Chapter 1 | WABA: The Background

in blockchain •  last year

This paper presents the proposal of WABA, a start-up that attempts to make use of the Blockchain technology to help local communities to gain resilience and autonomy. In a financialized world where nation states seem to have lost sovereignty at the hands of global banks and multinational corporations, a path breaking technology such as Blockchain can change the course of events. In order to be sovereign and autonomous, communities need to control the money its inhabitants use. The monetary system underlying that money must be designed in such a way that is able to fulfil the community’s goals. In order to prevent it from abuses and misuses, the monetary system must be managed in a truly democratic basis. This model of monetary and political sovereignty that has been envisaged for a long time has now become possible. The possibility of designing the governing rules of the community on an open, public, transparent and secure technological platform such as Blockchain, combined with the dynamic and flexible governing system of the type that liquid democracy proposes, promises to transform politics in a way that individuals get their power to decide on the destiny of their communities back. Combined with the advantages of complementary currencies and, more specifically, the mutual credit systems, the quest for higher, more equal and sustainable levels of wellbeing could finally cease to be a utopia.

1. Background

In the context of financialization that began in the late 1970s the global financial system has become inherently unstable. Although for some time the belief about a Great Moderation spread across financial markets and governments around the world, the financial crisis of 2008 and the Great Recession that it gave way to brought everybody back to reality. A reality that finds real economies -where most people live and work- subject to massive upheavals coming from the financial sphere, where decisions are hardly made following social welfare but short-term profit criteria.

There are two main reasons why nation states have lost their ability to shape the future of the society they represent. First, the internationalisation of production gave rise to the process of global value chains, enabling large firms to choose where to establish their production units. In order to become more attractive to transnational corporations, many emerging and developing countries initiated a race to the bottom of labour market deregulation and tax cuts that, in the end, thwarted any attempt to deploy a national development strategy. Second, the liberalisation of financial flows at a global scale, facilitated through financial market deregulation in both developed and developing countries gave global banks the possibility to enter and withdraw billions of dollars from a country in a matter of seconds. As a result, the local monetary scenario (such as credit available to finance productive entrepreneurships) in peripheral economies has become strongly subordinated to the monetary conditions in the big financial centres. The massive amounts of liquidity that flowed down from the US, Europe and Japan to Latin America in the context of the Quantitative Easing programmes and their impact on the exchange rate (appreciation) and production (reprimarisation, bankruptcy of industrial firms) are just one of the many manifestations of the consequences of the current working of the international monetary system and the effects it produces on most countries in the world.

In a financialised world where global banks and transnational corporations seem to have overtaken the nation state as the shaper of social and economic development, societies have become hostages of forces they cannot directly identify. The workers of a gold mine in Peru may get unemployed overnight due to a sudden drop in the price of gold, not knowing that this may have happened due to the burst of a speculative bubble thousand miles up north. At the same time, textile workers in Brazil may see how, after the arrival of financial capital into the country seeking for carry trade profits, their industry closed down because it can no longer compete with Vietnamese lower wages. Similarly, for quite a long time the industrial truss deployed across the Great Buenos Aires and the Argentinean regional economies have found themselves in difficulties as a result of a persistent inflation that they did not induce and, more recently, severely threatened by an aggressive monetary policy that not only made credit less accessible but that also put a drag on the economy by channelling funds into financial speculation rather than productive investment.

It is in this complex world where nation states have lost their sovereignty -at the hands of global banks and transnational corporations- and individuals seem to have lost their autonomy -defined as the effective capacity to choose their own life plan- that WABA proposes an innovative and breaking-through solution. Standing on the shoulders of the countless experiences on local and complementary currencies as well as on the mutual credit systems we come up with an alternative monetary system based on the Blockchain technology. The aim of this system is to provide local communities with a techno-monetary tool that allows them to deepen social and economic linkages regardless of the ups and downs of their external environment. The monetary setting is built upon the foundations of fair trade and the social and solidarity-based economy. The technological infrastructure ensures that the working of the system is transparent and incorruptible. The final goal is to achieve higher and sustainable levels of wellbeing for all within the community.

In the remaining of this paper we describe how WABA may contribute to this end. We start off by posing some of the problems entailed in the nature of modern money (chapter 2) and the attempts to alleviate poverty by means of solutions belonging to the microfinance approach, which are ultimately based on the current monetary paradigm (chapter 3). Then we present four ideas belonging to different domains that so far have been developed separately but, if combined in a single platform, promise to change substantially the way individuals interact. In chapter 4 we briefly describe the potential of complementary currencies to facilitate the circulation of goods, services and labour in times of lack of liquidity. In chapter 5 we describe what the Blockchain technology is and why we believe that it will bring about profound changes both in the economic and political dimensions of societies. In chapter 6 we present the most modern version of democracy, liquid democracy, and explain why it is a superior model in comparison to the traditional models of direct and representative democracy. In chapter 7 we briefly explain how the Blockchain technology can be used to make liquid democracy fully operative. In chapter 8 we describe how WABA attempts to put all these ideas together in a single software. Finally, we present some figures that can give an idea of WABA’s scalability in Latin America.

Chapter 2 | The nature and status of fiat money

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