Patacon, patacon, baker's van

Town & Country Planning, October 2001

How do you rescue a city that has run out of cash? When it's Liverpool, and you're Mrs Thatcher in the 1980s, you probably just turned a blind eye. When it's a city like East St Louis - so poor that the police have to provide their own patrol cars - you just move out. But what happens if it's actually your capital city.

I wrote about the currency ideas in Buenos Aires before, with the arrival of the Global Barter Network in the capital city of Argentina, faced with yet another extreme economic crisis. It's fascinating to see the way these kind of ideas take root when conventional money disappears.

But now the world's economists are up in arms, the business pages of the newspapers are outraged and the IMF deeply suspicious, but Buenos Aires has done it again - and this time they're very serious and very ambitious. Or possibly very desperate.

A new currency known as the patacon - a bond carrying seven per cent interest - has been launched in the province around Argentina's capital by the regional governor in a last-ditch attempt to keep the wheels of society moving under the weight of Argentina's $153 billion debt.

Argentina's problem is that they have already linked the peso to the value of the dollar at a one-to-one exchange rate, which retains the value of the peso - but makes it extremely scarce. People need currency just to carry on their lives. Something had to give.
At first sight, the patacon looked as though it might indeed be a blueprint for cities running short of cash. The maverick economist and planning writer Jane Jacobs - who famously described the interest of Britain's new as going no further than grass for Christopher Robin to go hoppety-hop - has always argued that the right size of a currency was a city region. Singapore and Hong Kong both had their own currencies, and it gave them efficient right information feedback about the right price for its goods, she said in Cities and the Wealth of Nations. Detroit just had the dollar and look what happened there.

And Buenos Aires seems to have done many of the right things with the patacon. It agreed to accept them in payment of municipal and federal taxes. Local telecom companies will accept it. Even McDonalds has organised a special new 'Patacombo' meal in exchange for it.
In fact, the patacon is the real thing - all $95 million of them - a parallel regional currency that keeps the local regional economy flowing.

So is it a breakthrough, or should the people of Buenos Aires withdrawing their salaries partly in patacons still be a little bit worried? All I can say is, I wouldn't speak too soon.
There are two problems with the patacon. The first is that the Argentinian federal government is intending it to go nationwide, and that would undermine all the benefits of it circulating just in the city region. Just circulating in Buenos Aires, it encourages people in the city to fall back on their own resources, to discover their own untapped raw materials and their own wealth of imagination. Circulating across the whole country it just apes the peso - and can only look a little bit pale in comparison.

The second is the question of what underpins it. This is why the provincial government have designed a seven per cent bond, to give that illusion that this is something of real value. But does it? The government is gambling on being able to repay seven per cent on the currency, and its value hang s on everyone's belief that they will be able to. The moment that starts to slip, then so will the patacon.

That uncertainty is going to mean people treat the patacon a bit like the Monkey's Paw, and get rid of it as fast as they can - which is good for the economy. But the odd thing is that the seven per cent will - if it's too successful - encourage them to hang onto it, which isn't.

An odd contradiction. But then, maybe that's the problem when government's issue their own money. It all hangs on belief - and governments tend to have peculiar ideas about whether people believe in their competence or not.
Perhaps Buenos Aires' new money should actually have been a negative interest money to encourage circulation, as the great Yale economist Irving Fisher proposed so successfully during the Great Depression - his ideas taken up in Austria and all over North America.

Or it could be linked to the value of Argentina's raw materials, or - as the Australian corporate raider Shann Turnbull suggested - linked to the value of locally produced renewable energy.
Or, if they are going to be really imaginative, link the value of the patacon to Argentina's carbon credits, which under the Kyoto Treaty, they may soon be trading on the world markets.
But above all, keep in local. People need a choice of currencies to rely on, not just the well-spun mirages that governments produce. But they will work best when they are underpinned and understood in city regions, used for the nitty-gritty aspects of life like butchers and bakers.

Top of Page · Back to Index · Back Home