A new local money using distributed ledger technologies (DLT) is being developed in Helsinki. Distributed ledgers, or “blockchains,” store transactions in a cryptographically secured form to a large network of computers. The DLT systems were made commonly known by the virtual currency Bitcoin, but their application possibilities are diverse.
‘New methods, such as digital local currencies, are needed so that people can engage in economic activity voluntarily in a way that increases their well-being while also benefiting society,’ Researcher at the School of Business Maria Joutsenvirta says.
Joutsenvirta takes part in multidisciplinary research group Aalto Observatory on Digital Valuation Systems, investigating the possibilities of digital community currencies. She is interested in new business models and practices, which create new solutions to the increasing ecological and social challenges by making use of new technologies.
‘Traditional economic theories and organisational models are inadequate to explain, for example, a large fraction of the activity taking place in sharing economy, creating value and increasing welfare. This activity takes place outside the monetary system and cannot be measured in terms of Gross Domestic Product (GDP). Such activity can, for instance, take place within various local and community economies, households, or in peer production,‘ Joutsenvirta says.
A digital local currency differs significantly from the conventional financial system. Open and transparent bookkeeping, made possible by DLT, allows recording of trust relationships between users as well as a transferral of debts.
‘Unlike centralised data management systems, DLTs do not require a state or other centralised third party to protect their integrity,’ says Professor Pekka Nikander from the School of Electrical Engineering.
Experiments in Helsinki already this year
In Helsinki, the aim is to start two practical experiments with a digital local currency before the end of 2018. The development work is done at cooperative Arvotakomo (ValueCraft Coop) in close collaboration with the researchers of Aalto University. The City of Helsinki is also involved.
‘Local currencies can activate groups in the margins of society, such as the unemployed young people or inactive senior citizens, reducing social exclusion. An objective of a local currency is often to encourage residents to use local services, which would improve economic vitality of the municipality,’ Joutsenvirta says.
In longer term, the planned local currency could help develop new sustainable business models in Helsinki. In Central Finland, Sysmä municipality has already started to implement a local currency, and there are also thousands of working examples from around the world.
‘A good example could be the basic income experiment in Barcelona, in which 25% of the income is paid in local money. Therefore, this part of the income has to be used in local services’, Joutsenvirta says.
In Finland, for instance, the greatest challenge for the earlier local currencies in the so-called time banks has been taxation.
‘Development work has now been started together with Tax Administration and Ministry of Finance. We'd like to learn through experiments how to best combine digital local currencies with the widest possible benefit to society’, Joutsenvirta says.
Maria Joutsenvirta, PhD
Aalto University School of Business
Pekka Nikander, Professor
Aalto University School of Electrical Engineering