Russia's ruble has been on a roller-coaster ride, facing the second biggest drop in value of global currencies in 2014, then bouncing back this year with the highest rise against the dollar, euro, pound and yen.
Even tech giant Apple took time off from online sales in Russia due to “extreme” ruble fluctuations in December, when the currency tumbled 19% in a day due to a sell-off by nervous investors in Moscow.
The recent stabilization of the ruble at about 50 to the dollar has drained not only the country's currency reserves, but also the sentiment of Russian consumers and businesses: Inflation remains at more than 16% and unemployment stands at 5.6%.
Russia's middle class and the working poor are the ones paying the price for the economic downturn. An average 10% drop in real income last year and a jump in mortgage defaults and rising food and utility prices have made it difficult, to say the least, for people to make ends meet.
In the midst of this fragility, Mikhail Shlyapnikov, a farmer in the isolated Russian village of Kolionovo believes the answer to the woes of the cash-strapped Russian rural population is “kolions.”
What Are Kolions?
Kolions are an alternative currency for Russian farmers to use instead of cash to make it easier to settle rural trades.
Shlyapnikov claimed the idea came to him easily. Frequent barter trade with friends made him realize that a commodity such as a goose or potatoes would be a more inflation proof and make an easier form of conducting trade than the ruble.
The alternative fundamentally would fall under a category of representative money, as their value is derived from underlying commodities like potatoes and livestock that can be exchanged in barter form at a future date in order to settle a trade.
Kolions are currently printed on photographic paper in the denominations of 1, 3, 5, 10, 25 and 50. They even bear a statement verifying them as tender for exchange (not legal just as yet).
What Is a Kolion Worth?
Currently, the value of kolions is as follows:
- 2 kolions=10 Eggs
- 5 kolions=bucket full of potatoes
- 60 kolions=1 Goose
- And so on
The valuations are independent and applications are possible to every aspect of rural life.
According to Shlyapnikov, in a village where residents would only get hard cash several times a year — during harvest and sowing — kolions would make the exchange of everyday goods easier. For instance, workers could plow a piece of land for a few kolions and then exchange them for vegetables, fruit or fish.
What is Russia’s Reaction?
While the intention of kolions is to establish a self-sustaining community with its own system of cashless transactions, the ideology has attracted plenty of negative attention from the government.
The district attorney (DA) is already prosecuting a case against Shlyapnikov and kolions on the terms that it presents a threat to the unity of the payment system and Central Bank policy.
During the first hearing, which was held in early June, the DA brought up reasonable issues with the formation of such trust-based local currencies, stating that they are economically unsound due to their decentralized nature. The lack of any tax structure and the possibility of default made reason enough, they believe, to justify pursuing a case to shut down the operations of kolions.
In stark contrast to the DA’s view was the first witness called to the stand. Yury Titov, a professional mechanic who lives in Moscow but has a house in Yegorevsk, had been using kolions in his daily operations.
Yury mentioned that he had once lent Shlyapnikov some diesel and got 50 kolions in return. He claimed that it was not an agreement between two businessmen, but simply a private exchange between two people, and therefore should not make a difference to anyone as to what they traded.
The case came to no conclusions, however, and Shlyapnikov is scheduled to make another appearance in court on July 1.
Decentralized Local Currency: A New Concept?
Decentralized local currencies are not at all a new concept.
Local currency predates monetary systems. Its re-emergence in several developed and developing nations is simply a case of societies attempting to take broader economic woes, which are presently beyond their control, into their own hands.
Today, there are over 4,000 privately issued currencies in more than 35 countries. These include commercial trade exchanges that use barter credits as units of exchange, private gold and silver exchanges, local paper money, and computerized systems of credits and debits.
Between 1837 and 1866, America witnessed the Free Banking Era in which almost anyone could issue paper money. Then states, territories and the institutions within them began circulating their own currency.
This period is well-known among collectors and numismatists as the “wildcat banking” period.
Even in modern times, several local, decentralized currency options exist, including:
- Berkshares — in the Berkshires region of Massachusetts, 2006
- Life Dollars — in Bellingham, Washington, 2004
- Cascadia Hour Exchange — in Portland, 1993
Even in Russia, Shlyapnikov is far from the first person to launch an alternative currency. In the early 1990s, hundreds of Russian citizens printed their own currency due to inflation and a lack of real money.
Vouchers for the infamous MMM (a Ponzi scheme company) established in 1989 by Sergei Mavrodi, his brother Vyacheslav Mavrodi, and Olga Melnikova were also used as money. Ural francs were in circulation far beyond the borders of the region where they were invented, in the stillborn Ural Republic. These cases rarely made it to court, but it did happen from time to time.
Is Local Currency the Future?
Concepts such as Bitcoin and other altcoins have been made possible due to blockchain technology, offering complex safety features such as majority consensus rule, multisig and many more that help prevent the build up of central destructive power.
It is questionable as to what value such local currencies might offer over digital ones, which include many of the same benefits, while keeping users incentivized to remain involved in the network of liquidity and fiat convertibility.
In the case of Shlyapnikov and the usage of kolions, however, most of the witnesses using the currency have been satisfied with its ability to provide them with a platform to engage in safe, cashless transactions with people they trust, for commodities they understand.
Will the Russian government take this view? We will find out on July 1, when Shlyapnikov is set to have his second court appearance.