years, you would appreciate the current financial meltdown for what it is: a comeuppance. This is the sound of the other shoe dropping; it’s what happens when the chickens come home to roost; it’s justice, equilibrium reasserting itself, and ultimately a good thing.

I started writing a book three years ago through which I hoped to help people see the artificial and ultimately dehumanizing landscape of corporatism on which we conduct so much of our lives. It’s not just that I saw the downturn coming—it’s that I feared it wouldn’t come quickly or clearly enough to help us wake up from the self-destructive fantasy of an eternally expanding economic frontier. The planet, and its people, were being taxed beyond their capacity to produce. Try arguing that to a banker whose livelihood is based on perpetuating that illusion, or to people whose retirement incomes depend on just one more generation falling for the scam. It’s like arguing to Brooklyn’s latest crop of brownstone buyers that they’ve invested in real estate at the very moment the whole market is about to tank. (I did; it wasn’t pretty.)

Now that the scheme we have mistaken for the real economy is collapsing under its own weight, however, it’s a whole lot easier to make these arguments. And, if anything, it’s even more important for us to come to grips with the fact that the system in peril is not a natural one, or even one that we should be attempting to revive and restore. The thing that is dying—the corporatized model of commerce—has not, nor has it ever been, supportive of the real economy. It wasn’t meant to be. And before we start lamenting its demise or, worse, spending good money after bad to resuscitate it, we had better understand what it was for, how it nearly sucked us all dry, and why we should put it out of our misery.

Chartered Corporations

Back in the good ol’ days—I mean as far back as the late middle ages—people just did business with each other. As traveling got easier and people got access to new resources and markets, a middle class of merchants and small businesspeople started to get wealthy. So wealthy that they threatened the power of the aristocracy. Monarchs needed to come up with a way to stabilize their own wealth before the free market unseated them.

They invented the corporate charter. By granting an exclusive charter, a king could give one of his friends in the merchant class monopoly control over a region or sector. In exchange, he’d get shares in the company. So the businessperson no longer had to worry about competition—his position at the top of the business hierarchy was locked in place, by law. And the monarch never had to worry about losing his authority; businesses with crown-guaranteed charters tend to support the crown.

But this changed the shape of business fundamentally. Instead of thriving on innovation and progress, corporate monopolies simply sought to extract wealth from the regions they controlled. They didn’t need to compete, anymore, so they just sucked resources from places and people. Meanwhile, people living and working in the real world lost the ability to generate value by or for themselves.

For example: In the 1700s, American colonists were allowed to grow corn but they weren’t allowed to do anything with it–except sell it at fixed prices to the British East India Trading Company, the corporation sanctioned by England to do business in the colonies. Colonists weren’t allowed to sell their cotton to each other or, worse, make clothes out of it. They were mandated, by law, to ship it back to England where clothes were fabricated by another chartered monopoly, then shipped back to America where they could be purchased. The American war for independence was less a revolt against England than a revolt against her chartered corporations.

The other big innovation of the early corporate era was monopoly currency. There used to be lots of different kinds of money. Local currencies, which helped regions reinvest in their own activities, and centralized currencies, for long distance transactions. Local currencies were earned into existence. A farmer would grow a bunch of grain, bring it to the grain store, and get receipts for how much grain he had deposited. The receipts could be used as money—even by people who didn’t need grain at that particular moment. Everyone knew what it was worth.

The interesting thing about local, grain-based currencies was that they lost value over time. The people at the grain store had to be paid, and a certain amount of grain was lost to rain or rodents. So every year, the money would be worth less. This encouraged people to spend it rather than save it. And they did. Late Middle Ages workers were paid more for less work time than at any point in history. Women were taller in England in that era than they are today—an indication of their relative health. People did preventative maintenance on their equipment, and invested in innovation. There was so much extra money looking for productive investment, that people built cathedrals. The great cathedrals of Europe were not paid for with money from the Vatican; they were local investments, made by small towns looking for ways to share their prosperity with future generations by creating tourist attractions.

Local currencies favored local transactions, and worked against the interests of large corporations working from far away. In order to secure their own position as well as that of their chartered monopolies, monarchs began to make local currencies illegal, and force locals to instead use “coin of the realm.” These centralized currencies worked the opposite way. They were not earned into existence, they were lent into existence by a central bank. This meant any money issued to a person or business had to be paid back to the central bank, with interest.

What does that do to an economy? It bankrupts it. Think of it this way: A business borrows 1000 dollars from the bank to get started. In ten years, say, it is supposed to pay back 2000 to the bank. Where does the other 1000 come from? Some other business that has borrowed 1000 from the bank. For one business to pay back what it owes, another must go bankrupt. That, or borrow yet another 1000, and so on.

An economy based on an interest-bearing centralized currency must grow to survive, and this means extracting more, producing more and consuming more. Interest-bearing currency favors the redistribution of wealth from the periphery (the people) to the center (the corporations and their owners). Just sitting on money—capital—is the most assured way of increasing wealth. By the very mechanics of the system, the rich get richer on an absolute and relative basis.

The biggest wealth generator of all was banking itself. By lending money at interest to people and businesses who had no other way to conduct transactions or make investments, banks put themselves at the center of the extraction equation. The longer the economy survived, the more money would have to be borrowed, and the more interest earned by the bank.

Financial Meltdown

Which is pretty much how things have worked over the past 500 years to today. So what went wrong? Nothing. The system worked exactly as it was supposed to. The problem was that after America’s post WWII expansion, there was really no longer any real growth area in the economy from which to extract wealth. We were producing and consuming about as much as we could. Almost no commercial activity was occurring outside the corporate system. There was no room left to grow. Sure, outsourcing, lay-offs, and technology created some efficiencies, but wars, rising costs of health care, and exchange rates essentially offset any gains.

Making matters worse, all that capital that the wealthy had accumulated needed markets—even fake markets—in which to be invested. There was a ton of money out there—just nowhere to put it. Nothing on which to speculate.

The dot.com boom seemed to offer the promise of a new market, but it fizzled almost as quickly as it rose. So speculators turned instead to real assets, like corn, oil, even real estate. They started investing speculatively on the things that real people need to stay alive. What real people didn’t understand was that there is no way to compete against speculators. Speculators aren’t buying homes in which to live—they are buying houses to flip. Speculators aren’t buying corn to eat or oil to burn, but bushels to hoard and tankers to park off shore until prices rise. The fact that the speculative economy for cash and commodities accounts for over 95% of economic transactions, while people actually using money and consuming commodities constitute less than 5% tells us something important. Real supply and demand have almost nothing to do with prices. We do not live in an economy, we live in a Ponzi scheme.

Luckily for us, the banks, and the speculators depending on them, made a bad wager: they bet on our continuing capacity to provide a reality on which to base their highly leveraged schemes. We just couldn’t do it. They put us between a rock and a hard place. With George W’s help, they sold us on the notion of home ownership as a prerequisite to the American dream. And they created a number of loan products which made it look as if we could actually afford over-priced homes. The banking industry spent hundreds of millions of dollars lobbying for laws making bankruptcy difficult or impossible for average people to accomplish—while simultaneously selling average people loans that they would never be able to pay back.

The banks didn’t really care, anyway, since they never meant to keep these loans. They simply provided the cash to mortgage companies, who then packaged the loans. In return for putting up the original cash, the banks also won the right to underwrite the sale of those mortgage packages to investors—investors like pension funds, retirement funds, or you and me. Get it? The banks get all the interest, but we put up all the money. Our retirement accounts and pension funds invest in the very mortgages that we can’t pay back. The bank collects any interest, playing both sides of the equation but responsible for neither.

And when the whole scheme begins to break down, what do we do? We try to bail out the very banks that created the mess, under the premise that we need these banks in order for business to come back, since only banks can lend the capital required for businesses to flourish.

Yes, It is Wrong

President Obama may be smarter than most of us, but he’s still attempting to rescue the very institutions that robbed us in the first place. He’s not a socialist, as conservatives may be arguing, but he is a corporatist. Using future tax dollars to fund government job programs is one thing. Using future tax dollars to give banks more money to lend out at interest is robbing from the poor to pay the rich to rob from the poor.

As painful as it might be to watch, and as irritating as it might be to those with shrinking retirement savings, the collapse of the centralized corporate economy is ultimately a good thing. It makes room for a real economy to rise up in its place. And while it may be temporarily uncomfortable for the rich, and even temporarily devastating for the poor, it may be the fastest and least violent way to dismantle a system set in place for the benefit of 14th Century monarchs who have long since left this earth.

If the corporate supermarket chain’s debt structure renders it incapable of stocking its shelves this spring, this may be the wake-up call that consumers need to finally subscribe to a Community Supported Agriculture farmer. If the former associate fund analyst at Lehman realizes that he is unable to get a job not just because his industry is contracting but because his work day creates no real value for anyone at all, he will be forced to learn how to do something that does. If an urban elite parent realizes he can longer pay private school tuition for his kids, maybe he’ll consider donating to public school the time he would have spent earning that tuition.

In short, the less we are able to depend on business-as-usual to provide for our basic needs, the more we will be forced to provide them for ourselves and one another. Sometimes we’ll do this for free, because we like each other, or live in the same community. Sometimes we’ll exchange services or favors. Sometimes we’ll use one of the alternative, local currencies coming into use across the country as Central bank-issued currencies become too hard to get without a corporate job.

Deprived of centralized banks and corporations, we’ll be forced to do things again. And in the process, we’ll find out that these institutions were not our benefactors at all. They were never meant to be. They were invented to mediate transactions between people, and extract the value that would have passed between us. Far from making commerce or industry more efficient, they served to turn the real world into a set of speculative assets, and real people into debtors.

The current financial crisis is the best opportunity we have had in a very long time for a bloodless revolution against the faceless fascism under which we have been living, unaware, for much too long. Let us seize the day.

George Monbiot has a column in The Guardian advocating alternative currencies (aka locabucks) , declaring "It bypasses greedy banks. It recharges local economies. It's time to think seriously about an alternative currency" - If the state can't save us, we need a licence to print our own money. Psst - George, its "Gesell", not "Gessell".

In Russell Hoban's novel Riddley Walker, the descendants of nuclear holocaust survivors seek amid the rubble the key to recovering their lost civilisation. They end up believing that the answer is to re-invent the atom bomb. I was reminded of this when I read the government's new plans to save us from the credit crunch. It intends - at gobsmacking public expense - to persuade the banks to start lending again, at levels similar to those of 2007. Isn't this what caused the problem in the first place? Are insane levels of lending really the solution to a crisis caused by insane levels of lending?

Yes, I know that without money there's no business, and without business there are no jobs. I also know that most of the money in circulation is issued, through fractional reserve banking, in the form of debt. This means that you can't solve one problem (a lack of money) without causing another (a mountain of debt). There must be a better way than this.

This isn't my subject and I am venturing way beyond my pay grade. But I want to introduce you to another way of negotiating a credit crunch, which requires no moral hazard, no hair of the dog and no public spending. I'm relying, in explaining it, on the former currency trader and central banker Bernard Lietaer.

In his book The Future of Money, Lietaer points out - as the government did yesterday - that in situations like ours everything grinds to a halt for want of money. But he also explains that there is no reason why this money should take the form of sterling or be issued by the banks. Money consists only of "an agreement within a community to use something as a medium of exchange". The medium of exchange could be anything, as long as everyone who uses it trusts that everyone else will recognise its value. During the Great Depression, businesses in the United States issued rabbit tails, seashells and wooden discs as currency, as well as all manner of papers and metal tokens. In 1971, Jaime Lerner, the mayor of Curitiba in Brazil, kick-started the economy of the city and solved two major social problems by issuing currency in the form of bus tokens. People earned them by picking and sorting litter: thus cleaning the streets and acquiring the means to commute to work. Schemes like this helped Curitiba become one of the most prosperous cities in Brazil.

But the projects that have proved most effective were those inspired by the German economist Silvio Gessell, who became finance minister in Gustav Landauer's doomed Bavarian republic. He proposed that communities seeking to rescue themselves from economic collapse should issue their own currency. To discourage people from hoarding it, they should impose a fee (called demurrage), which has the same effect as negative interest. The back of each banknote would contain 12 boxes. For the note to remain valid, the owner had to buy a stamp every month and stick it in one of the boxes. It would be withdrawn from circulation after a year. Money of this kind is called stamp scrip: a privately issued currency that becomes less valuable the longer you hold on to it.

One of the first places to experiment with this scheme was the small German town of Schwanenkirchen. In 1923, hyperinflation had caused a credit crunch of a different kind. A Dr Hebecker, owner of a coalmine in Schwanenkirchen, told his workers that if they wouldn't accept the coal-backed stamp scrip he had invented - the Wara - he would have to close the mine. He promised to exchange it, in the first instance, for food. The scheme immediately took off. It saved both the mine and the town. It was soon adopted by 2,000 corporations across Germany. But in 1931, under pressure from the central bank, the ministry of finance closed the project down, with catastrophic consequences for the communities that had come to depend on it. Lietaer points out that the only remaining option for the German economy was ruthless centralised economic planning. Would Hitler have come to power if the Wara and similar schemes had been allowed to survive?

The Austrian town of Wörgl also tried out Gessell's idea, in 1932. Like most communities in Europe at the time, it suffered from mass unemployment and a shortage of money for public works. Instead of spending the town's meagre funds on new works, the mayor put them on deposit as a guarantee for the stamp scrip he issued. By paying workers in the new currency, he paved the streets, restored the water system and built a bridge, new houses and a ski jump. Because they would soon lose their value, Wörgl's own schillings circulated much faster than the official money, with the result that each unit of currency generated 12 to 14 times more employment. Scores of other towns sought to copy the scheme, at which point - in 1933 - the central bank stamped it out. Wörgl's workers were thrown out of work again.

Similar projects took off at the same time in dozens of countries. Almost all of them were closed down (just one, Switzerland's WIR system, still exists) as the central banks panicked about losing their monopoly over the control of money. Roosevelt prohibited complementary currencies by executive decree, though they might have offered a faster, cheaper and more effective means of pulling the US out of the Depression than his New Deal.

No one is suggesting that we replace official currencies with local scrip: this is a complementary system, not an alternative. Nor does Lietaer propose this as a solution to all economic ills. But even before you consider how it could be improved through modern information technology, several features of Gessell's system grab your attention. We need not wait for the government or the central bank to save us: we can set this system up ourselves. It costs taxpayers nothing. It bypasses the greedy banks. It recharges local economies and gives local businesses an advantage over multinationals. It can be tailored to the needs of the community. It does not require - as Eddie George, the former governor of the Bank of England, insisted - that one part of the country be squeezed so that another can prosper.

Perhaps most importantly, a demurrage system reverses the ecological problem of discount rates. If you have to pay to keep your money, the later you receive your income, the more valuable it will be. So it makes economic sense, under this system, to invest long term. As resources in the ground are a better store of value than money in the bank, the system encourages their conservation.

I make no claim to expertise. I'm not qualified to identify the flaws in this scheme, nor am I confident that I have made the best case for it. All I ask is that, if you haven't come across it before, you don't dismiss it before learning more. As we confront the failure of the government's first bailout and the astonishing costs of the second, isn't it time we considered the alternatives?

WorldChnaging has a post on a site for managing local currencies (or locabucks, as I call them) - Create Your Own Currency.

"Money," wrote Jamais Cascio, "is the tangible manifestation of an agreement between you and other people that the oddly-colored piece of paper in your hands has value."

But what's truly valuable is not those units of currency, so much as the units of time they represent to those who earn and spend them. Two women from Ashland, Ore., who follow this philosophy have created a way to turn units of time into currency that can be directly traded and tracked through their online system OurNexChange. This "community currency" allows local residents to buy goods and services without exchanging any money.

Sharon Miranda and Libby VanWyhe recently told the Ashland Daily Tidings about the system:

"The whole idea is to harness the resources of our businesses, organizations and government into a system that provides sustainability," Miranda said.

This would be done through a Web-based system that would track the exchange of currency units through users' accounts. There would be no tangible money.

"The idea is it's an online complementary currency exchange program," VanWyhe said.

To get started, all you need to do is apply. After that, you are awarded "Trade Dollars," which you earn by volunteering, working for a neighbor or bartering. If you watched your neighbor's children for an hour, for example, he could pay you in Trade Dollars online or could trade you for an hour of weeding in your garden. Using the OurNexChange system, you can easily record and keep track of this time and work. Businesses and organizations will also be allowed to participate, and will be awarded a line of credit to begin with to get things moving.

A community cooperative will help run the transaction fee funded system, but what will ultimately sustain the community currency will be a willingness from the community to participate.

The system, which took about six years to create, mostly relies on trust and transparency. Each transaction takes place online, and is recorded within the system. Users can then rate and provide feedback for each other, search the directory or use the systems networking tools.

In the TOD comments on my "locabucks" article I predicted Byron Bay would be the likely location for renewed experiments with local currencies in Australia.

I wasn't too far off the mark (both in timing and location), with nearby Brunswick Heads trying to get "Bruns Dollars" up and running.