A design pattern for a Smarter City: Local Currencies and Alternative Trading Systems

(Photo of the Brixton Pound by Charlie Waterhouse)

(In “Do we need a Pattern Language for Smarter Cities” I suggested that “design patterns“, a tool for capturing re-usable experience invented by the town-planner Christopher Alexander, might offer a useful way to organise our knowledge of successful approaches to “Smarter Cities”. I’m now writing a set of design patterns to describe ideas that I’ve seen work more than once. The collection is described and indexed in “Design Patterns for Smarter Cities” which can be found from the link in the navigation bar of this blog).  

Design Pattern: Local Currencies and Alternative Trading Systems

Summary of the pattern:

There are many definitions of a “smart city”, but they all incorporate the concept of innovations, enabled by technology, that change the relationships between the creation of financial and social value and the consumption of resources.

Money is our universal system for quantifying the exchange of value; but most of the systems which measure value using money do not incorporate social or environmental factors – externalities as they are known by economists. Consequently a variety of alternative systems of trading and exchange have emerged amongst online communities and in local ecosystems that are exploring new ways to create sustainable regional economic and social improvement.

Some of these schemes use paper or electronic currencies that are issued and accepted within a particular place or region; and that have the effect of influencing people and businesses to spend the money that they earn locally, promoting regional economic synergies. Last year, Bristol became the 5th UK town or city to operate its own currency using this model, and “Droplet” operate a local smartphone payment scheme in Birmingham and London.

Other schemes are based on the bartering of goods, money, time and services, such as time banking. And some schemes combine both elements – In Switzerland, a complementary currency, the Wir , has contributed to economic stability over the last century by allowing some debt repayments to be bartered locally when they cannot be repaid in universal currency.

As these schemes develop – and in particular as they adopt technologies such as smartphones and offer open APIs to allow developers to incorporate their capabilities in new services – they are increasingly being used as an infrastructure for Smarter City projects in domains such as transport, food supply and energy.

(The SMS for Life project uses the cheap and widely used SMS infrastructure to create a dynamic, collaborative supply chain for medicines between pharmacies in Africa. Photo by Novartis AG)

Such schemes exploit the potential for the combination of information technology and local currencies to calculate rates of exchange that compare the social, environmental and economic cost of goods and services to their immediate, contextual value to the participants in the transaction. The academic field of service science has evolved to study the ways in which such possibilities lead to business and service invocation.

This trend is particularly strong in some African nations where a lack of physical and transport infrastructure has led to a surge in business innovation supported by mobile payments schemes. For example, the Kilimo Salama scheme in Kenya provides affordable insurance to subsistence farmers by using remote weather monitoring to trigger payouts via mobile phones, rather than undertaking expensive site visits to assess claims.

City systems, communities and infrastructures affected:

(This description is based on the elements of Smarter City ecosystems presented in ”The new Architecture of Smart Cities“).

  • Goals: Wealth, health, opportunity, choice, sustainability
  • People: Any
  • Ecosystem: All
  • Soft infrastructures: Leadership and governance, networks and community organisations
  • City systems: Transport systems, health, culture, economy, retail, leisure; and potentially others
  • Hard infrastructures: Information and communication technology

Commercial operating models, alternatives and variations:

Four main types of commercial model exist, each constituting a variation of this pattern:

  • Local currencies operated as social enterprises within specific towns or cities, pursing local economic objectives, often issuing paper currencies. Examples include the Bristol, Brixton, Lewes, Stroud, and Totnes pounds. These schemes link to national and universal currency by offering defined processes and rates of exchange. Often the financial backing is provided by a credit union or other mutual financial organisation.
  • Smartphone payment schemes operated by private enterprises, usually entrepreneurial technology companies. These companies may not have local economic objectives as a primary focus, but will usually deploy their services and build businesses with a network of merchants in a specific city in order to create the critical mass necessary to persuade consumers to adopt the service. These schemes link to traditional payment systems either through direct integration to banking services, or though the billing systems offered by mobile network operators.
  • Recycling and bartering networks such as Freecycle which operate very informally and are locally focused as they involve people physically meeting to exchange goods or services. Such networks are often governed at least as much by codes of behaviour as they are by being legally constituted as formal bodies.
  • Local loyalty schemes operated by city councils or by businesses on behalf of local communities, and that encourage local businesses to collectively reward customers for using their products and services. Examples include the “Backing Birmingham” b-card; the not-for-profit “tag” scheme that operates in Durham, Manchester and Stockport; and Local Loyalty Powys.

In addition, it is likely that formal banking institutions and payments intermediaries will enter this market in some form. Many financial institutions started as or are now social enterprises, or express community objectives in their charters; credit unions, for example, or Hancock Bank, whose charter as a community bank led them to take powerful actions to assist the citizens of New Orleans to recover from hurricane Katrina in 2005 .

These institutions are increasingly exploring the role they can take in supporting Smarter Cities, both directly  or through supporting innovation facilities like the Future Cities programme at the Level39 incubator in London’s financial district.

Soft infrastructures, hard infrastructures and assets required:

Local currencies and trading schemes are formed where an entrepreneurial organisation – whether a private business or a social enterprise – works together with a community organisation – either an institution such as a city council, or a community such as a local business network. Trust and collaboration between the entrepreneur, institution and community are vital to success. In particular, city institutions can support the scheme by allowing employees to chose to be paid through it in whole or in part – Lambeth Council offers employees the choice to be paid in part in Brixton pounds; and Bristol’s mayor takes his entire salary in Bristol Pounds.

A Payments or billing service, or mechanisms to print local currency and govern its exchange for national currency are also required in order to integrate the local scheme with the traditional economy. The governance of these arrangements is crucial to convincing individuals and businesses to trust this new independent form of currency.

Schemes achieve the highest level of adoption where they are supported by strong local economic and business communities, such as Business Improvement Districts or campaigns such as Coffee Birmingham.

(The QR code that enabled Will Grant of Droplet to buy me a coffee at Birmingham Science Park Aston using Droplet’s local smartphone payment solution; and the receipt that documents the transaction)

Driving forces:

The factors that lead to the emergence of local currencies and alternative trading systems include:

  • The desire from local government, within local communities and amongst local businesses and entrepreneurs to support local economic and social growth.
  • Disillusion with traditional financial systems following the 2008 crash, recent banking scandals, and the reluctance of some banks to lend to small business; along with an awareness that alternative models are increasingly viable for some purposes.
  • The increasing availability of low-cost payment systems to support transactions in online marketplaces that exchange local resources, such as local food initiatives, community energy schemes, shared transport systems and timebanks.


Benefits of local currencies and alternative trading systems include:

  • The potential to link the formal economy with informal transactions, some of which are crucial to creating value in communities with the fewest resources.
  • The ability to include local externalities in the rate of exchange associated with transactions.
  • Reinforcement of local economic synergies.
  • The creation of brand value for towns and cities with flourishing local currencies.

Alternatives and variations:

Alternatives and variations of this pattern are described under “Commercial operating models, alternatives and variations” above.

Implications and risks:

Local currencies are not universally admired. Some merchants complain that it is inconvenient to accept payment in a currency with restrictions on spending, or that requires conversion to national currency; and some commentators have questioned whether they achieve anything that couldn’t be achieved through simpler means. Newspaper and BBC journalists have explored these issues in reports describing the Lewes Pound.

Local currency schemes must also offer some mechanism to protect the value of currency held by users of the scheme. This might be achieved if the currency is operated by a mutual financial organisation such as a credit union; or by depositing matching funds in national currency in a traditional bank account. Where printed notes are issued, steps must be taken to prevent them being easily reproduced fraudulently.

Finally, in order to succeed, local currencies need to achieve a critical mass of users and of accepting merchants. Lambeth Council accept payments of business rates in Brixton pounds, and allow employees to take part of their salaries in the currency. Both actions support growth in use of the currency. The presence of strong community groups amongst local businesses can also boost such schemes.

(George Ferguson, Bristol’s Mayor, whose salary is paid in Bristol Pounds . His red trousers are famous . Photo by PaulNUK)

Examples and stories:

The story of Hancock Bank’s actions to assist the citizens of New Orleans to recover from hurricane Katrina in 2005 is told in this video, and shares many of the values that local currencies are based on.

Hancock Bank’s actions were the result of senior management basing their decisions on the company’s purpose, expressed in its charter, to support the communities of the city. This is in contrast to the behaviour of Bob Diamond, who resigned as CEO of Barclays Bank following the Libor rate-manipulation scandal, who under questioning by parliamentary committee could not remember what the Bank’s founding principles, written by community-minded Quakers, stated.

Rose Goslinga tells the story of forming the Kilimo Salama micro-insurance scheme here.

Sources of information:

In addition to the sources already linked to in this pattern, Brett Scott’s “Heretic’s guide to global finance” explores a number of ways to adapt the traditional financial system to achieve social and environmental objectives.

Privacy in digital cities: Google Glass, the right to choose, and the enduring legacy of Jane Jacobs

(The White Horse Tavern in Greenwich Village, New York, one of the city’s oldest taverns. The rich urban life of the Village was described by one of the Taverns’ many famous patrons, the urbanist Jane Jacobs. Photo by Steve Minor).

I’ve spent a lot of time over the past few years discussing the evolution of cities, and the role of technology in that evolution, with architects, social scientists, politicians and academics. In the course of those discussions, every few weeks someone has suggested that Jane Jacobs laid the basic groundwork for understanding that evolution in her 1961 book “The Death and Life of Great Amercian Cities“.

That book is more than half a century old now, and clearly it was written in the context of the technologies of the time. And those technologies are a background presence in it, not it’s focus. But in the sense that construction technologies, transport technologies and digital technologies are only effective in cities when they are subservient to the needs of the everyday lives of people and communities, then Jacobs’ discourse on the proper understanding of those lives remains highly relevant; and should be inspirational to us in understanding how today’s technologies can serve them.

In particular, it is relevant to one of the great societal, ethical, political, legal and technical challenges of our time: privacy in a world of digital information.

The concept of privacy was central to Jacobs’ analysis of the functioning of cities. Her defining characteristic of cities is that the great size of their populations means that most people in them are strangers to each other; and that creating safety and security in that context is very different to creating it a town or village where a higher proportion of people are known to each other.

Her assertion was that cities are safe places for strangers to inhabit or visit when public and private life are clearly separated. When public life is lived on streets with a mixture of residential, retail, work and leisure activities, then those streets are busy at most times of day and night. They are therefore full of observers who inhibit anti-social behaviour, and can intervene to prevent it if necessary. In contrast, private life is safe when it is lived securely and separate from those public spaces, so that strangers cannot intrude.

Places that blur these distinctions can be dangerous. Parks in sparsely populated and entirely residential suburbs, for example, are short of observers; so that if the play of children, or the behaviour of others towards them, becomes threatening, there is less likelihood of a preventive intervention.

This thinking was brought to mind this week by Jan Chipchase’s discussion of the implications of Google Glass. Glass is a “wearable computer” mounted on false spectacles that displays information to overlay what we see. It can make video and audio recordings of the world we are experiencing, and can distribute those recordings through wireless connectivity to the internet. It responds to a voice-control interface and  by recognising manual gestures.

Chipchase compared the implications of these capabilities to our assumptions of what constitutes reasonable public behaviour. Is it acceptable that strangers in the same place should record each other’s behaviour and distribute those recordings with no indication that they are doing so? Chipchase suggested that to do so would create distrust and uneasiness in public situations.

Such unsignalled recording and distribution of public behaviour blurs boundaries between new forms of public and private context. In a physically public context, an individual is privately choosing to distribute detailed information concerning other individuals in that context to a much broader audience who are unknown to the subjects of the recording.

These public and private contexts are related to and extend those that Jacobs discussed; does blurring the boundaries between them undermine safety between strangers in an analogous way?

I think it does.

(Google’s wearable computer, Google Glass. Photograph by Apostolos)

Suppose I have a conversation with a friend in a cafe about a birthday gift for my wife. If, unknown to us, that conversation is recorded and uploaded to the internet, what is the risk that my wife might discover the nature of what is intended to be a surprise gift?

If the recording is uploaded to Youtube and identified only with a time and a place, my wife is unlikely to stumble across it. But if it is uploaded to a Facebook group concerned with our local highstreet; and if it is tagged with the names of people, places and things extracted by speech-recognition technology from it’s audio content; and if it is recorded by a person who is related by friend-of-a-friend relationship to either me or my wife; then the chance of her encountering it through her own interactions with social media increases.

This is a fairly innocuous example – life is more pleasant when birthday presents are surprises, but it is hardly life-threatening when they are not. But there are many scenarios in which failures of privacy are harmful; and sometimes extremely so.

Chipchase suggested principles of behaviour for avoiding such failures – for example, ways in which Glass users could make it visibly clear to others in their vicinity that they are making a recording. Indeed, many photographers already make a point of establishing the consent of the people they are photographing; the failure of some “Paparazzi” to do so is what leads to the controversies concerning their behaviour.

This discussion is not intended as a criticism of Google Glass. On the contrary, I’m tremendously excited by it’s potential – I’ve written frequently on this blog about the astonishing possibilities that such technologies will create as they remove the boundary between human behaviour and information systems. But we do need take their implications seriously.

And while Glass is still a relatively narrowly distributed prototype, the humble smartphone and related technologies raise similar challenges. They have already fundamentally changed the relationships between our communications with other people, and our proximity to them.

(Our gestures when using smartphones may be directed towards the phones, or the people we are communicating with through them; but how are they interpreted by the people around us? “Oh, yeah? Well, if you point your smartphone at me, I’m gonna point my smartphone at you!” by Ed Yourdon)

If we use a relatively inconspicuous Bluetooth headset to make a call through a mobile phone hidden in a pocket; and if we gesture with our arms emphatically whilst speaking on that call; how should the people around us, who might be completely unaware that the call is taking place, interpret our actions? And what happens if they perceive those gestures to be rude or threatening?

Our use of such devices already creates a mass of data that diffuses into the world around us. Sometimes this is as a result of deliberate actions:  when we share geo-tagged photos through social media, for example.

In other cases, it is incidental. The location and movement of GPS sensors in our smartphones is anonymised by our network providers and aggregated with that of others nearby who are moving similarly. It is then sold to traffic information services, so that they can sell it back to us through the satellite navigation systems in our cars to help us to avoid traffic congestion.

As a result, two of the most frequent questions I am asked in panel debates or media interviews are: who owns all this data? And are big corporations using it and controlling it for their own purposes?

The answers to those questions are not simple, but they are important. Just as Jane Jacobs argued that the provision of privacy in urban environments is fundamental to their ability to successfully support all of their inhabitants; so privacy in digital environments is fundamental to the ability of all of us to benefit fairly from the information economy.

It is certainly true that organisations of all types and sizes are competing for the new markets and opportunities of the information economy that are created, in part, by the increased availability of personal information. That is simply the natural consequence of the emergence of a new resource in a competitive economy. But it is also true that as the originators of much of that information, and as the ultimate stakeholders in that economy, we should seek to establish an equitable consensus between us for how our information is used.

Max Barry’s novel “Jennifer Government” describes a world in which personal information is dominated by loyalty-card programmes that define not just the retail economy, but society as a whole – to the extent to which surnames have been replaced with institutional affiliations (hence the book is populated by characters such as Jennifer “Government”, John “Nike” and Violet “ExxonMobil”). It is simultaneously funny and scary because it is recognisable as one possible extrapolation from the world we live in today (though not, I hope, the most likely; and I should state that Nike and ExxonMobil feature in it in entirely fictitious roles).

A real information-based enterprise working to a different set of principles is MyDex, a Community Interest Company (CIC) who have created a platform for securely storing and sharing personal information. Incorporation as a CIC  allows MyDex:

“… to be sustainable and requires it be run for community benefit. Crucially, the CIC assets and the majority of any profits must be used for the community purposes for which Mydex is established. Its assets cannot be acquired by another party to which such restrictions do not apply.”

(From the MyDex website, http://mydex.org/about/ensuring-trust/).

As a result of both the security of their technology solution and the clarity with which personal and community interests are reflected in their business model, MyDex’s platform is now being used by a variety of public sector and community organisations to offer a personal data store to the people they support.

Mydex’s business structure reflects principles which occur elsewhere in examples of commercial organisations whose operations are consistent with long-term community value.

(Hancock Bank’s vault, damaged by Hurricane Katrina. Photo by Social Stratification)

In Resilience, Andrew Zolli gives another example, that of Hancock Bank’s response to hurricane katrina. Hancock are a local institution in New Orleans, and their branch network was 90% destroyed by the hurricane. Whilst they recovered their central systems relatively quickly, without a branch network there was no way to interact with their customers – the citizens of a devastated city with a desperate need for cash to purchase food and basic supplies.

Hancock’s staff were able to set up temporary facilities to meet customers, but without any connection from those facilities to their central systems, how could they know who their customers were, let alone how much money each had in their current account?

Hancock answered this challenge by referring to it’s original charter, which described the bank as an institution that supported the city’s community – not as one which existed to make profits. On that basis they decided to lend $200 to anyone who would write their name and social security number on a piece of paper and sign it.

This astonishing action put desperately needed cash into the community. And the community remembered. After three years all but $250,000 of the $42,000,000 the bank lent in this way had been repaid; and the bank had 13,000 new customer accounts and a $1.5billion increase in deposits. Ultimately, their actions made very good business sense.

So how can we influence institutions to create strategies to deal with our personal information that are similarly consistent with long-term mutual benefit?

In Collapse, Jared Diamond explores at length the role of corporations, consumers, communities, campaigners and political institutions in influencing whether businesses such as fishing and resource extraction are operated in the long term interests of the ecosystem containing them – including their communities, environment and ecology – or whether they are being optimised only for short term financial gain and potentially creating damaging impacts as a consequence.

Diamond asserted that in principle a constructive,  sustainable relationship between such businesses and their ecosystems is perfectly compatible with business interest; and in fact is vital to sustaining long-term, profitable business operations. He described at length Chevron’s operations in the Kutubu oilfield in Papua New Guinea,  working in partnership with local communities to achieve social, environmental and business sustainability. The World Resources Institute’s recent report, “Aligning profit and environmental sustainability: stories from industry” contains many other examples.

But these examples are driven by what are now very visible and acknowledged challenges that directly affect business: climate change, water shortages and the increasing impact and severity of extreme weather events. How can we bring the same approach to the design of business models that deal with personal information?

(Photo by Stefan of Himeji, Japan, showing the forest that covers much of Japan’s landmass enclosing – and enclosed by – the city. In the 17th and 19th Centuries, Japan successfully slowed population growth and reversed a trend of of deforestation which threatened it’s society and economy, as described in Jared Diamond’s book “Collapse“.)

Collapse was written 8 years ago now; and it’s messages on how to influence the sustainability agenda of businesses in the last decade may provide insight into how we should influence the privacy agenda today. In Diamond’s view, the key was to understand where we as consumers can bring the most pressure to bear in the supply chains and markets which depend ultimately on the resources we care about. In Diamond’s words:

“… the most effective pressure on mining companies to change their practises has come not from individual consumers picketing mine sites, but from big companies that buy metals … and that sell to individual consumers”.

– Jared Diamond, Collapse, 2005, p 477

As well as applying pressure to those elements in the supply chain where consumers have purchasing power, some means are needed to monitor the behaviour of businesses and certify their performance. Schemes offering such certifications include those operated by the Forestry Stewardship Council for sustainable forestry; BREEAM for sustainable buildings and Fairtrade for socially sustainable food.

There are, of course, significant challenges with this approach: who defines how the impact of resource usage should be measured? Who performs the measurement? Are systems in place across supply chains to track the movement of resources through them such that accurate, end-to-end measurements can be made?

Whilst some of these challenges can be addressed with technology solutions – such as the tracking of food through the supply chain using RFID tags – some of them will only be addressed by informed consumers. Standards for measuring impact, for example, are often defined by non-governmental organisations; and their stakeholders usually include communities, consumers and businesses with an interest in the systems being measured. Typically, several such standards compete in any industry, offering different approaches to measurement. To understand what those standards are telling us; and to use them to choose products and services that promote the outcomes that matter to us, we need to be informed, not casual, consumers.

The lesson for privacy is that all of us need to be sophisticated guardians of our own security – just as we have become more sophisticated purchasers of food and users of technology. We need to exercise that sophistication in choosing to engage with organisations whose approaches to the security and privacy of our data is respectful and transparent, and which build a relationship or transaction of mutual value.

Conversely, we need to help organisations – public or private – that use personal data to understand what for us constitutes the mistreatment of data; especially through actions that are a side effect of our direct transactions with them, akin to the environmental impact of resource industries. And where there is no choice, or no transparency to enable choice, we need to lobby politicians to make clear that we care about these issues, and that we will vote for those who address them.

Of course the security agenda in a digital age is not a new one; but as technology spreads further and deeper into city systems, and into our interactions in city environments, it is useful to bear in mind the enduring legacy of Jane Jacob’s work, and be reminded that security is at the heart of cities, not just technology.

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