Bernard Lietaer, A Financial Justice Warrior Who Fought for Freedom of Currency
We are deeply saddened by the loss of our dear friend, Bernard Lietaer, who passed away recently at his home in Hoyerhagen (Germany) with loved ones.
Bernard was a financial justice warrior; a fierce advocate, sharp businessman and revered educator who dedicated his extraordinary career to exploring global monetary systems, uncovering truths about their effect on civilization and shaping their evolution through rigorous research, eloquent writing and heartfelt lectures around the world.
Bernard’s diverse career in money — as a central banker, fund manager, university professor and consultant to private and public institutions alike — opened his eyes to the merits and flaws of different financial systems. In 2010 he wrote: “I sometimes feel like a flying fish who has had the opportunity to take a ‘bird’s eye view’ of the water in which we swim, and is now trying to report back to its fellow fish and explain what it has learned about what we usually cannot see.”
His ideas about money were often ahead of their time. As a graduate student, he developed the first in-depth research on “floating exchange rates” a year before President Nixon took the United States off the gold standard and initiated a worldwide shift to floating exchange. Later, as a central banker, he designed the European Currency Unit, the precursor — and what many have said was a superior approach — to the Euro we have today. As the Great Recession wreaked havoc in 2012, and austerity measures constricted the flow of national currencies in debt-saddled nations like Greece, Bernard urged Greek cities and towns to adapt and create their own parallel currency system. And long before blockchain technology emerged to offer a new set of tools for currency development, Bernard advocated for an alternative, multidisciplinary view of money which drew on findings from history, psychology and ecology to expose untruths about the global monetary system, inspiring discourse, debate and global action by entrepreneurs and activists to redesign money from the ground up.
Bernard believed that communities could design complementary currencies, alongside and in support of their national currencies, which would better serve their needs, and better protect and stimulate local, national and global economies through the kind of diversity that generates resilience in nature. The main barrier to this reality is that most people don’t understand that an alternative financial system is even possible. The choice of currency, he said, has long been obscured by money’s tradition of secrecy and mystery:
“This mystery has an extraordinarily long history: for thousands of years it was of a religious nature, now money remains enchanted just as effectively by a spell of academic jargon and esoteric equations. Our challenge will therefore be to bring the ideas down from the academic ivory towers while remaining conceptually sound.”
Bernard ventured beyond the corporate boardrooms and government corridors to advance new ideas about currency and initiatives that shared his vision for systemic reimagining. He sensed that the evolution of money would have to bubble from the ground up, rather than be prescribed from the top down — and his optimism in this eventuality strengthened with the advent of accessible connective technologies such as cellular networks and the Internet.
In his 2010 book, “The Future of Money”, Bernard wrote:
“Below the radar beams of many official monetary experts, fundamental change in our money systems is in fact already well under way, irresistibly driven by the social and technological forces of the Information Age.”
“The real issue is not whether widespread changes will happen or not, but how much awareness there will be about where these changes are leading us. The real question is whether we are even conscious that we have a choice in the matter.”
A Star From Early On
As a student at MIT in the late 1960s, Bernard gained notoriety for his postgraduate thesis on how to optimize currency management for multinational corporations. His research was among the first to shed light on “floating exchange rates”, which change a currency’s value based on supply and demand in the market. The year after the publication of his thesis, President Nixon took the United States off the gold standard, initiating a global shift to floating exchange rates. Bernard’s research became extremely valuable, and a major U.S. bank negotiated the exclusive rights to his methodology.
Bernard went on to take a position as the head of the Organization and Computer Department at the Central Bank in Belgium, where he was one of the principal architects of the European Currency Unit (ECU). The ECU was based on a “basket” of national currencies, each weighted as a percentage in line with the country’s share of the EU’s gross product and its internal trade. A key feature of the ECU allowed individual nations to devalue their currencies in the event of a downturn — a tool which disappeared after the Euro was introduced in 1999. A 2015 paper examining the ECU’s replacement by the Euro found that the ECU was a “superior approach to monetary union“ which could have been “less economically and politically damaging than the Euro.”
Bernard later wrote:
“It took me several years, and a most revealing conversation with the then President of the BIS (the Bank of International Settlements in Basel, or the Central Bank of the Central Banks, which coordinates the monetary activities of the eleven key monetary countries of the world), to understand that Central Banks exist to keep the system going as is, not to improve on it and that therefore any initiatives of reform would have to come from the private sector.”
He departed the Central Bank of Belgium in 1987 to launch GaiaCorp, one of the first large-scale offshore currency trading funds. The company quickly grew into one of the largest and most successful currency management firms in the world, leading BusinessWeek to name Bernard “the world’s top trader” in 1990.
In the mid-1990s, Bernard left the currency trading firm he founded and embarked on a decades-long mission to teach and consult worldwide on the merits and shortcomings of different monetary systems in an effort to help society make more conscious choices about the financial architecture that governs our collective collaboration.
An Urgent Message For Economics From Nature
In his last book, “Rethinking Money”, published in 2013, Bernard argues that monetary systems function similar to natural ecosystems in that both require a balance between efficiency and resilience in order to be sustainable.
In 2013, as the world grappled with the lingering effects of the Great Recession, Bernard and journalist Jacqui Dunne explored the origins of the current monetary system — built on bank debt and scarcity — revealing the surprising ways its limitations give rise to serious problems, and a potential path forward.
Viewing both monetary and natural systems as complex flow networks, he defined efficiency as a network’s capacity to process volume of whatever flows through it in an organized and streamlined manner. In nature, efficiency may be the flow of water or energy; in economies, the circulation of money. Resilience is a network’s capacity to handle and adapt to changes, such as withstanding droughts in nature or shocks to the financial system. “However, this dependency operates in opposite directions: efficiency tends to be increased by streamlining, i.e., by reducing diversity and interconnectivity. In contrast, resilience increases with diversity and interconnectivity.”
For instance, an ecosystem that has one type of animal which survives off one type of food is an efficient ecosystem, but if the food becomes unavailable due to blight or illness, most likely the animal will die and the ecosystem will collapse. Science shows us that natural ecosystems with different types of life and high connectivity between them have a greater capacity to handle changes in their environment (i.e., more resiliency). This is also the case for economies, Bernard argued, and with too little diversity or too little connectivity (and vice versa), both natural and monetary systems will suffer breakdowns.
Bernard believed that today’s global monetary system was too efficient and therefore too brittle, as evidenced by its repeated instability — including 145 banking crises and 208 monetary crashes between 1970 and 2010 alone. The excessive efficiency is caused by the fact that only one type of money, national currency, flows within a country, created by bank debt and interconnected only at the global level via international exchange rates. While a single type of currency increases efficiency by optimizing price formation and exchange within national markets, there are no other options to sustain trade when a downturn hits and the flow of national currencies slows.
“Monetary sustainability requires a diversity of currency systems, so that multiple and more diverse agents and channels of monetary links and exchanges can emerge,” he said. Bernard compared today’s national economies to ecosystems where only one type of plant is tolerated and artificially maintained, and any manifestation of diversity is eradicated as an inappropriate “competitor” because it would reduce the efficiency of the whole.
The mantra of forever increasing efficiency has become “misguided and counterproductive,” Bernard wrote in 2010. “The quest for greater economic efficiency, for example by downsizing or by ‘just in time’ deliveries or other ways to continually optimize value chains, has reduced the stability of the overall economic system.”
“The urgent message for economics from nature is that the monoculture of national currencies, justified on the basis of market efficiency, generates structural instability in our global financial system. Complementary currencies of diverse types of money enable the economy to flow back towards greater sustainability. While this process clearly reduces efficiency, that is the price to pay for increased resilience of the whole.”
Making Complementary Currencies Work
Following his years in the currency trading world, Bernard emerged as an ardent supporter of complementary or “cooperative” currencies that supplement and complement the national currency.
He battled beliefs that complementary currencies were defective and that the coexistence of different forms of money hindered the efficient functioning of exchange and price formation. He researched and promoted numerous examples of complementary currencies across the globe — from the Brixton Pound in England, to Torekes in Belgium, the C3 in Brazil and the WIR in Switzerland. “A quiet revolution is happening that has, for the most part, gone under-reported. The number of contemporary cooperative currencies operating in the Western world has grown exponentially from two in 1984 to more than 4,000 mature systems today,” he wrote in 2013.“Evidence has accumulated in dozens of countries that complementary currency systems can be designed, for instance, to successfully improve solidarity among neighbours; to support cooperation rather than competition in a community; to encourage inter-generational elderly care; or to induce a consumer lifestyle that reduces carbon emissions,” Bernard wrote.
Number of Social Purpose Complementary Currencies Operational in a Dozen Countries (1984–2007). “These estimates are purposely very conservative. They include only systems that were operational during the corresponding year and whose existence was verified by one of the authors through the net or in personal contact. Many more systems exist that don’t feel the need to advertise their existence.” Source.
Yet Bernard conceded that the vast majority of complementary currency systems were too small, too young and relatively unproven on a wide scale to offer a viable alternative to the existing system. Despite the ability of complementary currencies to increase connectivity within small populations, a mechanism did not exist to easily connect complementary currencies to one another, much less to the traditional economy. This lack of interconnectivity between the currencies themselves frequently led to their eventual stagnation, as rarely is economic life contained within a single community over time.
“One of the main barriers for the use of complementary currencies is that their acceptance is limited and therefore their liquidity is low,” Bernard wrote in a 2017 paper, preventing such systems from realizing their full potential. Our early work in monetary design proved the same — while our digital community currency pilots were successful at first, usage eventually tapered off, because the currencies were not usable outside the communities that launched them.
Years before blockchain technologies entered the public discourse on monetary reform, Bernard had already expressed enthusiasm for decentralized digital money systems and their capacity to break the monopoly of currency. Drawing on ideas from John Boik, a medical doctor who applied his knowledge of natural systems to governance, Bernard predicted in 2015 the emergence of a “mass online democracy” and “local currency system” that is decentralized and relies on “built-in design elements that ensure efficiency, transparency, and effectiveness.”
In Rethinking Money, Bernard applauded Boik’s proposal for a “crowdfunding-like mechanism, which pools small amounts of resources and money from a diverse group of people, usually via the Internet. This generates investment funds for business, as well as a steady stream of donations for funding social services such as schools, nonprofits, clinics, universities, and other groups.”
Bernard began researching blockchain technology, and soon enough, discovered the Bancor Protocol. After reading the Bancor whitepaper three times to verify its accuracy, he concluded that the protocol could be used to liberate new forms of currency and break through the liquidity barrier that had previously hindered their use and widespread adoption.
The main issue preventing interconnectivity across complementary currency systems is the difficulty of performing conversions between such currencies. Historically, changing one type of currency into another requires a trusted intermediary who matches two parties with opposing wants. Since national currencies are highly liquid for one another, finding a party that is willing to exchange is a relatively simple process performed by for-profit matchmakers. However, this reliance on matching creates significant barriers for small-scale currencies to be valued against and thus traded for other currencies at market-determined exchange rates.
Bernard believed that the Bancor Protocol could serve as a public good that facilitates convertibility and liquidity for complementary currencies. Within weeks of discovering Bancor, he was delivering lectures on the protocol to his students and at conferences, as well as publishing research on the innovation.
In a 2017 paper, Bernard explored using the Bancor Protocol for delivering “unconditional basic income” to impoverished communities:
“The main idea is to allow complementary currencies to be issued by users at the condition that the token issued is holding one or more reserves, such as digital or conventional currencies as well as other assets. This will enable any currency using this protocol to be exchanged for any other currency which is part of the ‘Reserve Basket’, without needing a counterparty to do so.”
As the protocol evolved and the Bprotocol Foundation was established, Bancor was honored to have Bernard join as its President and Chief Monetary Officer. Bernard played an instrumental role in advancing the fundamental convertibility technology, researching its implications, and advising the first Bancor-powered community currency pilot network, the Sarafu Network, deployed last August in Kenya in partnership with local non-profit Grassroots Economics. The Sarafu Network has already had a tremendous impact on the communities in which it operates, increasing local commerce by more than 40%, according to initial transaction data.
Kenyan communities trade as little as one tomato on the blockchain using Bancor-powered community currencies. Will Ruddick, co-founder of Grassroots Economics, which is deploying the currencies, said: “Bernard’s vision of diverse monetary eco-systems that support communities and the environment rather than extract from them, as they continue to do now, is the spark that moved me from physics in the US into economics in Kenya.”
As data streams in from the Sarafu Network, showing community members transacting in blockchain-based local liquid tokens, forming diverse channels of monetary links, the Bancor team is continually inspired by Bernard’s remarkable legacy and his bold vision for freedom of currency as we work to enable adoption at scale.
Last summer Bancor attended an event at the historic Bretton Woods hotel, site of the infamous monetary conference in 1944 where much of the international financial infrastructure as we know it was established. The aim was to catalyze a conversation around how we might transition to a more equitable global system, perhaps benefiting from technologies newly available since WWII, such as computing, the World Wide Web, and blockchain among others, as well as new insights and social perspectives on inclusivity, gender balance, competition, growth and environmental protection and regeneration.
At this special gathering, Bernard was presented with an award in the name of the late economist Elinor Ostrom, for his courage and leadership in monetary innovation. The other recipient was Hilda Heine, the first female President of the Marshall Islands who recently announced plans to create a sovereign digital currency for the nation. While Bernard was already battling his illness, a friend, colleague and advisor John Clippinger, who co-authored with Bernard “From Bitcoin to Burning Man and Beyond” (a work conceived at a similar gathering he hosted, at the same historic location), warmly accepted the award on his behalf. It is with poetic synchronicity that Bernard, like his heroine Elinor, was similarly able to only briefly enjoy this recognition for his work. It is with great sadness and also fierce determination and deep gratitude, that we continue to share his ideas and research with the world, and to innovate towards fair, free and fluid financial systems that serve people — just as resilient, natural ecologies serve the planet.
Bernard is survived by his loving wife and partner, Helga Preuß. He will be truly missed.