City Crypto - can we programme in a new structure to our economy?

I am as skeptical about this post as you are

Every now and then, people will joke about my qualification to run as Mayor. There are many reasons I won’t - my lack of political desire being chief - but also I’ve tweeted too politically incorrectly, have too many tattoos and liked too many sex worker friends’ instagram photos. 

Also, you can’t campaign on a coin. And apparently I (very rarely) have rather hair brained ideas - like a City cryptocurrency. 

I’ve just lost half you - and gained a bunch of Bitcoin-bros. Oh dear. 

The “how” of economic inclusion

Economic historian Johan Fourie doesn’t predict the future at the end of his book “Long walk to economic freedom”, but he does pose some interesting questions and provocations, including asking “how do we make more people shareholders in the economy”. 

Ayabonga Cawe presents a similar challenge when he suggests that we need to “secure the base” by creating a currency or voucher system that keeps grant monies in tighter circulation in local economies, before they are efficiently extracted via the vertically integrated machinery of South Africa’s retail and food giants. The thin end of the wedge of this has been in development with digital voucher schemes that have emerged in Covid food relief programmes. 

We know that there are inefficiencies and inequities in the distribution of gains in our economy - what Piketty calls the “team surplus” accumulating to the high earners at the tops of vertically integrated sectors - that keep new entrants out, and profits high, and internal wage gaps wide (in South Africa, we know this all to well in our retail space, with significant impacts on both food affordability as well as inclusion in manufacturing and retail small businesses).

I recently had the opportunity to contribute to a body of knowledge about the State of Cities in South Africa (watch for the release, I’ll be sure to share), and in doing so expanded my own frameworks on what is inclusion, and what mechanisms do local governments have to contribute towards greater levels of productive inclusion in the economy. There are many ways in which exclusion is reproduced - inequality within firms, between enterprises, and between places chief among them (and a host of structural and historic reasons for those). Cities have several levers to intervene, but are often shy about only playing an “enabling” role on the economy.

Bringing together these different ideas - what reproduces exclusion and inequality in South African cities; what types of production in (and of) the city do and could exist, and ideas for securing “shareholdership” in all of this, I found myself sketching away on my whiteboard: 

Very fancy. Hard work. 

The concept of a City currency is not new

Towns with their own currencies have existed at many periods in time, and I must be honest - I’ve never really “gotten” it - beyond a cutesy tourism gimmick, if the currency can be exchanged for the national currency, I don’t get how it really works to reduce leakage - there is a reliance on people’s pride and “shop local” until, well, someone is not that into it and exchanges it for the national currency and spends it externally - how quickly that happens is dependent on the level of pride and the value of local offerings, not the currency itself - so why not rather focus on “support local” campaigns, and boosting local offerings? 

Some of the arguments for these initiatives, however, include that they can be useful mechanisms for directing local spend - in other words, don’t just launch a local currency, but use it for your social spending programmes. Additionally, having limitations on who can receive them, keeps them in circulation longer - and this can be informed by who is more likely to have higher local “multipliers” in their business - who is, effectively, resulting in the most direct inclusion in the economic benefits of the spend. So it is both a redistribution tool, and a tool for directing the flow of redistribution several times over - even once it is in the productive economy. 

CityCrypto

Cities with their own crypto currencies is something slightly different. These initiatives are normally less about a new currency per se, and more about a new financing mechanism - a way for the City to raise funds for projects and get ordinary citizens to buy into new projects - similar to issuing bonds, but now individuals can buy coins, or portions of coins for small amounts that they can afford - making the barrier to participation much lower than traditional bonds.

Trust in the currency is key for it to work; and stability in value is also key for there to be stability in the associated public good (infrastructure or service projects). As a result, most cities exploring their own crypto are pegging the value of their cryptocurrency to one of their own assets, or to the national currency. Some have explored pegging the value to property values - a controversial idea in a world where rising property values has many negative impacts for those seeking access to the city, at risk of eviction and so forth; but where now a proposal is put forward for a distributed mechanism for shareholdership in a value store linked to rising property values. (Another example that was shared with me is CityDao - not quite a Crypto, this is an urban land market with distributed ownership enabled via blockchain. An interesting concept, but in our context I would like to see radically smaller parcels/portions of ownership for meaningful participation, and the coding in of agreements regarding rent control, or other inclusionary factors). 

CityCoins is an initiative that recognises this potential - they say it better than I could:

“CityCoins communities will create apps that use tokens for rewards, local benefits, access control (to digital or physical spaces), trading, lending, smart contract execution, and more. As one simple example, local businesses can provide discounts or benefits to people who show they “Stack for their city” by Stacking their CityCoins.”

One of the potential risks of Crypto currencies is that too few users use these benefits to programme and “stack” them, and too many users just use them as a value store - keeping them out of circulation and hoping to get rich on a speculation driven increase in value. One way around this is apparently to programme-in mechanisms for depreciation if coins aren’t spent within a certain period - incentivising circulation. 

Returning to South African cities

What the concept I have sketched above does (and let's be clear, the concept is as well-developed as a sketch), is combine elements of the traditional “town currency as a redistributive and circulation tool” with the concept behind City cryptos as a mechanism to stimulate investment in City services and public goods. 

In this concept, grants and other funds intended for public projects are used to create coins, and individual members of the public can also purchase them. Some members of the public (indigent households, potentially other targeted beneficiaries) receive coins. 

These coins are then used to procure a range of things - the City might use them to pay for mega projects (and invite the public to add coins - potentially for a future return, given traceability of investments that Crypto offers), commuters might use them to pay for transport, households might use them to pay for electricity. Decisions about where these coins are redeemable become an important part of economic policy - and potentially also incentives within other systems - for example, minibus taxis who subscribe to a governance model; informal traders and spaza shops who need a leg up against competition from encroaching firms, or firms who subscribe to localisation of benefit, providers of urban management services, creches and so on. 

What do you all think? Is this edging into black mirror territory? Or, could we effectively leverage the procurement power of the City, social grants and subsidised access to services and a coalition of the willing who subscribe to mining and stacking their coins towards the same project, to code in a new structure for our economy?  

Thanks to Simon Dingle @SimonDingle who shared some of the examples used in this blog

Relevant previous posts:

• 4 ways in which cities transition to “city as a platform”

• Cape Town’s Economic Pathways