Natural Savings are the complementary answer to the narrowed functionality of modern bank money with regards to the micro-financial sector. By virtue of the latter, borrowers automatically face the hurdles of monetary inflation and currency devaluation, whereas micro-finance institutions operate under the constraints of banking regulation and central banking practices, which often contrast the unfolding of financial inclusion or, in other words, the decrease of the ‘financial divide’. I am far from denying the positive effects that the modern paradigm of money had supplied for the development of society both in the industrialized West and increasingly in vast societal segments of less developed countries. However, by virtue of its very features, modern bank money flows in a monetary system that is hyper-efficient, but whose performance is nonetheless difficult to define as optimal. Even though it is possible to increasingly print conventional money with the alleged target of price stability, the need of perpetual growth of real output that the conventional monetary system demands cannot be met on a global scale at least for lack of natural resources.
As a result, the process of financial inclusion will never be completed on a permanent basis, in particular with regards to extremely poor households. Thus, in order to counterbalance such trend, it is necessary to formulate what former Federal Reserve Chairman Alan Greenspan defined in 1997 as a “new paradigm”- an era of technology-enabled noninflationary growth. If, or better, when implemented, Natural Savings fit in this new paradigm, a new micro-savings product for highly inflationary environments (Hudon and Lietaer 2006, which I will freely quote here). The implementation of this micro-financial instrument would address three inter-related World Development issues that modern bank money failed to tackle: poverty reduction, sustainable resource management, and savings at the grass-root level. Whereas, the ultimate result would be to enable the financial sector to achieve a faster and deeper inclusion of the poorest communities.
Although ‘saving’ is a counter productive financial activity for people living in countries with high or unpredictable inflation, Natural Savings can correct the shortcomings, which the implementation of modern bank money does imply by virtue of its poor intrinsic functionality, i. e. conventional national currencies are an inefficient store of value based on mere confidence, in that they are literally backed by nothing. Indeed, Natural Savings are thought of as a retail savings instrument fully backed by a natural process of growth, and useable as a local medium of exchange. Natural Savings are ‘natural’ because the backing could be any commercially valuable product that grows organically over time (e. g. a timber plantation or a fish breeding), whose ownership can be secured, and which can be maintained and harvested without unduly high costs. Thus, in this post I will present Natural Savings as the result of the the design of a “tree currency”.
In turn, the design of the product will demand four preconditions to be satisfied: a rural community and human capital able to work, i.e. extreme poor households that micro-finance based exclusively on conventional national currencies does not target: they are unbankable because they are not profitable. The other three preconditions are a plot of land suitable for re-forestation projects, investment capital for covering the costs of implementation and an insurance to face possible disasters such as fire or pandemics. Once such preconditions are settled, the first step is to constitute a legal entity (e. g. “Natural Savings Company”), which will be the owner of the timber planted. For instance, the savings company may issue 100,000 shares in the form of either paper or electronic currency that would be backed by the trees of a specific sub-plot. The Savings Company will then distribute the shares to the poor who worked in the re-forestation project. Further, the value of each share could be expressed in days of work, esp. in countries with high inflation or significant monetary instability.
Thereby, shares will increase their value through time, because as the forest grows so does the value of one share expressed in workdays because the expected return on the timber is higher. At maturity (e. g. 20 years) the forest will be harvested and the timber sold for conventional national currency and the shares will be redeemed with the proceeds of the sale of the timber. At this point, since the process is sustainable and renewable it can start from the beginning, potentially for ever.
Poor households who earned shares of Natural Savings have in turn three main possibilities to use them. First, as a pure long-term and inflation-proof savings instrument to keep until the forest’s maturity. Secondly, Natural Savings are a complementary currency and therefore they can be used for mixed payments into the rural community by providing additional liquidity in that community. Third, they can be sparingly used as a short-term ‘cushion’ for emergencies by the sale of shares before they reach maturity.
Therefore, contrary to modern bank money Natural Savings is a product that does provide several advantages not only for those who already access to micro-saving products in the conventional market and can diversify their savings portfolio but also to those who are willing to work but are not allowed to access the modern monetary system. Further, Natural Savings are complementary to traditional micro-saving products: by virtue of this complementarity, the same micro-finance institution can deliver both conventional savings products (esp. short and medium term ones) and Natural Savings as a long term micro-saving product.
In conclusion, in the present financial scenario, in which instability is the main feature of the monetary system, such systemic constraints are not a justification for a dismissal of Natural Savings. Indeed, either formal or informal micro-financial practices have to constantly face the annoying structural problems that modern bank money systemically carries out. Contrary to the structural inefficiencies of modern capitalist money, Natural Savings are a very effective financial product, which could directly improve the capital formation of the poor, esp. in the lowest strata of society and therefore enable the poor to access the social relation of credit.