Alternative Currency in Cidade de Deus

Read this first: Original article, in Portuguese, here

If you don't read Portuguese, this basically says that one of the poorer communities in the city of Rio de Janeiro is set to have its own community bank (not bad) and currency.

You read that right.

A separate, local currency.

This isn't an unknown phenomenon. Time, USA Today and others have done feature stories on local or alternative currencies in the United States, which aren't considered legal tender and usually only have value in a single community that agrees to utilize them. The idea is that the local money will stay local, helping to revitalize the area and keep money within the community.

This project, however, is implementing a separate currency within a slum. Okay, Cidade de Deus is definitely a major step up from a slum, but for the purposes of our discussion and the perspective of the Brazilian media, that's what it is. I don't see this project as having any revitalizing potential. Let's examine why.

First, the article says that R%55.5 million is spent outside the neighborhood each year by its roughly 65 thousand inhabitants. I wonder if the sociologists really understand the dynamics of spending in poverty. (Not that I claim to be an expert...) That sounds like a large number,R%55.5 million, but the favelas are home to a rising middle class. In fact, when I was in business school, the criteria used to place people into A, B, C, D, and E social classes meant that a good percentage of my old favela neighborhood was solidly C. They spent their money at the malls, downtown (where things are cheaper) and locally if necessary. They owned multiple television sets, refrigerators, iPods. The infrastructure of Rio's slums is often lacking, meaning that purchases HAVE to be made outside of the local neighborhood if you're intent on being a good steward of your money. So if the community wants to keep money local, the local stores need to offer what people want at prices they want.

What really bugs me is that the bills are being issued in denominations of no more than 10 CDDs (equivalent to 10 reais). I can't see this being a very useful currency when you're going to have to carry a walletful just to go to the grocery store. Not to mention it seems as though the implementers are insinuating that slum dwellers don't really need to deal with 20's and 50's.

I'm curious as to how this money will be distributed. Surely it won't be used as a method of paying salary. After all, how useful really, is a currency that can't be used to take public transportation, pay light bills or cover doctor's appointments? What happens if the project fails? How will people get their worthless currency transferred back into reais? Who is going to oversee the bank to ensure that exchange rates are balanced, interest rates are fair and counterfeiting is kept to a minimum?

The real issue I see here is that the alternative currencies in the other articles are usually launched in communities that are socio-economically diverse. This CDD scheme rubs me the wrong way because it's focused on people who are already socially and economically disadvantaged. My husband remarked that it sounded like the rape-and-pillage company store schemes of the earlier half of the century: Imagine you are a miner. Your local mine pays employees in an alternative currency. This currency, of course, has no value to the town, so miners can only use the money at the mine's company store. Which...jacks up the prices, effectively consigning the workers to slavery.

Community banks are a great idea. But why go to the time and expense to institute a local currency? The national one works just fine. Invest in financial management education, invest in education in general, invest in people who want to start businesses in the favela. Money will stay in the community when there are places to spend it with competitive prices.

Phew. I'm done. What are your thoughts?