Can a local digital currency support innovation and collaboration among entrepreneurs in Birmingham?
Let’s Talk about Money
Money. We are all striving to earn and save it, but very few people understand what it actually is and where it comes from. The traditional view is that money evolved over thousands of years from Barter into a commodity-type item such as gold. There is still a common view that money is backed by gold bars stored at the central bank and all money in circulation is linked to it in some way.
My research at the University of Birmingham needed to get to the heart of what money is to allow me to understand a relatively new phenomenon: alternative currencies. I found that actually there is no historical evidence for barter. In fact the gold-backed type money that is a common view, has been used relatively little throughout history. All historical evidence shows money is actually a form of credit, and even today money is created by governments and banks when they issue credit. Why is this important? Well maybe this misunderstanding of what money is has affected the way that alternative currencies have been designed and are operated.
The most well known alternative currency within the tech sector is Bitcoin and cryptocurrencies, which are widely considered digital commodities. But outside of investors wanting to “HODL” it, there has been very little uptake among small businesses, especially in Birmingham. The research then investigated a different type of alternative currencies in Italy and Switzerland. These models are based on credit, and then have had major uptake among small businesses. Sardex in Italy now has 10,000s of business users who conduct €100millions-worth of transactions each year. WIR in Switzerland has 65,000 business users who conduct over €1.5billion-worth of transactions each year. My research believes that these models work for small businesses because they apply a better understanding of money.
Birmingham Tech Week 2020 Event Summary
The event I hosted at 2020 Birmingham Tech Week digs a little deeper into this research. It gave the audience a better understanding of what money is and where it came. It then outlined how this research has supported the spin-out of a company from the University of Birmingham called Parity. This startup has replicated the highly successful alternative currencies of Sardex and WIR, launching its own model in January 2020. It is now being used by 22 small businesses in Birmingham. It is useful to its users because it is based on credit. These businesses don’t need to purchase the currency before using it, as it is not a commodity like Bitcoin. All users of Parity have access to a zero interest overdraft within the alternative currency that they can spend with one another. This supports their cashflow, boosts trade among the users and frees up pound sterling for more important uses. I appreciate it is an unusual concept, but the video of our event gives your money insight.
Audience Insights and Feedback
The audience at the event was intrigued by this alternative understanding of money. Although money is such a crucial part of all of our lives, it wasn’t something they had given much thought about. They questioned how successful these European models had been and to what extent is it used within these countries. I outlined how with my research on Sardex I had interviewed all types of businesses. There were retailers who offered their products on the shelves in the alternative currency, alongside service sector firms who completed complex projects in Sardex. The notion of alternative currencies did attract individuals who were more used to models such as Bitcoin and cryptocurrencies. I had a question about the “tokenomics” of Parity, which is a fancy way to ask how we created the currency. In models like Bitcoin who use a commodity model, the alternative currency has to be created or “mined” into existence. However, with Parity our users “create” the alternative currency when they spend their overdraft. Bitcoin would not increase the liquidity available to businesses, whereas this overdraft does expand the options available for businesses on Parity.
From Birmingham to Wales and Beyond
Next steps include continuing to grow the Parity network by increasing the number of local businesses that use Parity. We have also been supporting the development of a Welsh-government funded alternative currency in Wrexham. We hope that the learnings that we have had in Birmingham will be useful for this project.
Final Reflections and Thoughts from Birmingham Tech Week 2020
My key takeaway from Birmingham Tech Week is that innovation comes from sharing ideas. It has been great to participate in this process even with Covid-19.
Participating in Birmingham Tech Week 2020 was a great opportunity to raise awareness of my research and promote what we have achieved with Parity. We were able to show the audience the way that users are now spending the alternative currency, through an online marketplace available to all Birmingham businesses. We can’t wait to continue sharing our ongoing research findings with the Birmingham Tech Week community.