Currency and Community By Jitendra Kumar Sharma

It is so mundane, yet so mysterious. You walk into a store, take out a printed piece of paper from your pocket and exchange it for whatever you need- a  loaf of bread, a glass of milk or cup of coffee. You can also get repaired your torn shoe by a wayside shoemaker or have a bus ride, likewise. Currency notes in your possession invest you with so much power and make you greedy to have more of them, without knowing the source of their power. Paper money, that in itself has no value, dictates its own  terms to you. It makes you evaluate all things, even persons in terms of currency and creates a ‘buy and sell’ world.


Currency and Community

By  Jitendra Kumar Sharma 

“The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

                                                                                – Thomas Jefferson

 “Until the control of the issue of currency and credit is restored to government and recognized as its most conspicuous and sacred responsibility, all talk of the sovereignty of Parliament and of Democracy is idle and futile.” 

                        – W.L.MacKenzie King, Prime Minister of Canada (1934)


It is so mundane, yet so mysterious. You walk into a store, take out a printed piece of paper from your pocket and exchange it for whatever you need- a  loaf of bread, a glass of milk or cup of coffee. You can also get repaired your torn shoe by a wayside shoemaker or have a bus ride, likewise. Currency notes in your possession invest you with so much power and make you greedy to have more of them, without knowing the source of their power. Paper money, that in itself has no value, dictates its own  terms to you. It makes you evaluate all things, even persons in terms of currency and creates a ‘buy and sell’ world.


What is your market worth? Five thousand or five million Rupees or Dollars. Your Rupee worth has nothing to do with your human worth or qualities or social value- how good or bad a son or husband or wife or daughter or friend or how good or bad a member of  the community or society you are!  In fact, the more currency notes you have with you, more power you enjoy. You can even buy more power, or make more money with the paper money under your control or possession. And, lack of this paper money can make you and your family unhappy though you may have all the skills, competence and goodness as an individual. It can bring your life to a full stop. Your health, education and your capacity to obtain amenities of life, all depend on the amount of money you have in your possession.


The otherwise worthless piece of paper, with a zero value in itself, has an overpowering influence on your life and actions. Suppose you have an ordinary piece of paper the size of a hundred rupee or dollar note, with your own name and picture printed on it, more impressive looking than the ordinary printed currency notes and you want to buy a pack of biscuits or bottle of coke with it! The seller will not exchange it for your wants. He might even laugh at your audacity!


Thus, power to issue money is a supreme power. That is why Meyer Amschel Rothschild, the founding father of one of the world’s most powerful financial dynasties , is famed to have said: “Let me issue and control a nation’s money and I care not who writes the laws.”

 Rothschild family’s rise was due to their dealing with the European rulers who borrowed money from them and showered honours on them. The nexus between Bankers and Politicians remains dark and deep even in democratic states. Their peculiar relationship has invested currency with a mystery. How prices rise and fall, why some people have more money, others have so little is generally regarded as a specialist’s job to know or rather guess about.  The fact is, even the economists do not fully grasp the manipulative forces of the market. They only come up with devious theories. Sometimes they say there is no inflation but the prices keep rising and the common man and housewife find it difficult to run their households unable to cop with the rising prices. Monthly pays and daily wages  rarely allow  earners the freedom to buy the things they need . Access to health, education and other amenities continue to evade the poor masses and lower middle classes in spite of the honest work and hard labour they put in at their offices and work sites.


Money always appears to be scarce. Currency notes in circulation at any given point seem to be always fewer for most of us. There is always less money and more people chasing it. Why? If it is a matter of printing notes, why then enough notes cannot be printed to let all members of the society have enough of them to exchange goods and services they need? In a democratic state clothing, housing, nutritious food should be available to all citizens. But some people have too many notes, others too few to exchange goods and services? This causes inequality and social tensions.



You may have heard your parents or grandparents say how different things were when they were young. It only cost one rupee to see a movie but now it costs fifty rupees to sit in a cinema hall. Petrol was only one rupee per litre in 1970 but now it is Rs.45 per litre. A brand new Ambassador car cost Rs. 13000 in 1961 but now it costs Rs. Four lakhs or more.In the intervening years, prices have risen, sometimes drastically. That is inflation.

“Inflation is when a certain form of currency starts to have less value over time. It is caused mainly by two things: people’s perception of value, and the economic principle of supply and demand”, says an analyst.

There is no scientific principle behind the rising curve of inflation or decreased value of the currency notes in your hands. It is people’s perceptions of a currency’s value that has a major bearing on its value. It causes inflation by directly affecting the value of the money. There was a time when currency was entirely on a gold standard. Even then inflation often happened as people started to worry that the government or bank wouldn’t be able to redeem their cash [or notes] for gold. If you had a dollar that was worth an ounce of gold, but people thought the government only had half of the gold required to redeem it, then dollars would start being traded at a value of half an ounce of gold. The same has happened in case of other currencies like the Rupee or Sterling Pound.

Supply of currency has very dramatic effect on inflation. Throughout monetary history, governments have simply printed money to solve financial problems. Such a measure pushes the value of money uncontrollably downward; especially, in present-day markets where money or currency is not backed by gold. If 10 billion rupees circulating in a country are increased to 20 billion at a given time, the worth of the circulating rupees will get reduced to half.

There is the classic case of Germany after the World War I. Germany was forced to pay war reparations of about $33 billion. It proved impossible for the nation to produce that much. The only choice left to the German government was to print more and more money, none of which was backed by gold. This caused one of the worst inflations ever recorded. In 1923, one needed 42 billion German marks to buy one U.S. cent [one hundredth of a dollar]! It took 726 billion marks to buy something that had cost just one mark in 1919.

Who creates money? And to what purpose?  These issues become important currently when India is rising but 400 million people are descending into the deep gorge of  poverty. Poverty is as explosive as a terrorist bomb. No segment of a democratic society can enjoy the fruits of prosperity happily and peacefully if other segments remain deprived.

In a modern society, banks and banking institutions create money even though the power of printing money remains with the established governments. In India, it is the central government that has the power to print money, though in practice, it has delegated this power to the Reserve Bank of India that prints currency notes and regulates the working of other Banks. With the entry of private banks, the purpose of creating money by the banking system has changed. It is no longer primarily social.  Banks create money to make as much profit as they can. This is done by giving loans on highest interests and accepting deposits at the lowest interests.

The private banks are not responsible to the people for their policies and actions. In India, private capital is increasingly controlling the banking system. This is causing dissensions within the Indian economy among different forces and consequently within the Indian society. Wayward movement of inflation is a manifestation of the lack of social responsibility on the part of the banking system to a great extent and government’s inability to control the fiscal operation of printed money.

While Tatas, Birlas, Ambanis have no dearth of borrowed capital to buy big companies and conglomerates anywhere in the world, the government finds itself bereft of funds  to implement such schemes as Employment Guarantee Scheme or for improving  Health services or  Educational institutions.

Does it matter how much money is supplied? Surely, it does. It is the money supply that determines the rates of interest paid for the use of money, employment, prices, and economic growth. To some economists, money supply is the most important determining factor of these variables. Interest plays a large part in the cost of living. All business firms work on borrowed money; some borrow less, others borrow more. This gets linked to every stage of production, increasing costs all the way. These costs are eventually passed on to the consumer.

If the consumer does not pay for them, production cannot be sustained financially. Interest rates, thus, also, determine the momentum of business activity. Interest rates also influence the extent of investment in plant and equipment. When governments restrict credit, business cannot borrow easily. Small firms feel the squeeze more than large firms who can manipulate borrowings. Workers get laid off. Unemployment increases. Higher interests mean less growth.

However, it is not the effect of higher interest rates that is confusing. It is the government’s explanations for it. Some times they blame “too many rupees chasing too few goods and services”; other times, the deficit of payment is the excuse. Higher interests are also commended at times because they keep the capital within the country. But one thing is  sure, the government always projects itself as a persistent fighter against inflation, real or imaginary.

It is interesting to note that governments keep interests very low during the war against another country but while fighting the war against poverty within the country, this measure is not resorted to.

What, then, is money? Money is anything acceptable to people for exchanging goods and services. Even “I owe you’ [ IOU] chits , hundi or hawala, coupons too serve as money. What money is made of is not important. What is important is its representational aspects. Chequebooks, currency notes, bank deposits, credit cards, gold biscuits, metal coins are all money. Sea  shells, postcards, lead or brass pieces have been used as money at various points in time. But paper currency is now used as a legal tender for the exchange of goods and services. A legal tenders is any form of money that is declared by a government good for taxes, public and private debts.

In India, the most prevalent form of money is currency or paper money that circulates all over the country in the form of notes of various denominations. Currency is no longer issued 100% against gold standard. Government and Reserve bank of India determine and control the maximum amount of money that can be created by banks through lending. In the USA “checkbook money”, that is, commercial banks’ demand deposit accounts for 80% of all circulating money.

Nature of Currency

In so far as inflation is an aspect of the fiscal operation of an economy it is necessary for us to understand the basic nature of currency and then see how it operates within the Indian economy. There certainly appears to be some operational flaw that needs to be corrected for removing inflation and sustaining growth.

The word “currency” implies that which is current. Money, in the form of currency, is like electricity or electric current that ideally ought  to be available everywhere and to everyone for exchanging goods and services. The value of a “currency” depends upon its velocity to be current., that is, how fast it moves from  one place to another or one person to another. As soon as its movement slows down or if it gets into pockets from which it cannot come out freely and speedily into the common circuit, the currency will start losing its value. Like the electric current, currency is an invention of man. If he fails to provide and maintain a proper circuit for it, it becomes useless and even dangerously harmful.  The ultimate circuit for currency ought  to be such that it  delivers currency notes to  all   and everywhere all at once . But  that is perhaps too ideal. The next best design is to make currency available in such supply and in such places as to enable the needy to buy their needs within their immediate environment.

The flow of Indian currency since our Independence in 1947 has been toward the urbanized sector. This means Indian currency is flowing, rather floating, in less than 25 percent of the entire area of Indian population. This can never be the intention or goal of a democratic government, irrespective of whether it is ideologically  left, right or center or even bereft of all ideology. The corrupt politician-bureaucrat-business nexus  has short-circuited the Indian currency.  In a country like India where more than 500 million people await full benefits of development, inflation cannot erode the economy if the currency keeps its regular flow and its supply is increased to keep pace with the pace of  development.

“Money does not manage itself”, is a  Bankers’ saying.  Yes, a representative government must  so manage currency that at no time there is either too little or too much of it in circulation; because, the purpose of issued money is to make it easier for the nation to produce goods and services and easier to divide the income from national production equitably, easier to save and invest now and in the future. When a nation produces too little or too much beyond its capacity, deflation and inflation will bring unhappiness and misery to it.

Banks create money by a system of deposits and loans. When you deposit your savings, the banks get empowered to lend it to others. Banks, in fact, lend more than the deposit they receive. Thus they create  debt and create money at the same time. It is a risky game because if all the depositors demand their money back, the Bank shall not have enough cash or currency to meet the demand of its depositors. The Bank will fail and depositors will lose their savings and deposits. But, on such occasions, the Reserve Bank of India intervenes and gives credit to the troubled Bank from its reserves. The Reserve Bank creates its reserves of money or currency in the same way as commercial banks create chequebook money- by seeking deposits from commercial banks and lending them whenever they need loans.

Reserve Bank of India determines how much chequebook/credit money a bank can create. It decides the ratio between deposits and loans for other banks. Where does  the Reserve Bank of India get its own reserves? From no where. It creates its own money or reserves. In fact, it is the sole and absolute  money-making machine. It is empowered to issue money/currency or  cheques. It has no problem like you and me or even like the banks have. If it needs money, it can print it according to its need. Who has given the Reserve Bank of India the power to create its own money or print the currency?  Theoretically, the people of India. Actually, the elected Indian government  with the approval of the Parliament. Reserve Bank of India regulates the working of all other banks under powers delegated to it by the government of India.

Is there a formula to determine the maximum amount of money available to business and consumers? Yes, the formula is the equation A  amount of bank reserves] x B[number of rupee deposits member banks may create per each rupee of reserves]= C[ Total bank deposits]. Can this formula be changed?  Yes, Reserve Bank of India has the discretion to do so. Increasing or decreasing Reserves is a deliberate action on the part of the Reserve Bank of India.

How do currency and coin enter the money supply? Normally, proportion of currency/coins in circulation to the total money supply is about 20%; bank deposits account for the remaining 80%

At  this point a question arises. If credit is important for growth and development of  the country and the people and it is the government who is responsible for the growth and development as well as for printing money, then why does it create debt by charging interest? Why cannot the government just issue and circulate paper money or currency for the purpose of the nation’s production of goods and services?  Interestingly, Thomas Edison– the inventor of the electric bulb who knew much about the nature of electric current also knew much about currency– raised similar questions.

In December 1921, the American industrialist Henry Ford and the inventor Thomas Edison went to the Muscle Shoals nitrate and water power projects near Florence, Alabama. There, they voiced their alternative money views for financing this project. The pro—people industrialist and inventor objected to the Government’s raising  the money by issuing bonds which would be bought by the banking and non-banking operators  and  then have to be paid back with money raised from taxes,  with interest added.

They proposed that the Government  should create/print  the currency it required and spend it on this public project as a social expenditure.

The relevant excerpt from the report published  in The New York Times on December 4, 1921 and December 6, 1921 says:

“ If our Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also?***** It is absurd to say that our country can issue $30million in bonds and not $30 million in currency. Both are promises to pay: but one promise fattens the usurer and the other helps the people”.

In other words, a government of the people, by the people, for the people should abolish INTEREST. It should give Credit at Zero per cent interest. It is within the government’s power but for reasons that have never been spelt out clearly the governments resort to shifty methods of distributing currency by creating a system of debts and deposits. The end result is inequitable distribution of wealth and money. In America, Abraham Lincoln said: “The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By adoption of these principles, the taxpayers will be saved immense sums of interest, Money will cease to be master and become the servant of humanity”

President Lincoln went to Bankers seeking loan to finance the Civil War ( 1861-1865) who demanded 24% to 36% interest. He returned with a troubled conscience. As a man of principle he could not sink his nation into a debt that his people would find it hard to pay back. Courageously, he sought authorization from Congress to print full legal tender Treasury notes about which he wrote:”… (we) gave the people of this Republic the greatest blessing they have ever had – their own paper money to pay their own debts…”

Lincoln’s ‘people’s money’ had green ink on the back, so the people called it “Greenbacks”.

The Bankers  were determined to wipe out  Lincoln and Lincoln’s interest-free, debt-free Greenbacks out of existence. As soon as  the greatest ever American President was assassinated, the  Greenbacks were retired from circulation.

In 1913, the Bankers got Federal Reserve Act passed by Congress that President Woodrow Wilson regretted signing: “I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men”.


The foregoing will make it clear that the so-called democracies of the west are merely plutocracies. And, if the Presidents of the most powerful democracy of the world have found themselves helpless before the invisible, strangling hand of the international bankers, weak-kneed Indian governments can only be expected to kow-tow to the Bankers.

But a new awakening is pervading the democracies everywhere. Communities are becoming alive to the deep and dark conspiracies of plutocrats who control national currencies under an international system of currency manipulations. As a consequence, war, poverty, armaments, general human unfulfillment, social disharmony prevail over man’s destiny everywhere. The full growth of democratic societies remains stunted.

Small communities in the USA, Canada, Europe and even Asia and Africa are experimenting with what has come to be called “Community Currency”.  They no longer depend upon their governments who are sold to big business and depriving poor and less privileged people of their land and property like the CPM-coalition in Nandigram is doing. People are now able to understand the close relationship between currency and participatory democracy.

The word community comes from the Latin communis, meaning “common, public, shared by all” or many. “Com-” – a Latin prefix meaning with or together, “-Munis-”   suggests “the changes or exchanges that link”. Municipal and monetary both get linked here and Latin”-tatus” implies small, intimate or local. A web definition of “local currency” is a currency not backed by a national government, and intended to trade only in a small area, also known as “community currency” or “complementary currency”. If introduced in India at the panchayat level, “community currency” will cure both inflation and corruption. Prime Ministers will have no excuse to console the villages that only 15 paise of the rupee reach the poor. It is no longer a new-fangled scheme. It is a tested and tried result oriented panacea that stares smilingly at Prime Ministers, Finance Ministers , their economists and bankers who have been befooling the people for a long time purposefully.

The local currency systems are successfully working in Ithaca, the seat of Cornell University, USA. They have called their local money as “Ithaca hours” which is equal to 10 US dollars being the average wage per hour in Ithaca. Salt Spring Island introduced its  currency in 2000 and it has advantages over Ithaca Hour since it is backed 100%, by the Canadian dollar ,equal to the national currency in value and is well-integrated with  the latter. This will be a good model for Indian panchayats to design their currency for local projects and government’s employment schemes. The Banks can also join these schemes as they are doing in Ithaca and Salt Island. Berkshare, the Schumacher Society of Berkshire’s dollar introduced in September 2006 is also performing well. LETS is yet another system of local currency that  has  created models in various parts of North American and Europe.

A local currency can’t leave the community it serves, so it ensures connections between people exchanging skills, goods and services. With a local currency, the community is less affected by fluctuations in the external money supply. It also frees itself from corruption since local currency cannot be accumulated as a commodity and has to  remain in circulation. It has no value outside the community, nor beyond the time of its expiry date. It eradicates greed for money; it instills the true meaning of wealth among members of the community.

Creating community currencies encourages participatory democratic processes. It empowers people. It nurtures hope, creativity, respect, and compassion. Local currencies help communities live according to their values rather than as merely green-eyed consumers. In a happier world, money would become obsolete, and the gift economy, true meaning of community money shall prevail. It is an ideal instrument for Panchayats and local government to finance their projects

===The End=== of Inflation And Its Cure: Community Currency=JKS


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