About This Newsletter What is an Ecovillage? Ecovillage Resources Diana Leafe Christian, Editor

Ecovillage Economics: Dancing Rabbit’s ELM System

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By Jonathan Swiftcreek, Earthaven Ecovillage

The ELM System was named for this large ELM tree in Dancing Rabbit's courtyard.
(July/August 2010)

I was so impressed with Dancing Rabbit’s local currency— the ELM System — when I visited in March, 2009, I wanted to know more. See article, “Our College Class Visits Dancing Rabbit”. So I asked Jonathan Swiftcreek, a fellow Earthaven member who’s helping stimulate Earthaven’s own local currency system, to learn more about the ELM system in order to write this article. — Diana Leafe Christian


The Start of Dancing Rabbit’s Community Currency

Until May, 2007, Dancing Rabbit (DR) — a 60-resident ecovillage in rural northeast Missouri — used a time-based and credit-based alternative currency system called HOURS. It used a paper scrip but was also a LETS-like credit-based system (“Local Exchange Trading System”). Each Dancing Rabbit member had their own HOURS account, and they could write “checks” as well as “withdraw” HOURS from the system in the form of a paper scrip. Each HOUR had the same purchasing power as seven US dollars.

All member accounts were tracked through Quicken accounting software, so when someone wrote a check to another DR member, HOURS were manually transferred out of the first person’s account and into the second person’s account.

When people and organizations joined the system they began with a zero balance and were allowed to spend up to minus-40 HOURS. They could spend their HOURS immediately, without having to earn any first. For example, if Jack wanted to buy a dozen eggs from Jill for one-half an HOUR, he could write Jill an HOURS check for one-half an HOUR. That half HOUR would then be manually subtracted from Jack’s account and added to Jill’s.

A DR member had a positive balance in the Quicken accounting software if they received more HOURS than they spent, or a negative balance if they spent more than they received. It was completely OK to have a positive or negative balance: that’s how the system worked.

People and organizations in the system could go into the negative by up to 40 HOURS anytime they wanted to do so.

Switching from a Manual Hour-Based System to an Automated Dollar-Based System

When Nathan Brown, the current ecovillage ELM secretary, arrived at DR in the summer of 2005, people could buy only a few items with HOURS: rent at one of the houses, laundry services, and haircuts. “People didn’t really conceptualize HOURS as real money,” he recalls, but this hadn’t always been the case.

Earlier in DR’s history, a CSA farmer in the community had accepted HOURS for his produce. Cattail, DR’s only dining co-op at the time, bought his produce using HOURS. This allowed Cattail to accept HOURS in payment for co-op membership. Later the farmer left Dancing Rabbit, the Cattail Co-op dissolved as a food co-op, and the use of Dancing Rabbit HOURS dropped off to almost nothing.

So in 2007 Nathan proposed the following ELM (Exchange Local Money) system to make the local currency easier to manage, understand, and use:

1. The ELM system is also a LETS-like credit-based system, but balances are tracked online. (At first there was no paper scrip, but eventually it was added to the system, though almost no one used it because the online system seemed to be far more convenient).

DR members didn't use paper scrip but tracked ELMs transactions online.
2. Individuals can log on to the ELM system to transfer ELMs directly themselves (no intermediaries are necessary, as with HOURS).

3. An ELM has the same purchasing power as one US dollar.

4. In all other ways the system remains the same as the HOURS system.

Interest in approving the ELMs proposal spread throughout the ecovillage, but a major change usually doesn’t happen quickly in a community that uses consensus decision-making. However, two factors increased receptivity towards the ELM proposal. First, people were already discussing increasing DR’s “standard wage,” which was $7 an hour (hence 1 HOUR of currency was worth $7). The community was looking to increase the standard wage to $8 an hour immediately, while also creating a mechanism to automatically increase the standard wage in the future to keep pace with inflation. This created a dilemma for the community: should the value of HOURS also change with the shift in the standard wage?

Produce grown at Dancing Rabbit could be purchased with ELMs.
Doing this would mean that members who had HOURS would suddenly have more spending power, and people with negative balances would be more in the hole. On the other hand, if DR kept the value of the HOUR at $7 while the standard wage increased, there was concern that this would create confusion. Switching from a time-based system like HOURS to a dollar-based system like the ELM proposal would prevent these issues from being a problem.

A second factor which helped the ELM proposal was the general feeling that a change in strategy was needed to boost the use of an onsite local currency because HOURS usage just wasn’t thriving.

In May of 2007 DR members approved the ELM proposal, but it didn’t do much to increase use of the currency. In the first month, only two transactions were conducted online, totaling $10. At first the ELM system was used by the same relatively small number of people who had used HOURS, but that began to change in an unforeseen way.

Building Faith In Dancing Rabbit’s Currency While Gaining Access to Interest- Free Money

DR member Ziggy with freshly baked bread. Ecovillage members could also buy food products prepared onsite with ELMS.
The ELMs committee conducted a survey within the community to determine what would induce more people to use ELMs. One of the most common answers was members wanted to be able to pay their community site lease fees using ELMs. Dancing Rabbit’s Land Trust, a 501(c)2 nonprofit that owns the property, is the legal entity that collects quarterly site lease payments from members. Up until 2007, the DR Land Trust had only accepted lease fees in dollars.

Also, DR Land Trust regularly encountered a brief cash flow shortage every fall because their mortgage payments were due a few weeks before the Land Trust received its annual large check from the US Department of Agriculture’s Conservation Reserve Program. (See article, “Our College Class Visits Dancing Rabbit”).

Dancing Rabbit members, winter 2008.
The ELMs committee saw an opportunity and proposed that DR Land Trust be allowed to spend minus-10,000 ELMs each year — that is, have a 10,000-ELM credit — as a way of covering this cash flow shortage. DR Land Trust could use this credit of 10,000 ELMs to exchange with many DR members for US dollars, and then use these newly acquired dollars to pay the mortgage. DR Land Trust would bring its ELM balance back to zero each year by accepting payments in ELMs for community members’ site lease fees. Furthermore, due to the nature of the ELMs system, DR Land Trust would not have to pay any interest on their negative balance while waiting to receive the lease fee payments. After much informal discussion and formal deliberation this proposal passed.

There was an immediate flow of ELMs out of DR Land Trust and into the community as the Land Trust exchanged ELMs for dollars with members of the community. This meant many more ELMs were suddenly in members’ accounts and these members started buying goods and services onsite with ELMs instead of dollars. DR Land Trust got the ready cash it needed to pay its mortgage without having to pay any extra interest, and this decision inspired so much more confidence in the ELM system that nearly all the onsite DR co-ops and businesses joined the system.

How Well-Used Is The ELM System Today?

DR Members can pay for almost all community, needs, including renting a cottage.
Today a DR member can spend ELMs for practically all community needs: DRLT lease fees; annual community dues; food; car use through the DR Vehicle Co-op; childhood education; childcare; counseling; massage; as well as laundry, showers, telephone, etc. through various co-ops that provide these services (as of 2010, the only thing members can’t use their ELMs for is membership in the Dancing Rabbit Mutual Insurance Association).

Many onsite jobs at Dancing Rabbit pay in ELMs, including support tasks for the community such as some committee work, co-op management, and various clerical, bookkeeping, managing, and maintenance tasks.

ELMs usage has grown considerably since 2007. In March, 2010, DR members and residents made 169 ELMS transactions, with a value total of nearly $20,000.

How It Works

Membership in DR's dining co-ops can be paid with ELMs.
Accounts and transactions are managed online through “Local Exchange,” an open source community currency software written in PHP and developed by Calvin Priest. It is overseen by the ELM committee, currently Nathan and Sam. ELM users can log in and browse online listings (like classified ads) of goods and services other DR residents want to sell or buy with ELMs. Users can easily check their account balances and transaction histories, record transactions, and more.

At Dancing Rabbit nearly everything can be paid for with ELMs. “We’re the only intentional community I know of where an individual can pay for all their daily living expenses with locally currency,” says Nathan. “And to my knowledge, we are the only local currency in the world in which this can be done.” Because some people can use ELMs for all their daily needs, many DR members and residents participate in the system, and simply value ELMs as money.

As noted earlier, no interest or penalty accrues for having a negative balance, however, there are hard-coded limits in the system preventing people from spending more ELMs than they have been approved to use.

In addition, community-wide organizations at Dancing Rabbit, such as the DR Vehicle Co-op, have been given access to a larger maximum negative balance allowance (minus 1,000 ELMs). And theoretically an individual or organization could ask the community for a higher negative balance allowance.

What About US Dollars?

DR Member Ted fueling a car in the Dancing Rabbit Vehicle Co-op. The Co-op accepts ELMs for car useage and biodiesel fuel.
How can payments to DR’s organizations (lease fees to DR Land Trust, Vehicle Co-op fees, etc.) be entirely in ELMs, even though these organizations have expenses that can only be paid with US dollars? This is possible only because some members of Dancing Rabbit choose to support the alternative currency because they understand the currency can support the growth of the ecovillage. They provide this support, as mentioned earlier, by exchanging their dollars, which they earn from outside sources, for ELMs. These members then use these ELMs to pay for goods and services within the community. This is organized through the ELM Secretary: people and organizations seeking to exchange dollars for ELMs are directed to the people and organizations that seek to exchange ELMs for dollars. Presently, about half of all the ELM transactions are people exchanging dollars for ELMs.

The main personal benefit to Dancing Rabbit members who exchange dollars for ELMs is convenience. A member can write one large check for ELMs, and then make fast and easy electronic payments within the community, instead of having to write multiple small checks for payments within the community. That said, the more significant benefit for these members exchanging dollars for ELMs is indirect. They know that they are helping nourish the ELM system with a constant influx of dollars. This support makes it possible for other individuals and organizations within Dancing Rabbit to get access to interest free money (like DRLT mentioned in the example above).

The Future of Dancing Rabbit's ELM System

Ted in an Elm tree.
The ELM committee hopes to gradually reduce the above ratio of 50 percent of ELMs transactions being exchanges for dollars. This can only take place if people need to exchange fewer dollars for ELMs because people and organizations have fewer expenses that can be paid only in dollars.

Here’s how this scenario could come into being:

1. More people providing onsite labor, especially in homebuilding, accept payment in ELMs (This is already starting to happen).

2. More rental housing comes online, and the owners of this housing accept ELMs, allowing members to pay for rent using the local currency. (This is already starting to happen).

3. Existing food growers at Dancing Rabbit increase their food production, allowing more food to be purchased using ELMs. (This is already starting to happen).

4. More people move to Dancing Rabbit who grow food and accept ELMs in exchange for the food they sell. (This is already starting to happen).

Gathering reeds. Unlike most communities, DR has no community labor requirements — these folks are volunteers.
5. Existing businesses within the community grow and are able to hire more members within the community and they pay those members in ELMs. (This is already starting to happen).

6. New businesses start within the community and they also pay their staff in ELMs. (This is already starting to happen).

Ultimately, to reduce dollar expenses, more products and services have to be sourced locally from entities that accept ELMs. This illustrates the difficulties of creating a truly local alternative economy when using technologies such as off-grid power (photovoltaic, wind or hydro); computers, telephones, and the Internet; building materials such as rebar, cement, and metal fasteners; manual and power tools, and so on. However, the goal of Dancing Rabbit’s alternative currency system is to just keep moving in the direction of creating a sustainable local economy, which ideally will be resilient enough to endure even as the national economy continues to weaken.

Ultimate Frisbee at DR.
Some members are suggesting the ELM system be modified to use social pressure and social cooperation to govern the system, rather than setting a negative balance allowance of minus-280 ELMs. For example, if Jack had a tendency to spend more money than he earns, but he knew others would see his ELM account continuing to become more and more negative, he would likely choose to constrain his ELM spending. If he didn’t constrain his ELM spending, and his negative balance grew and grew, other members would be able to see this. They could then choose to no longer accept ELMs payments from him and/or could offer to support him in increasing his income, or decreasing his expenses. The benefit of switching to this social mechanism for governing the system would allow more interest-free money to be used within the community, while still providing a mechanism to encourage members not to abuse the system. This would reduce the time involved in allocating the system’s interest-free money, while increasing economic development opportunities.

Creating an Alternative Currency in Your Ecovillage

Here’s what Nathan advises for other ecovillage projects:

1. Your alternative currency system needs to be easy to understand. Do this by making it similar to what people already know — your country’s currency system — while maintaining the integrity of an interest-free money system. (For example: use your country’s currency instead of hours to denominate your currency).

Nathan Brown, founder of Dancing Rabbit's ELM system.
2. Your system needs to be convenient. Do this by making your currency easier to use than your country’s currency. (For example: enable fast and easy online transactions so people don’t have to write checks or keep cash on hand).

3. People need to have confidence in your system. Do this by getting the most trusted institutions within your community to use your local currency. You can entice these institutions to participate by giving them the greatest access to interest-free money.

4. Encourage cash-earning members of your community to exchange their cash for community currency. This enables individuals or organizations onsite with cash expenses to still accept 100 percent of their payments in your community currency. They can do this because when they need cash again, they will be able to exchange their community currency with your cash-earning members.

5. The system needs to be self-governing. People need to know which entities are creating economic value within your system so that everyone can quickly and easily give these entities greater access to interest-free money in a decentralized way. (For example, create an “open money” system where everyone’s current balance value and cumulative transaction value is publicly available. Don’t have hard limits on negative account balance allowances, and allow members to refuse payments from those who they believe are taking economic value from the system).

If you support a healthy community currency in your community, that system will then create greater economic opportunities for all involved by eliminating the need for economic contributors to borrow money at interest!

Jonathan Swiftcreek lives at Earthaven Ecovillage, where he’s involved with agricultural projects, village life, ecovillage development, and outreach. He introduced and co-organizes Earthaven’s Visitor Experience Week.

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