faqs

A system for creating and managing local electronic trading currencies in a way that encourages local trading and improves cashflow.

Quids (each network will have their own name for the currency units) are initially created by the local council, who issue them to staff and contracts as a small part of their wages or fees. The Quids are effectively IOUs because the council must accept them in payment for rates, water charges or car taxes.

In the trial phase of the network, the council must accept back the full amount that has been issued. If the network proves successful and moves to the full version of the system the trust will decide how much the council must accept of what period of time.

The trust discusses with each participating local authority how much of their costs they can pay in the network's unit, the quid, in the first year, and how much they should be able to take back in payment of local charges, rates and so on. It then decides how big an advance on their future bonuses it can give them.

These bonuses are payments for helping to develop the system. Council staff will have to spend time adjusting their accounting systems to handle both quid and euros, and getting the agreement of contractors, suppliers and workers to take part-payment in quid. The bonuses the councils receive are paid according to their degree of success.

There's both a stick and a carrot. The stick is that the workers know that, because their council's income has been cut by the current crisis, they may have to work shorter hours or even be laid off if they don't accept some quid. The carrot is that they know that they will get a bonus in quid if they do. And, of course, they know that most local shops will accept the new money.

If trade in a network turned down, it would be necessary to remove quid from circulation to ensure that they kept their value.

There are two ways of removing quids. Those taken back by the council in payment for rates etc. are not put back into circulation or fees are applied to those people who are hording quids.

The network's software sends out warnings to the people with the slowest accounts - those that were being used least relative to the balance in them - telling them that a proportion of their previous bonuses would be withdrawn in a few weeks' time unless their trading increased. Each month the decline went on, more quid would be taken out of the system than was being injected into the most active accounts at the top. However, no accountholder would ever lose more units than they had been given as bonuses in the past. Quid that people had earned by working or trading would never be taken away.

The account will form part of the assets of the company in the same way that euro bank accounts will. From the business accounts perspective, all invoices are raised in euros, but some are paid, or part paid in Quids, so the liquidation process will be the same.

Feasta is a not-for-profit thinktank on sustainable economics. The position Feasta has adopted is that many of the world's problems are caused not by bad people but by dysfunctional systems and it sees its purpose as designing better systems. Current projects include development of a local electronic trading currency, assessment of carbon sources and sinks in ireland and a smart tax system. For more information see http://feasta.org

As a network is not going to be run to make a profit for investors, it cannot be financed in the conventional way. So, if sponsors cannot be found to pay the upfront costs, the people who expect to benefit from its operation need to be prepared to put some conventional money into developing it themselves. They should put in the seed money on the understanding that they will get it back in the system's own units once trading begins.

Alternative, national and EU funding may also be an option.

Once a network is running, accountholders will have to pay a monthly fee to the trust to cover its running costs, just as they do to their bank.

Yes. The initial trial phase lasts 3-12 months and has some limited functionality and during this period the council must accept back all the quids they issued, ie. the currency is fully backed by the council. Once the network is deemed to be a success, the live phase can be implemented where additional currency can be added to the system but the council can offset it's bonuses against issued currency and there is no longer responsible for the all the issued currency. The trust will make the decision when and if to move from the trial to full network.

No. A liquidity network is purely for buying and selling and not for saving or borrowing. The whole point is to get away from debt.

Yes, but if your paper currency's value is linked to the euro, the link has to be switched to the quid instead.

In the early stages, it is backed by the willingness of the local councils to accept it as equivalent to the euro. However, once the councils have earned enough bonuses to cover their advances, they don't have to accept quid at all. Their backing can be removed. From then on, it's up to the other users to back it by accepting it for their goods and services.

Lots of community currencies have been set up in the past. What's different about a liquidity network is that, because it is electronic, the number of quid in circulation can be fine-tuned. The technology for doing that has not been available before. No previous currency system has had the ability to give extra units to users who are expanding the system and take previous bonuses away from those who don't need them because they are not trading actively enough.

Additional currency will be available to spend locally.
Business who spend their Quids widely and help to grow the network, will be rewarded with bonuses.
Discounts will be given to businesses who pay their invoices early and this discount will be paid by the network, so the supplier gets the full value.
1. The cost of transactions using Quids will be less than credit cards or banking charges, and if the network is successful, transaction costs can be reduced further by discounts and bonuses.
2. Because the transactions happen online, adding an online shop will be easy and cheap to do.
3. Other options, including loyalty schemes, special promotions etc. can be added easily.

An online accounting and banking system is available to make it easier than in euros to pay other businesses that operate with Quids. All invoice information is sent through from the supplier, no need to enter it onto each businesses accounting system. No need to request statements or copy invoices, they are all available online whenever they are needed. You can even setup the system to automatically pay invoices as soon as you approve them and there is sufficient balance in your account, giving you the best chance of earning an early payment discount from the system.

You can pay part or all of your motor tax (rates and water charges) with Quids. Simply substitute Quids on a 1 for 1 basis with Euros.

A paper currency is an open system. Once the currency is issued the is no control or record as to where the currency travels. The Liquidity Network is a closed system so every transaction is recorded on the system and so it is possible to see how the system is being used and manage the flow of currency. It is not possible to withdraw currency from a closed system, for example, in the form of a paper note, it is only possible to spend it away. This has two major advantages. It makes fraud much more difficult because to use the currency you must have registered on the system and all transactions are recorded on the system. The second advantage is that should there be a 'run on the bank', currency cannot with withdrawn so if you think the currency is losing value all you can do is spend it, and by spending it help to support the currency.

For traders, paper money creates additional work to record transactions and hold change, so there are downsides for local traders to want to handle the currency in the long term. With a purely electronic currency in a closed system, the transactions are automatically recorded, there is no need for change and the cost of transacting in the local currency can be less than in euros. This gives local traders direct benefits and will incentivise them to use the currency widely.