Quoting from Tao of Money
INFORMATION EXTRACTED FROM ARTICLES PUBLISHED IN URUGUAY, APRIL 2009
The Executive Power prepares details for a new system of payment which will be adopted to stimulate micro and small businesses.
In two months, the government will release a new way of payment, a transaction network, which will allow micro and small business to interact among themselves, through a new alternative currency, and at the same time to face their obligations with the State.
This was announced recently by the Minister of Work, Eduardo Bonomi, during his participation in the talk “International Crisis and Uruguay 2009”, organized by Montevideo City Council.
Minister Bonomi said that the development of this new system is the result of working together with the Ministries of Work, Economy, Industry and Energy, and with other governmental organisms, as well as state banks and state insurances and city councils of Montevideo and Canelones. Moreover, state companies will take part in this new system as well.
“This new network of transactions will allow small and medium businesses access to credit through an alternative currency, but it will be exchangeable throughout the whole country, where they will be able to pay for petrol, taxes and it will be redeemable into money”, he confirmed. Nevertheless, he made it clear, that this project is about giving support to the production and it’s not a credit for consuming. “Next week I’ll have a talk with the Meyer of San Jose (neighbour city), so that he enters the whole metropolitan area to the system. The idea is that city council providers can also trade through this currency”, said Bonomi. In a first stage, this system would include just micro, small and medium businesses, but in the future it could also absorb privates to the network.
This initiative counts with the support of the ILO, IADB (Inter-American Development Bank) and the General Inter-American Secretary. This project aroused a lot of interest among the region countries such as Argentina, Bolivia, Ecuador and Venezuela, which means that in the future inter-regional transactions may be possible.
All over the world similar systems already exist. In this case, the different element is that the administrator will be the State. It works as a network of payments through electronic debits and credits. To join the system the companies must request approval of the State Bank. From there on, the company will be assigned an account in the system. This company will be able to order the payment from its account to be credited in favour of a state organism or a private member of the network. Accounts will be balanced periodically and participants advised of their trading position.
This amount will be redeemable into national currency or used to pay for petrol or taxes. Bonomi said that this idea was presented to the National Association of Micro and Small business and to the Uruguayan Confederation of Cooperative Entities and other cooperatives, arousing great interest among them.
The development of the network doesn’t create any costs for the country, since it was originated in cooperation with the STRO Foundation from Holland, which supplies the network model, known as C3 (Consume and commerce circuit). The name for the virtual money circulating through this payment scheme is called “internal liquidity”, although the technicians working on its development adopted a more native denomination: “charrua” (name of the Indians, that inhibited Uruguay before the colonisation, and who were completely exterminated, therefore it is ironic that the Uruguayans are called like that even nowadays, and more that this name it’s used as a icon of local identity)*.
However, in Uruguay STRO chose a new approach, which might also work out well for other C3s. Small businesses cannot obtain the same payment guarantees that large businesses receive. C3 Uruguay is going to work with a guarantee fund that will assure small businesses of payment on delivery in internal C3 money. In such case these small businesses do not have to wait for months until they receive payment and are therefore able to maintain their stock level. In the capital Montevideo, where over a half of the Uruguayan population lives, the same method of payment on delivery in internal C3 units to small businesses will be followed.
For STRO this new C3 approach is a fascinating experiment, because large partners have joined in. We therefore hope to gain more insight in what a C3 business network can do with a complementary currency in a poor country.
Access to the credit
Operations would be 100% guaranteed and the system will allow access to low cost credit -around 10 to 12% to small business that aren’t currently covered by the traditional banking system. This will also improve competitiveness of this economic unit and its formalization will be stimulated, reducing administrative and transactions costs at the same time. This network won’t create inflation dilemmas, since the financing will be channelled towards production, which will broaden the supply of goods and services.
National System of Guaranties
A guaranty fund of 5 Million US$ is planned to be established as the initial capital to stimulate the credit for small businesses. (What backs this fund?)
Interesting information about Uruguay’s current financial situation