For millions of people in the US, exclusion from the banking system is simply a fact of life. An estimated 14 million US adults don’t have bank accounts, forcing them to rely on exploitative check-cashing and payday loan services that charge high interest rates—and thus, eat away at funds needed for food, rent, and medical expenses.
Lawmakers in New York are trying to correct this with a new bill that would create a “public Venmo” system designed to include more people in the formal economy and stimulate local economic growth. In November, New York State Assemblymember Ron Kim, Senator Julia Salazar, and Cornell law professor Robert Hockett announced their Inclusive Value Ledger (IVL) proposal. If passed, it would create the country’s first publicly owned electronic banking platform, as well as a digital currency that can be exchanged for goods and services within the state.
“I believe that our proposal, the Inclusive Value Ledger, has the potential to be truly revolutionary,” Kim said in a public statement. “The creation of a free public savings and payment platform that all New Yorkers can use, not only to pay for goods and services but also to transfer money directly to each other through, could fundamentally reshape New York into a fairer, healthier, wealthier, and more inclusive place for all.”
“Why should we have to pay to use a payment system? It’s like paying to use a street,” Hockett asked at a press conference announcing the proposal.
Both the payment system and currency are designed to be used in part to compensate residents for work that is often un- or underpaid, such as caring for the elderly, watching children, and cooking for others.
According to a federal government survey from 2015, 8 percent of households in New York State are “unbanked”—meaning they don’t have access to bank accounts. People who are unbanked often cite distrust of the banking system, lack of access to government-issued ID, or inability to maintain a minimum balance as reasons they don’t have bank accounts. Since most over-the-table jobs and many public benefit programs pay by check or direct deposit, people without bank accounts often have to pay a significant chunk of their income to predatory payday lenders or check-cashing businesses in order to convert their earnings into cash.
But some transactions can’t be completed with cash. Most popular digital payment systems like Venmo and PayPal allow users to send money free of charge using their app balance or bank account. But these services charge processing fees for instant bank transfers and credit card transactions, meaning that not everyone has access to easy, free, and instantaneous economic exchange. In precarious financial situations, the ability to freely and immediately transfer money can be crucial.
The IVL plan calls for New York State to distribute the $55 billion per year in uncollected individual tax credits through a “public Venmo,” a publicly-administered, non-extractive payment system that would allow recipients to spend freely within the state economy without transaction fees or delays. Every business and individual residing in New York would be issued a virtual wallet, connected to a state government-controlled master wallet, that could act as a viable alternative to a bank account without the fees of a for-profit bank.
Kim, Hockett, and Salazar are not the only people thinking about how to make our financial systems more accessible. Mark Zuckerberg has said that Facebook conceived of Libra, its new cryptocurrency, as a viable alternative to fiat currency for millions of people without bank accounts. But critics argue that a for-profit company like Facebook cannot be trusted to steward such an essential public system.
Hockett, Kim, and Salazar say that unlike Libra, the IVL plan’s second component, a statewide complementary currency, would encourage the recirculation of money in low-income communities. A complementary currency is a secondary currency that works alongside a more widely accepted one—in this case, the US dollar. Complementary currencies usually operate on a local or hyper-local scale, and can keep money in one particular area and support local economic growth.
Since a currency can be anything to which people assign economic value, launching a new complementary currency will hinge on advocates’ ability to convince enough people to use and accept the currency in exchange for goods and services. The IVL’s architects hope that making the complementary currency easy to use and universally accepted throughout New York State will make it easy to adopt.
Although the proposal is the first of its kind in the U.S. in terms of its scope and ambition, it follows a long history of local value exchanges and alternative currencies. Local currencies were fairly commonplace in the U.S. until the early 1900s, before the Federal Reserve Act of 1913 that centralized banking. Prior to that, local banks issued their own currencies based on their gold reserves.
Although centralized banking systems are conducive to certain kinds of economic development, critics like urbanist Jane Jacobs and economist and historian John K. Galbraith argue that centralized economic systems necessarily distribute capital unevenly in ways that disadvantage local communities, especially those that are rural and/or low-income. Today, local currencies may be experiencing a resurgence; particularly successful examples include BerkShares, a local currency for the Berkshire region of Massachusetts, and Banco Palmas, Brazil’s first community bank, which has led to a network of 52 other community banks that issue their own local currencies in favelas around the country. The Schumacher Center for a New Economics offers a map of local, alternative paper currency worldwide.
While the IVL proposal echoes many other community currency projects, it’s notably ambitious in at least two ways. The IVL defines its local “community” as the entire state of New York, making its adoption a bigger undertaking than that of most other complementary currencies. Additionally, the IVL isn’t just a complementary currency, but also a free and instantaneous, portable, smart-device-accessible universal savings and payment platform.
In his white paper, Hockett writes that the P2P payment technology needed to make IVL a reality already exists. While the proposal specifies that the payment system will be “secure,” the IVL team has not offered further details about the planned security mechanisms or addressed the specific privacy needs of certain groups they hope the system will serve, such as people who are undocumented.
The plan is supported by a coalition of community groups, including the Chinese-American Planning Council, NYC-Democratic Socialists of America, Qoin Foundation, and Hudson Valley Current, who are launching a publicity campaign to educate New Yorkers about the proposed system and what it can do for them.
“We believe that the benefits of modern technology should accrue to the people, especially those that are underserved, preyed upon and overcharged by our existing financial institutions,” a spokesperson for the NYC-DSA’s Debt and Finance Working Group told Motherboard. ”We are excited to support this idea and hope that the public sees the transformative potential of this legislation as well.”