# Notes on local currencies

A [strong](https://www.grassrootseconomics.org/) [movement](https://www.kolektivo.co/) is [forming](https://oak.community/) around the idea of local, complementary or community inclusion currencies. The theory is that if we can create a container within which economic value can circulate, local groups can continue to create and exchange value regardless of the global economic climate. Why should a town or village suffer if some systemic vulnerability causes a downturn in global equity markets? Surely those individuals are still able to create the same value they could before a recession?

Of course, defining a market and its boundaries is a subjective exercise. Boundaries only exist in our minds. They are still real, though, and defining meaningful boundaries allows us to study and understand the dynamics of systems internally, and within a broader multi-system tapestry. I say this while still acknowledging that ultimately all "systems" collapse into one system — the universe, in this moment. Still, drawing distinctions helps us understand patterns.

The collapse of many of our cultural systems into one is more true today than ever before. We can now communicate globally in what is effectively realtime — information can move at the speed of light, and the economy is now truly a global one. This interconnectedness carries opportunities and risks in equal measure, and how we design our systems of value flow has great bearing on the safety, justice and equity of money — whether finance serves to enhance human flourishing or undermine it.

Over the past decades, a rich range of experiments in implementing local currencies has naturally and organically emerged. Rarely are these projects initiated by central governments or banks — they typically are driven by local leaders seeking to enhance the flow economic value within a local community. These community initiatives have been classified as "[local exchange traded systems](https://en.wikipedia.org/wiki/Local_exchange_trading_system) (LETS)", and share common design patterns in their numerous implementations all around the world.

As our digital systems have matured and information technologies have become ubiquitous, irrevocable tools underpinning human society in the 20th and 21st centuries, perhaps the most significant development has been the digitization of finance. Money is finally revealing its true nature: it is fundamentally an information technology. The value of a coin lies primarily in the **stamp** it possesses, rather than the actual gold it contains. This stamp is data, which carries information about its origin and legitimacy.

In the past decades money has completed its long process of dematerialization, and now fully digital forms of money exist. Ever innovating, proponents of local exchange trading systems have been quick to adopt these new digital forms of cash. While there are some drawbacks, there are many benefits to using digital currency technologies for community currencies — they are more secure / difficult to forge, convenient to store, and easy to distribute, easy to transfer. Above all, as people around the world have become comfortable with digital payments systems their adoption has been a natural outcome.

The real opportunity with digital local currencies, however, lies in the fact that digital technologies enable very fine grained, transparent and unbreakable control over these local monetary systems. Transfers can be restricted based on specific conditions. Issuance of new money supply can be carefully controlled, managed by a transparent governance process. And — crucially for local currencies — access to holding and using these digital currencies can be restricted.

Through restricting access to a money system, a container for economic value flow can be created. By creating some boundary — between what is "internal" / "external", or "local" / "foreign" — economic agents that belong to the community and those that don't — pockets of flourishing can emerge. ...(defer to experts to describe how this flourishing manifests based on evidence).

It is valuable, then, to examine the nature and implementation of exactly how these "containers" are created. What constitutes the boundary of a community? How do we draw these lines?

The first requirement is a common necessity for any system of money: belief. An economic agent — a person, business or other account holder — must be willing to accept payment in a particular currency for it to have value. Every system of money rests on this foundation of consent — though very often people face a Hobson's choice, or rather, there is no choice of which money to use at all. (More on how to create beliefs within a market that a particular currency is valuable / acceptable as a medium for transaction)

Historically — when LETS systems were based on physical notes — the community was typically people and businesses in the local area. The essence of our question lies in our definition of "local". Put simply, local means nearby. However, the meaning of "near" and "far" differs greatly depending on the space in which agents are situated. The most intuitive space to consider is physical space. Economic actors usually (though not always) have some physical aspect to them — a physical object associated with an account. A person has a body, material that exists at a specific place relative to the Earth. A business often has a shop or office, a space where commerce is conducted or goods and services are produced. So one definition of localism relies on **spatial proximity**.

However, much of our conception of what constitutes "local", and what makes a community, is actually decoupled from physical geographies, and instead relies on agents being nearby within some other network topology. One easy example is a social network: people and organizations are represented as nodes, and transactions, messages etc between them represented as links. A highly tight-knit community of friends can form online entirely independent of where those people are on Earth. Network connections strengthen as agents propagate ideas to their immediate "area" (i.e. their followers / friends). Here, "local" means nearby on a network that is independent (though often correlated) with physical space. Similar principles apply to agents within a financial network — trade can and does occur between actors who neither know nor care where their counterparties' bodies sit on Earth.

How is this relevant to community and complementary currencies? It has to do with the way that the "economic container" required to implement a local currency is created — how the boundary between "community" and "not community" is enforced. To date, by my understanding the main way to draw this distinction is by creating a whitelisted set of actors that are allowed to transact with the currency. Accounts controlled by these actors are added to an allowlist, and transfers to / from those accounts are allowed to settle, while transfers to any other accounts are not. In essence, a filter is applied to who can participate in the local currency system based on identity. Typically the accounts added to the allowlist are controlled by people and businesses with some physical presence within a local geographic area, but physical presence in a location is not requires in order to participate — and not everyone present in that area is allowed into the system until their account is added to the allowlist.

This "container" creates a currency local to a geographic area only by proxy, by leveraging the fact that people exist somewhere, and tend to reside in a place over time.

This does, however, raise some interesting questions. What if an account holder allowed in the local currency system moves to, or travels to, another place? Should they have equal access to the system, or should the fact that they are not physically present affect the policies that apply to their transactions? And conversely, what if someone travels into the zone where the currency is meant to operate but is not on the allowlist? Should they not be able to permissionlessly acquire and transact with the local currency? Or should they be required to seek the permission and get added to the list?

Based on the principle of subsidiarity (which seems to hold special relevance in the case of complementary currencies) the answers to these questions should be determined by the participants of the system rather than prescribed by some outside authority. I am curious, though, how we might empower these currency designers with new tools for creating these economic containers, intending to enable more advanced forms of financial inclusion.

What if we could create a container that was actually based on **where** people were, rather than who they were? What if we could apply a spatial filter to participation, rather than an identity-based filter? How would this work, and how might it change the way community currencies could support and enhance thriving?

In order to apply a spatial filter and create a local currency based on physical space, rather than proximity within some other, more abstract network, two pieces of information are required: the area / zone within which economic activity should be enabled, and the position of the agents relative to that area. A community inclusion zone needs to be defined — some kind of polygon (area) or polyhedron (volume).

On a map, this is simply some administrative area. Technically this is represented as a sequence of coordinates, along with some spatial reference system — longitude and latitude within on a geographic coordinate system like [WGS 84](https://docs.qgis.org/3.16/en/docs/gentle_gis_introduction/coordinate_reference_systems.html). This ordered series of points, or vertices, enclose a jurisdiction that represents the area within which a community exists.

The other piece of information required: where system participants are in relation to that policy zone. This would typically be represented as a point — a longitude and latitude coordinate pair — which can then be compared with the reference polygon to see whether the point (i.e. person) is inside or outside the zone.

With this simple conditional test — `pointInPolygon(position, zone)` — we can create a new way of filtering economic activity associated with a local / complementary currency. Rather than requiring that `allowed(account)` in order to proceed with a transaction, with the system proposed anyone within a geographic area could participate, and anyone outside could not. Money could be restricted to a specific area. People could permissionlessly transact, if they were present. A physical container for economic activity can be created, relying exclusively on digital technologies.

There are, of course, a number of substantial assumptions made in the proposed system. The first, and most significant, has to do with capturing a trustworthy claim that a person is at a particular place at a particular time. This is a deeply challenging problem to solve, and I've been working with collaborators to design such "verifiable location claims" as a new primitive for the location-based web. This is deserving of its own post, but we believe that a combination of technical, social and economic techniques can be used to build sufficient trust in such location claims for them to be useful in the context of local currencies.

Another assumption is that the computation to check whether a point is inside a permitted zone can be performed in a way that is both trustworthy and simple for these currency designers to integrate. Here again, my collaborators at Astral have been designing a suite of software tools to provide this functionality. We recognize that many complementary currency systems are being developed that use smart contracts deployed on EVM-compatible blockchains. We're building a "verifiable spatial data registry" system that allows for these zones to be stored and accessed by currency developers with a simple method invocation. By performing these computations in the EVM, we have the benefits of distributed consensus and retrospective auditability on all transactions.

Another key consideration is the privacy of the users of these systems. While there may be cases where publicly declaring one's location may be desirable, it is an absolutely critical requirement that the location of a person — one of our most intimate identity attributes — be kept private. We cannot create a system where people broadcast where they are in order to transact. This is a technically complex endeavor, and the team at Astral has provided a development grant to zkMaps, a team developing technology for zero-knowledge location proofs.

Our goal is to create tools that will give local currency designers a broader range of expressive potential.

It is worth delving a bit deeper into some of the functionality that could be developed once we have these new primitives and algorithms at our disposal. As part of our work, we've been developing Spatial.sol — a Solidity library of topological and geometric functions. The eventual goal is to implement a set of functions similar to those available in the [Turf.js](https://turfjs.org/) library. We've already seen one of these: `booleanPointInPolygon` .

What can we do when we can calculate the `distance` between two points, a buffer around a polygon, whether two lines intersect, and so on? What about network operations like Dijkstra's shortest path algorithm? Or clustering / classification?

One idea: should a user completely lose access the a local currency system the moment they step across an imaginary line on Earth? Or would it make more sense for the access to decay the further they travelled away? For this we propose spatial demurrage: a tax placed on an account's holdings proportional to the distance from a particular place. Just as traditional demurrage systems (which we can think of as "temporal demurrage") incentivize people to spend their money closer to *now*, a spatial demurrage system would encourage them to spend their money closer to *here*. Applying a decay function to their purchasing power based on geographic location seems to be a more graceful policy than a discrete, binary "in" or "out" condition. There are many places where integrating distance could make for interesting financial protocols — currency swaps could be altered based on the distance between two people, distant purchasers could pay a higher fee for purchasing a particular good or service (like an event ticket); etc. This points toward the innovation we hope to unlock when we release v1 of the Astral Protocol.

Humans strive for knowledge. For whatever reason, we tend to push towards understanding our world more deeply. Science provides a framework for drawing robust, defensible conclusions about the nature of reality, and technology leverages our grasp of those patterns. I believe firmly that major discoveries are yet to be made about how we relate to each other, mainly in the realm of meaning — the informational domain. I'm hoping the tools we're building at [Astral](https://astral.global/) help us find new, healthy ways to relate and support one another.