In the shadow of the Euro Crisis, the people of the Greek city of Volos are taking their monetary future into their own hands.
Theodoros Mavridis and other Euro-strapped Greeks have founded a local currency system called TEM, an acronym for ‘Local Alternative Unit’ in Greek.
Even though Greece is hemorrhaging Euros, Greeks still have goods and services valuable to each other. But without the actual Euros to pay for things in the local market, everyone is stuck trying to pay with goods in-kind: a week’s piano lessons for 3/4′s of a goat.
That’s where TEM comes in.
After creating an account, members do business with each other using TEM credits. New members are allowed to deficit-spend up to 300 TEMs, which is effectively an interest-free loan from the community. Only by offering demanded goods and services in return can the new members replenish their balances to keep making purchases.
Credits are created according to these guidelines as new members join — no central banking or monetary authority required.
The ideas behind alternative systems like TEM aren’t new. ‘Barter clubs’ or ‘LET’ systems have been around for a while. They’re most often successful in conditions of extreme monetary dysfunction; Argentina saw the nationwide spread of barter clubs during their various Peso crises in the late 1990′s and early 2000′s.
These systems, however, have historically come with drawbacks.
Barter clubs have needed to physically bring everyone together for a farmer’s-market-type fair. This unfortunately limited the amount of commerce to what could be done at specific times and places.
Relying on physical paper credits was another major weakness. Counterfeiting caused bouts of price inflation and eroded confidence in the Argentinean clubs.
Despite the difficulties, Mr. Marividis and company have solved most of these problems by hosting the entire system online.
When a new member joins, they gain access to the community database. This database is designed with open-source software and is hosted on an inexpensive Dutch server which helps keep down administration costs.
The online system provides users with a complete listing of buyers and sellers (not unlike Craigslist) as well as the ability to rate other members after each transaction. The reputation system is becoming especially important, as membership has expanded eight-fold in the last year, making the network more impersonal.
The actual transactions take place as transfers from one user-account to another. To prevent fraud and ensure transparency, user balances are a matter of public record on the database.
As it stands, TEM is still a complement to the formal economy and not a replacement. Unlike other alternate currency projects, TEM credits don’t quite qualify as true money. They’re of limited use for saving because of the upward limit on balances and the system also lacks a way to lend at interest.
But if things get worse, this and similar currencies will become even more important for Greeks frozen out of the formal economy. It could also serve as a base for further monetary innovation.
And if things get much worse?
Greeks will have to decide who they trust most with their money: Brussels, Athens or themselves.
A guest article by Jeff Fong. He lives in the San Francisco Bay Area and writes about the intersection of politics, economics, and technology.