Sardex: a local currency for the community

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It’s 2008, and the financial crisis has just hit Wall Street. Banks are on the verge of collapse, and lending has all but ground to a halt. The effects of the crisis are palpable as far away as the Italian island of Sardinia, where the flow of credit is drying up and unemployment is skyrocketing. That’s when five young men from the Sardinian municipality of Serramanna started to ask themselves, “Why should we have to suffer here at home because of a crisis on Wall Street?” They set to work to create a local currency called the Sardex exclusively for businesses based in Sardinia.

Businesses can only spend their balance with other businesses which have a Sardex account, and that means the Sardex helps boost local jobs. Ivar Smits Skipper

Do you take Sardex?

We’re wondering whether this local currency benefits the community in terms of sustainability. So we set sail for Sardinia, where we drop anchor and start to investigate. 

After arriving at Serramanna, we have lunch at a pub next to the church. “Look,” says Ivan, pointing to a sticker on the door, “they take Sardex.” Maybe we, too, can get our hands on some of this money to pay for our lunch. Fortunately, the Sardex office is just around the corner. A modest sign on the gate tells us we’ve arrived, but there’s no ATM or bureau de change in sight. Lorenzo Pinna is on hand, however, to welcome us and show us around.

A simple idea

Lorenzo works in the International Relations Department and tells us that the founders of Sardex had a clear objective right from the start: to give Sardinian businesses access to a local currency to help them realise their full potential. 

So how exactly does it work? Lorenzo gives us an example: “Let’s say you’ve got a photographer and a painter. The photographer wants to have his studio painted, but doesn’t have enough euros. The painter could do with more work. If both have Sardex accounts, the photographer can opt to pay the painter in Sardex. The photographer is then overdrawn in Sardex. If he pays the painter 100 Sardex, his balance falls to –100, and the painter’s is +100. The painter can now buy peaches from a local farmer, who could then hire the photographer and pay him in Sardex.”

Aha! So Sardex exists exclusively as a virtual currency… Which means account holders can have negative balances. And since businesses can only spend their Sardex balances with other participating businesses, the currency is effectively boosting local jobs.

Sardex instead of the euro?

It all sounds simple, but we’ve got a lot of questions. Is the Sardex currency actually legal? Lorenzo says, “Sardex is a digital transaction medium which is perfectly legal under Italian law. Users pay all applicable VAT – in euros – on their transactions.” Because every transaction is logged electronically, there’s no getting around VAT. That means the tax authorities are also benefiting from all this increased productivity. 

To put it simply, the Sardex is worth just as much as the euro, but you can’t buy or exchange it. “The Sardex works in tandem with the euro,” Lorenzo explains. “It facilitates transactions which otherwise would never have been possible because of a lack of euros.”

Where’s the bank?

That’s all well and good, but we still want to know more. Who controls the amount of Sardex in the system? “The company sets limits on a particular business’s balance and overdraft,” says Lorenzo. “These depend on the size of the business. The sum of all accounts is always zero.” So participants can’t abuse the system by running up huge overdrafts? “No, we keep a close eye on the overdraft facility. Even better, we help companies with negative balances by introducing them to more potential clients with a substantial credit balance.” 

Lorenzo shows us what he’s talking about on a nearby computer screen using a dummy account – not a real one, obviously, since Sardex takes its members’ privacy very seriously. We see various credits and debits, as well as the total account balance. Actually, it looks very much like your average internet bank account statement. Except that it’s denominated in Sardex, of course.

Interest-free

There’s another major difference, though. There are no interest charges on the statement. “That’s right,” says Lorenzo, “because we don’t pay or charge any interest at all.” So Sardex is interest-free? “Sardex is only a means of exchange which helps boost transactions in the local economy. It’s not meant to store or increase value through interest.” The upside is that there’s no need for more and more liquidity in order to meet obligations relating to interest rates. It’s one way the Sardex is very different from “ordinary” currency systems, which by their very definition need to grow.

Sardex is catching on

To cover costs, Sardex charges members a one-off registration fee and an annual fee. The amount of these fees will depend on the size of the relevant business. And it’s an approach which has proved to be successful: over 4,000 businesses now participate, and Sardex has generated a turnover of €140 million since it was founded. As a private company, Sardex currently employs sixty people.

Sustainability and the Sardex

Back at the boat, we consider the sustainability aspects of the Sardex. As local services and production activities grow, less transport is needed and employment on the island gets a boost. Not to mention that the Sardex is strengthening collaboration and trust within this island community. 

Because the Sardex can help clear the obstacle of a lack of euros and it can’t be traded on the stock exchange, it makes the local economy more shockproof in the event of a future financial crisis. It’s also a big advantage that the currency pays no interest, which obviates the need for growth. That’s why a currency like the Sardex would seem to be better suited to the circular economy than an “ordinary” currency.

The Sardex is a simple, local idea with important benefits when it comes to sustainability. And we look forward to seeing it grow. Which region will be the next to introduce a similar currency? And could this type of system work in the Netherlands?

Ecosystem recovery 2.0

For our next blog post, we’ll be sailing to the southernmost part of Italy, where we’ll be visiting a reforestation project which is capitalising on an innovative product marketed by a firm based in Amsterdam. How does this work, and what are the benefits for the ecosystem and the local community?

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