Local Currencies

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Definition

From the Wikipedia at http://en.wikipedia.org/wiki/Local_currency

"In economics, a local currency, in its common usage, is a currency not backed by a national government (and not necessarily legal tender), and intended to trade only in a small area. These currencies are also referred to as community currency. They encompass a wide range of forms, both physically and financially, and often are associated with a particular economic discourse." (http://en.wikipedia.org/wiki/Local_currency)


Advantages

Benefits of Local Currencies, by John Boik in: Creating Sustainable Societies:

"Local currencies offer at least three benefits to a community:

1. Local currencies that have a negative interest should circulate more rapidly than national currencies. As such, the same amount of currency produces a larger economic gain.

2. Local currencies help to keep money within a community. They encourage the purchase of locally produced goods and services. The greater the circulation within a community, the larger the economic benefit to those who live there.

3. Local currencies empower a community to maximize its use of productive resources. For example, a city might have unemployed or underemployed workers, unfilled hotel rooms, half-empty restaurants, and unused productive capacity in factories. Local currencies help communities to take advantage of these unused resources.

In addition to these, a well-designed local currency might provide some hedge against devaluation of the national currency."


Disadvantages

The Economist:

"Local currencies face three hurdles. First, they are relatively illiquid, being accepted only at willing local businesses. They are, in effect, a form of self-imposed economic sanction, narrowing the range of choice for consumers and businesses. Second, local-currency schemes suffer from a trust deficit: they are not backed by the central bank, so holders do not want to risk having too much. Finally, having to deal with two parallel currencies imposes transaction costs—and those wanting to back local businesses can easily use the national currency." (http://www.economist.com/news/finance-economics/21713139-brixton-new-york-local-currency-initiatives-suffer-lack?)


Examples


Status

The Economist:

"Local currencies have a poor record. Of over 80 launched in America since 1991, only a handful survive. Elsewhere, the Guardiagrele simec in Italy, the Toronto dollar, the Stroud pound and others are languishing or are already defunct. Even the Ithaca Hour, the most hyped “success”, has seen its circulation fall precipitously from two decades ago, says its founder, Paul Glover. ... Local-currency circulation in most of these places is very low. Just B£100,000 ($123,000) circulates, for example, in an area of 300,000 people. " (http://www.economist.com/news/finance-economics/21713139-brixton-new-york-local-currency-initiatives-suffer-lack?)


Discussion

Hazel Sheffield;

"Without enough currency in circulation, it ceases to work. Scott-Cato says Stroud's size meant meant the Stroud Pound was never viable: "We couldn't get the velocity of circulation right, which contrasts with the Bristol Pound."

Clarke also says the small scale of local currencies means they are "always scrabbling around looking for money". One way founders of the Bristol Pound have addressed his is by setting up an umbrella organisation, the Guild of Independent Currencies, to share information between local currencies in the UK and help new organisations. "At the moment we're all reinventing the wheel every time," Clarke says.

Technology might also have a solution. Peter Ferry, a commercial director, travels to Glasgow to tell those working on the Glasgow Pound that that his company Wallet has come up with a way to use the blockchain, the technology behind bitcoin, to make it easier for people to use multiple types of currency. "There might be many currencies around the country that people want to use. We need to make it simple for them to do that and also to make it simple to earn these currencies in many ways," he says.

Size doesn't always matter. Sometimes, the smallest places – like Totnes and the Ekopia community – are best able to support complementary currencies because the people who live there are engaged with their local economy in a meaningful way.

"Bristol is seen as a quirky, individualistic kind of place," Clarke says. "When we first produced the Bristol Pound note, people were really proud of it. It got through to people not just sat around coffee shops. I'm not sure a London Pound would work, because people identify with their local area in London rather than the city as a whole." (http://thelongandshort.org/growth/new-money-do-local-currencies-actually-work)