Social currencies have emerged as an innovative instrument not only for transferring cash, but also for promoting local development. By boosting local consumption and supporting small businesses, they help communities build self-sustaining economies. Drawing on examples from Rio de Janeiro’s municipalities, this blog explores their potential to complement welfare policies while highlighting the challenges they face.
Gabriel Vencionek studies economics and works as a research assistant at the Centre for Studies on Inequality and Development (CEDE), Universidade Federal Fluminense (UFF), Brazil, and the Maricá Basic Income evaluation project.
In recent decades, cash transfer programs, such as the Bolsa Família Program and Emergency Aid during the COVID-19 pandemic, have played a crucial role in combating poverty and inequality in Brazil. These policies focus on distributing resources through cash payments to the most vulnerable, which are those whose monthly income is lower than R$ 218 (approximately £28).
In this context, social currencies have been reimagined to tackle not only poverty, but also as an innovative instrument for promoting long-term local development, backed one-to-one with the Brazilian national currency, the real. In this blog, I will focus on the social currency aspect of these programs,but there is also research on the solidarity economy side, such as in this article by Paul Katz and Leandro Ferreira . These are complementary currencies that serve as more than a medium of exchange, by delimiting a closed circuit that encourages local consumption and boost local businesses, with the difference that each of them is restricted to use in a specific territory.
By targeting economic activity within a community (such as a municipality or even neighbourhoods within a municipality), social currencies can enable cash transfers to stimulate these localities to become self-sustaining growth hubs. It is crucial to closely observe and evaluate the ongoing evolution of these policies, since they can fundamentally change the financial circumstances faced by the citizens of entire municipalities.
From Banco Palmas to municipal initiatives in the state of Rio de Janeiro
The history of social currencies in Brazil began with the pioneering experience of Conjunto Palmeira, a peripheral neighbourhood in Fortaleza, Ceará. Through community mobilization, residents realized that much of their consumption came from outside the community. At the same time, they identified a need for credit to support local businesses.
In this context, in 1998, Banco Palmas and the PalmaCard were created, which soon transformed into the Palmas social currency. Joaquim de Melo, one of the minds behind social currencies and Banco Palmas has written on this subject in his 2023 book (available direct from the author). This is the first documented case in Brazil of a community bank that, with a social currency, sought to stimulate local development by promoting local consumption and microcredit lines.
Inspired by this experience, Maricá, located in the Metropolitan Region of Rio de Janeiro, have been innovative by being the first municipality to use a social currency to implement public policies with cash transfer to promote development in the territory for over a decade. In 2013, the municipality first implemented a set of solidarity economy policies, including free public transport, the use of the municipal bank (Banco Mumbuca) as an inductor of local development through the expansion of microcredit and the financial inclusion of the poorest populations, as well as a local cash transfer program that later evolved in 2019 into the Citizens’ Basic Income (RBC, Renda Básica de Cidadania in Portuguese).
Since 2021, several municipalities in Rio de Janeiro state have been following the footsteps of Marica's experience, and developed cash transfer programs paid in locally restricted social currencies, seeking to mitigate the effects of social injustice. In common, they all adopt the Federal Government's Single Registry for Social Programs (Cadastro Único), a registry that became widespread for social programs in Brazil because it is used for the Bolsa Família.
The municipalities implementing the cash transfer programs in local currencies, use it to identify eligible households, which functions as a first “cut” or criterion in the program registration process. Although these programs all have the objective of reducing poverty and boosting local development, there are many differences in terms of eligibility criteria, rules for using the currencies, the value of the benefits and the way the programs have been implemented.
There are currently ten municipalities in Rio de Janeiro with programs on this model. Image 1 shows the spread of these currencies from a geographical perspective. Eight have already implemented their policies to some degree, and two have laws approved or under discussion. These are the cases of Petrópolis, which has passed a law establishing the Municipal Solidarity Economy Program - providing for the creation of the Ipê Amarelo currency and the Popular Municipal Bank - and the municipality of Rio de Janeiro, where the executive branch has sent a bill to the City Council, which is still being discussed.
Although most municipalities do not disclose the number of people benefiting from the programs, we estimated the numbers based on the number of families and citizens registered with CadÚnico. Table 1 illustrates the sizable coverage and impact of cash transfer programs in Rio de Janeiro state.
Beyond the Hype: What’s Next for Social Currencies?
The expansion of social currencies in Rio de Janeiro can promote the development of local economies, financial inclusion and cash redistribution, complementing federal welfare policies such as the Bolsa Família. Evidence indicates that Maricá’s social currency had a positive impact on the labour market.
João Paulo D. Lima and Valeria Pero observed a 52.5% growth in formal employment in Maricá, the leading municipality on formal job creation in the state between 2017 and 2020. In a scenario where a large part of the poorest population is in the informal market - a widespread phenomenon in developing countries - the cash transfers can be a driver of the supply of jobs in the state of Rio de Janeiro. Furthermore, Victor Araújo observed an increase in political participation after the implementation of the Citizens’ Basic Income in Maricá, with a 17% lower abstention rate in elections, when compared to other municipalities in the state of Rio de Janeiro.
That is to say that, in addition to reducing poverty, such policies can have a positive impact in other areas, such as the labor market, local production, political participation, and so forth. That is why the implementation of these policies requires attention, specifically regarding the models adopted, the methods of paying benefits and accountability criteria. Except for Maricá and Saquarema, all the municipalities opted to pay benefits to households and not individuals, aligning these programs more closely with a quasi-basic income rather than the universal standard as proposed by Van Parijs and Vanderborght. In all cases, even those that adopt individual payments, benefits are calculated using a family income criteria.
Furthermore, Cabo Frio organises its program by neighbourhood, which means that in addition to meeting the general criteria for participating in the program eligible families also need to live in one of the neighbourhoods covered by the program. Macaé, on the other hand, divides payments by neighbourhood, permitting beneficiaries to use the currency only in the sector where they live. Several municipalities, such as Itaboraí and Campos dos Goytacazes, not only prohibit the accumulation of benefits (for example, Bolsa Família beneficiaries cannot join the municipal program), but also limit consumption to certain specific shops (i.e., the beneficiary can only consume certain types of food in specific supermarkets), which raises questions about the complementarity between social policies and may discourage potential beneficiaries from joining.
Official information on the progress of the policies, the number of beneficiaries, the number of registered businesses, and a measure for how much the currency is circulating locally to boost the economy is mostly lacking, highlighting the need for greater transparency on the part of the authorities.
These programs differ in many ways from each other, and each also differs from the Maricá model which served as the main inspiration. Between 2020 and 2022, there was a rapid expansion of programs that provided public policies such as subsidizing university education and free public transport combined with income support through local social currencies.
Looking to the future of cash transfer models, social currencies can be transformative for the economic and social dynamics of local communities. However, it should be remembered that the effectiveness of these initiatives will depend on implementation strategies that are adapted to local realities, with accountability not only in running the policies, but also in the dissemination of their implementation, development and results. If well implemented, concrete cases like that of Maricá - which became the municipality with the largest increase in the share of the national GDP in 2021 and has the highest GDP per capita in the state of Rio de Janeiro - can inspire other municipalities in Brazil to create not just permanent basic income models, but real “ecosystems” of social solidarity capable of generating formal jobs, developing economic sectors and increasing popular participation in elections.
All articles posted on this blog give the views of the author(s), and not the position of the IPR, nor of the University of Bath.
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