Issuance

There is no form of money that occurs naturally in any given society or community. Natural objects – from seashells and large stones to gold – have been used as money, but only when a society determines that they should be accorded a special status.

The rules and processes by which these objects or units are turned into money are called issuance. This is what the central bank does when it prints on pieces of paper and then distributes them as banknotes, or what commercial banks do when they add numbers to someone’s bank account when they take out a loan: they issue money into the economy.

There is some confusion as to the exact meaning of issuance, particularly with currencies that are printed on paper, because there can often be a lag between the time that a note is printed (when it is distributed to the issuance points) and the time that it is put into circulation by giving it to a person or business to use.

To ensure clarity, three distinct properties of what is often referred to as issuance can be summarised as: - the rules that govern issuance - the factors that will determine the quantity of money - the mechanism where by the money comes into circulation.

Within each category are a large variety of different methods and factors employed to manage and control the money supply.

# The rules that govern issuance

The rules that govern how issuance will take place will be crucial to the proper functioning of the currency, and will in all cases be established by the organisation responsible for operating the currency.

This does not, however, mean that these rules are always centrally created and simply imposed on businesses and users. Some currencies allow all members, for example in a co-operative set-up, to input into the design of the rules that govern the currency and its issuance.

Others, like the Brixton Pound, do consult users and businesses, but use the operating entity to set the issuance rules.

# The quantity of money

The management of the quantity of new money created, as well as the total money supply, is another area that requires consideration during the design phase.

An example of a system that is carefully managed by the currency operator is the time-credits model pioneered by Spice in the UK. Under this model, the local Spice entities decide on the maximum amount of time-credits that can be distributed for an event or opportunity.

This control over maximum issuance ensures that there are spending opportunities for all the time-credits issued, which is vital to the currency being perceived as valuable by its users. The time-credits are then issued when a person participates in the designated activity.

This can be contrasted with the LETS and peer-to- peer timebanking systems, which both allow their users/members to issue units into circulation whenever their own balance is not sufficient to pay for activities or services rendered by other members.

SME businesses belonging to mutual-credit networks operate in a similar way, by allowing member businesses to create money in a fashion similar to overdraft facilities when they pay other members.

Under these systems, although there are rules governing maximum negative balances for a particular user or business, there are no central rules governing the speed and point in time at which new money can be created or the total quantity of money that is circulating at a given moment. It depends rather on when and how much participants deliver and pay for each other’s services.

# Putting money into circulation The final point to consider in regards to issuance is the particular mechanism that will be used to actually put money into circulation. In the mutual-credit example above, creation and putting into circulation coincide. Other options available are listed in table 2 opposite.

It should be added that Bitcoin and other similar digital currencies are somewhat deceptive in their issuance, because there is no legal issuing entity. Instead, the rules are established by a predetermined algorithm. Although the total quantity of money as well as the issuance schedule is centrally regulated, the allocation of the next Bitcoins plays out in a decentralised fashion.

None of these features are necessarily set in stone, however, as the governance model for Bitcoin has established that if a simple majority of the user community wish to, they could override or amend (‘fork’) any of the system rules. Such systems, therefore, have the potential to be fully decentralised.

# Taking money out of circulation

To prevent inflation, alongside the issuance mechanism, the ways in which currency is taken out of circulation has to be determined. Follow the inks below to see the range of different approaches to issuance taken by community currencies.

- Brixton Pound - TradeQoin - SoNantes - Makkie - e-Portemonnee - Spice Time Credits