FINANCE, Interviews

Bernard Lietaer: Why not taking a risk?

Bernard Lietaer is an expert in monetary relations and complementary currencies, including digital ones. He gave an exclusive interview to Invest Foresight online magazine at the moment when business outlets all over the world forgot about real deals and spend nights and days writing on the blockchain misfortunes.

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Bernard Lietaer is a Belgian financier and “architect of the euro”, an international expert who devoted his whole life to studying money relations. Despite his age he advises governments across four continents on testing currency systems. He is Professor of universities in Belgium, France and the USA and author of numerous widely acclaimed books and publications such as The Future of Money: Beyond Greed and ScarcityMoney and Sustainability: The Missing LinkNew Money for a New World where he predicted financial turmoil facing the world over the past years. In June 2017 Bernard Lietaer joined Bancor Protocol Foundation as Chief Monetary Architect. He sees his mission in finding ways to ensure sustained development of nations during the lifetime of the current generation.

Local currencies

Invest Foresight. Mr Lietaer, you are one of euro architects, financier and professor, but your main activities are linked to complementary currencies.

Bernard Lietaer. They are indeed.

IF. French people often say it is time to leave the system. You suggest a way out by augmenting complementary currencies. But local currencies are not taxed hence governments will face losses. Will they be willing to accept that

BL. In my answer I can refer to what is now happening in the US, where 43 states finance communities promoting complementary currencies based on time banking where the unit of value is the person-hour or some other time unit and not a dollar since such an approach allows to solve social problems at a lower cost compared to a similar solution denominated in dollars. In time banks, all transactions are free from taxation as they solve problems which would otherwise be too cost intensive for the state to solve, whereas this way they cost it nothing.

IF. They cost nothing to the state, but the state has to bear other expenses. How can it cover those?

BL. Do you presume complementary currencies can substitute fiat currencies? That is not the case. In each country there are lots of cost items exempt from taxation, and that makes no difference. Besides, all of such transactions in the US in time banks take place on the states’ level, not on the federal level.

IF. Can we establish a safe haven to shelter us from globalism and currency crisis? Is there a chance all complementary currencies can some day become one?

BL. In my view, most of the existing complementary currencies have a social impact and do not affect economy in general. They allow people to meet their neighbors, communicate with them and try what they can do best, giving them in turn what they need. It is a mutually beneficial exchange.
It appears the most successful community is the one where money in some while will no longer be used as there will be no need in money. It is even better if we exchange presents with our neighbors, so we should analyze this phenomenon not from a scientific viewpoint, but in a social context.

IF. This interview coincides with the peak of crisis in Catalonia and its separatist decision to become independent of Spain. Let’s assume they are independent. After that, all banks will leave, Europe will not accept Catalonia, and they will not be able to use euro. In such a situation, is there a chance to keep jobs and maintain living standards?

BL. Regardless of the independence claim phenomenon, there are several applications in Catalonia operating with complementary currencies, especially in food supplies. Their scope is 1 to 2 percent of the total turnover. I in no way state that complementary currencies in Catalonia constitute a unique case.
The paper Options for Managing a Systemic Bank Crisis written by Robert Edward Ulanowicz and myself, is an attempt to put forward a theory describing the core of this problem. We analyzed conditions for structural sustainability of complex flow systems. Every natural ecosystem is a system of complex flows of biomass circulation. We have demonstrated from the scientific point of view that a preference is not an option and that there are structural conditions for stability, applicable to any complex flows system. To be specific, the range between minimum and maximum diversity should always be maintained. If some diversity level is exceeded, that causes stagnation, whereas if diversity level is too low, that results in a crash.

Economy is a system of complex flows where money circulate. A conclusion can therefore be drawn that economy requires some minimum diversity hence a single currency per country may not ensure stability to its existing financial system. What we can do, is to create niches which can survive a crash. That is possible, but it is also evident that while such niches remain as small as they are now, without reaching maximum volumes of cashflows, they can not serve as counterbalance of the system. In Brazil, for example, there are some complementary currencies, but they make up 1 to 1.5 percent of the overall cashflow in the country which is fairly small.

IF. Are there any examples which deviate from the general trend?

BL. One can observe a totally differing trend in Switzerland where WIR as a local currency has since 1934 brought together 65,000 entities and is contributing to stability of the national economy in terms of employment rates and GDP, as compared to other countries. Switzerland is traditionally viewed as a more stable country. You may think that is due to its air or cheese, but in fact it is due to its financial system, which most of the people are even not aware of. Their technology is nevertheless in operation for a very long time already, and it has a scope sufficient to produce a macroeconomic impact. My American colleague and myself wrote an article on WIR as a countercyclical phenomenon. When something goes wrong in Swiss economy, volume and number of WIR transactions grow thus stabilizing the economy. When Swiss economy is booming, scale and quantity of WIR transactions decline which makes WIR a countercyclical phenomenon.


IF. You have joined Bancor Protocol Foundation. Why did you make that decision?

BL. As for Bancor Protocol, I knew what blockchain is about since it is within the scope of my research. I realized blockchain can play an essential role in money creation. Bancor Protocol is a blockchain intended to make money from reserves. This technology is an important step forward since it can potentially ensure liquidity of all complementary currencies, whereas an asset liquidity is a significant and highly valued characteristic of an asset.

In May 2017 I learnt of Bancor Protocol from the White Paper received from Israel. I contacted my colleagues to find out how practical their work is. Finally, I went there to try the system on site and came to a conclusion it is most reliable. That is how it happened.

IF. President Vladimir Putin instructed to draft national legislation on digital currencies status, and Central Bank to launch a pilot cryptocurrency platform in 2018. Meanwhile China, a global mining leader, banned ICOs. Can Russia become the new leader? How do you see cryptomining’s geographical expansion?

BL. I believe, and I am not the only one who thinks so, that in case of China a ban on ICOs is merely a tactical move. Having put on hold the ongoing processes, they will impose a new management system under their total control. With all the projects underway there, I would say Shanghai is one of the regions of the world where the most advanced teams specializing in cryptocurrencies work. Shanghai and Israel are the most advanced sites I have seen by now.

A specific feature of blockchain is an ability to issue a currency without any permission. What is happening now in several countries including Canada, is that Central Banks will start issuing so called national currencies by means of mining. The work is progressing in every respect. As for China, they have blocked the process in order not to lose influence on the phenomenon. They are more profoundly oriented on control than most of other countries in the world. There are banks which invested over $ 15 billion in traditional funds in mining applications. Goldman Sachs, for example, got a private blockchain patent.

At the moment, the cards are reshuffled and I believe we will see some novelties quite soon.

Bitcoins and risks

IF. Bitcoin is the best known cryptocurrency of a daily growing value. What can you say about the risks associated with it?

BL. Bitcoint is not a currency but a purely speculative instrument, since 99.7% of Bitcoins are not used for buying or selling anything. Bitcoins are just kept in hope their price will grow. So it is an instrument of speculation.

IF. When will Bitcoin collapse, in your view?

BL. This is the sphere of innovations. We find ourselves in the midst of a modern activity which has become a fashion, and the whole world talks about it all the time. Even if there is a crash, what would that mean? Will Bitcoin disappear then? I do not think so. If we define a financial bubble as something that can lose all of its value, I do not agree that is the case. If we define a financial bubble as something that loses 20% or 30%, that is not a problem then, since things like that happen worldwide daily.

IF. In 2017, ICOs raised $ 3 billion. Is it a start for a large-scale speculation? How can ordinary people be protected from financial losses? Should everyone be granted access to mining?

BL. One should be most selective. As I understand, anyone can initiate an ICO now, but in a while the ICO process will be regulated by Central Banks. Some mechanisms are still imperfect, but there are government companies with bad performance, too. So when choosing an ICO, one should be most selective and very careful. One certainly should not invest all one’s savings in a single project. Still, if one wants to take a risk, has few thousand euro available and can afford to lose that money, why not then?

IF. Cryptocurrencies do not have any physical backing and that scares the people who are not familiar with the subject. Besides, around the world there are plenty of those who distrust electronic payments. At the same time, if a banking card is stolen, it merely takes a phone call to cancel it. That is not the case with digital currencies. Can you dissuade our readers of such an understanding?

BL. You speak about cryptocurrencies which are just one of a variety of complementary currencies. They do not represent their entire diversity. Cryptocurrencies are an element of a broader phenomenon and they are now igniting high passions. In fact, complementary currencies have always existed, so they are no news, while cryptocurrencies are a novelty, something may be picked up from them, something may be rejected, just like in any other emergent area.

In my opinion, there are plenty of positive things there. Bancor Protocol, for example. I now devote my time to developing it since I think it is an instrument of big future for resolving many fundamental challenges such as poverty. So I am most enthusiastic, but I am not excited by everything.

Weak points of cryptocurrencies are their platforms with plenty of unsolved problems. They are totally unprotected of hacker attacks, for instance. It will not surprise me if in the near future restrictions are introduced to regulate ICO process and to limit each ICO by, say, X million.

IF. Who do you think is spiritual father of the cryptocurrencies world? Is it Satoshi Nakamoto, the legendary Bitcoin designer?

BL. Yes, he devised the first blockchain, Bitcoin and initiated the first ICO to release Bitcoin for free circulation. That is a lot. I am not surprised he tries not to draw attention to himself. If I were him, I would do everything not to be spotted, too. He started a revolution, but it should not be confused with what is going to happen in this market. He was the first one, so everything was rather primitive then.

IF. Do you believe he will some day sell all of his assets?

BL. I think he holds 50% of the market, correct?

IF. He holds a lot and we in fact do not know how much.

BL. OK. I do not think he will sell it all, as I do not believe he can ruin his own market. I would not be surprised to learn he makes his living on his assets. He has won already.


IF. You are one of the architects of euro which is a common and global currency.

BL. It is not a common currency, but a uniform currency. That is one of the causes of the conflict I had those days. My vision of euro was different from what actually happened, that is why I resigned. Europe needs a common currency, not a uniform currency.

IF. Can you explain the difference?

BL. In case of a uniform currency Greece and Italy use euro, but at the same time they use Greek drachma and Italian lira. The companies who want that, like hotels or restaurants, can operate in euro. In my opinion, it was necessary for this status to be introduced in line with the theory I have described, necessarily ensuring minimum diversity. I fail to comprehend why, if you are a Greek, you must buy Greek olives for euro. If we did what I had suggested, we would not have faced neither the Greek crisis, not the Italian crisis, since those countries could have devalued their currencies and created new jobs while continuing to use euro at their discretion.

IF. Is euro the way it exists today a failure?

BL. In my understanding, the current situation with euro is a failure. It was a mistake to make it one single currency since now that does not allow Greeks and the others to devalue their national currencies, if required. That causes system vulnerability, whereas my suggestions allowed to avoid the problem.

IF. How do you see the future of euro?

BL. I am not optimistic, to be open. I think the configuration may change, but it will not disappear altogether. If Italy faces crisis, the current system will be unable to stand the problem, just as was the case with Greece. More so, a possibility of transiting to a national currency is now discussed in Italy, just as I had suggested long ago. In that case, we could have avoided the present nightmare. So, yes, I was among the initiators of euro emergence, but I am not content about euro the way it is now.

IF. Do you believe indeed some countries may leave the EU? Will Brexit really happen?

BL. The funny thing is, the country which has made the best use of euro is the UK. What happens now is, if you are a British company and run a lot of business at the continent, you can use euro for you accounting and taxation purposes in the UK. For this end, Bank of England sets an official euro to pound exchange rate on a quarterly basis. You can therefore keep your British accounts and pay your British taxes in euro.

That is what I wish I could make possible in every country.

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