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Friday, 4 February 2011

Open-Loop Time Banks?

I spent Monday partly examining the practicalities of treating time as a currency at BarCampBank4.

In essence, 'time banks' for social care are no different to other closed-loop 'alternative' currencies ranging from loyalty schemes to gift card and store card programmes. Hureai Kippu, the Japanese system for earning the right to senior care by caring for senior citizens yourself, is often cited in this context. That specific model, which involves a nationwide clearing system for care credits, is being considered by various local authorities in the UK, though Age UK is among those who question its utility.

But we've had UK time-banking schemes since the '90s, e.g. TimeBank, TimebankingUK and Local Exchange Trading Systems or Schemes (LETS), the mutual aid barter network. The difference is explained here. So I it's clear there is something worthwhile that can be achieved by trading units of time to solve underfunded problems like personalised social care in its many forms.

However, we need to be cautious about 'open loop' time banks, even though this may bring welcome liquidity and funding to support an aging population with a giant pension deficit. There's a range of practicalities that stand in the way of time - or loyalty points, for that matter - becoming a 'real' or open-loop, freely negotiable currency or E-money. I'll cover these briefly below. But a more fundamental point is that I'm not even sure that opening up such currencies would add any utility to what's already feasible with any real currency, unless the underlying E-money system is somehow cheaper and more cost effective in moving money or other resources to where they are needed. And there are of course plenty of E-money systems that did not need to go to the trouble of creating a new currency to get going.

Other than funding the business itself, perhaps the main practical challenges to time banks becoming open-loop are achieving 'critical mass', enabling immediate redemption in cash, and tax. Issues of trust, privacy, data protection and so on seem secondary and surmountable so long as the upside to participating and disclosing information outweighs any perceived downside.

Achieving a 'critical mass' of people that will ensure adequate supply and demand for the type of time in question is an awesome challenge that deserves a post in itself.

The requirement for users to be able to redeem the time they have 'earned' or 'acquired' in cash at any time would go hand-in-hand with the need to be authorised as an E-money issuer, and to comply with various capital and prudential requirements, including safeguarding the cash corresponding to the outstanding time. Redemption in cash and safeguarding would seem to defeat the purpose of a time bank, founded as it is on the notion that participants deal only in time.

Finally, we are obliged to pay income tax on our earnings, as well as indirect taxes on sales of goods and services. And governments tend not to accept payment in anything other than their own national currency. While in a closed-loop UK time-bank for charitable purposes tax is not an issue, as soon as you enable redemption for cash or goods and services, tax would come into play.

For these reasons, I think time banks are very useful in allocating resources within a specific community, network or scenario, but not as an open-loop currency - at least not without substantial changes to the regulatory and tax framework.
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