See Emissions Reduction Currency System for community based initiatives aimed at
emission reduction In economics, a local currency, is a
currency that can be spent a particular area at participating organisations.
Usually it will act as a complementary currency, that is to be used in
additional to a national currency, rather than replace it. The purpose is
to encourage spending within the local community, especially with locally owned
businesses. This may also help reduce environmental footprints.
The currency may not be backed by a national government or be legal tender.
As a tool of fiscal localism, local currency can raise awareness of the
state of about the local economy. They are useful for people who are unfamiliar
or uncomfortable with traditional bartering.
They encompass a wide range of forms, both physically and financially, and
often are associated with a particular economic discourse.
Terminology Local currencies are sometimes referred
to as a community currency. They are often forms of alternative currency,
complementary currency and/or auxiliary currency. There is debate as to the
exact definitions. Some definitions: Complementary currency - is used as a
complement to a national currency. It is an agreement to use a medium of exchange
that is not usually legal tender.:2 Alternative currency - often used, but
in essence this term is deceptive in many cases, as many currencies are
designed to be complementary, and not to substitute conventional currencies.
Auxiliary currency - far less common, as synonym of community or local currency.
Community currency - complementary currencies that are used by groups with
a common bond, like members of a locality, or association.
Local currency - is a community currency used in a locality.
Regional currency - a local currency where the locality is a larger region.
Private currency - emphasizes that the currency is issued by individuals,
businesses or NGOs as opposed to ordinary currency issued under the
authority of the government. Characteristics
= Theory= Local currency is based on a local form
of monetarism and mercantilism: it establishes an internal trade barrier,
as the local currency cannot be used externally, and allows the area to have
a different interest rate than the national currency's — in the Wörgl
experiment, a negative interest rate, known as demurrage. Advocacy and
criticism of local currencies is based partly on general attitudes towards
monetarism and mercantilism, and partly on opinions of the desirability of
having internal variations in currency and trade.
Advocates of local currency in effect argue that, in certain circumstances, an
entire country is not an optimum currency area, and that various regions
should have different currencies. Compare with the Eurozone in Europe.
= Benefits= The Wörgl experiment dramatically
illustrates some of the common characteristics and major benefits of
local currencies. Local currencies with negative interest
rate tend to circulate much more rapidly than national currencies. The same
amount of currency in circulation is employed more times and results in far
greater overall economic activity. It produces greater benefit per unit. The
higher velocity of money is a result of the negative interest rate which
encourages people to spend the money more quickly.
Local currencies enable the community to more fully utilize its existing
productive resources, especially unemployed labor, which has a catalytic
effect on the rest of the local economy. They are based on the premise that the
community is not fully utilizing its productive capacities, because of a lack
of local purchasing power. The alternative currency is utilized to
increase demand, resulting in a greater exploitation of productive resources. So
long as the local economy is functioning at less than full capacity, the
introduction of local currency need not be inflationary, even when it results in
a significant increase in total money supply and total economic activity.
Since local currencies are only accepted within the community, their usage
encourages the purchase of locally produced and locally-available goods and
services. Thus, for any level of economic activity, more of the benefit
accrues to the local community and less drains out to other parts of the country
or the world. For instance, construction work undertaken with local currencies
employs local labor and utilizes as far as possible local materials. The
enhanced local effect becomes an incentive for the local population to
accept and utilize the scrips. Some forms of complementary currency can
promote fuller utilization of resources over a much wider geographic area and
help bridge the barriers imposed by distance. The Fureai kippu system in
Japan issues credits in exchange for assistance to senior citizens. Family
members living far from their parents can earn credits by offering assistance
to the elderly in their local community. The credits can then be transferred to
their parents and redeemed by them for local assistance. Airline frequent flyer
miles are a form of complementary currency that promotes customer-loyalty
in exchange for free travel. The airlines offer most of the coupons for
seats on less heavily sold flights where some seats normally go empty, thus
providing a benefit to customers at relatively low cost to the airline.
While most of these currencies are restricted to a small geographic area or
a country, through the Internet electronic forms of complementary
currency can be used to stimulate transactions on a global basis. In
China, Tencent's QQ coins are a virtual form of currency that has gained wide
circulation. QQ coins can be bought for Renminbi and used to buy virtual
products and services such as ringtones and on-line video game time. They can
also be obtained through on-line exchange for goods and services at about
twice the Renminbi price, by which additional 'money' is being directly
created. Though virtual currencies are not 'local' in the tradition sense, they
do cater to the specific needs of a particular community, a virtual
community. Once in circulation, they add to the total effective purchasing power
of the on-line population as in the case of local currencies. The Chinese
government has begun to tax the coins as they are exchanged from virtual currency
to actual hard currency. = Difficulties and criticisms=
Local currencies and the Transition Towns movement in the UK have been
criticized for failing to address the needs of the wider population,
especially lower socio-economic groups. Such local currency initiatives have
been more widely criticized as having limited success in stimulating spending
in local economies, and as an unrealistic strategy to reduce carbon
emissions. Modern local currencies
Today there are over 2,500 different local currency systems operating in
countries throughout the world. Modern local currencies can be classified into
the following distinct types: 1. Transition currency based on the
local currencies used by the Transition Towns movement in the UK. They include
Brixton Pound and Bristol Pound in the UK, BerkShares in the USA, and Salt
Spring Dollars in Canada. Transition currencies are payment
voucher-based systems that are exchangeable with the national currency.
Between 2002-2014 many experiments in local currency took this form. Such
currencies aim to raise the resilience of local economies by encouraging
re-localisation of buying and food production. The drive for this change
has arisen from a range of community-based initiatives and social
movements. The Transition Towns movement originating in the UK has utilised local
currencies for re-localisation in the face of energy descent from peak oil and
climate change. Other drives include movements against Clone town and Big-box
trends. 2. Rewards currency based on the
frequent flyer model. Consumer spends cash with participating businesses who
issue rewards points in a local currency. These rewards points can be
used to offset cash prices in future purchases. An example is Oakland Grown
in Oakland, CA. 3. Mutual Credit currency based on the
mutual credit system. This can be further sub-divided into two:
a. Time-based currency also known as Time Banks that use time as a measure of
value. An example is Dane County Time Bank.
b. Trade exchanges and LETS that use price as a measure of value. An example
of local currency implemented as a trade exchange is Bay Bucks in the Bay Area of
California, USA. LETS were originally started in Vancouver, Canada, there are
presently more than 30 LETS systems operating in Canada and over 400 in the
United Kingdom. Australia, France, New Zealand, and Switzerland have similar
systems. Legality
The currency may not be backed by a national government.
= United Kingdom= Local currencies, like Scotland and
Northern Ireland banknotes, are not legal tender, under the rules of the
Bank Notes Act 1954. List of local currencies
= Europe= See also
References Further reading
People Powered Money: designing, developing and delivering community
currencies Community Currencies in Action
An overview of parallel, local and community currency systems by
DeMeulenaere, S Complementary Currency Resource Centre
An economic analysis of contemporary local currencies in the United States by
Krohn, G and Snyder, A International Journal of Community Currency Research,
Vol. 12, pages 53–68 External links