Local currency

Purpose

Local currencies aim at using money as a tool to achieve social or environmental objectives. According to the New Economics Foundation partner Community Currencies in Action:

... money is simply a social technology and the ways in which it is designed, produced and controlled – far from being neutral or predetermined factors – all influence the effects it has upon society at large.

— People Powered Money: designing, developing and delivering community currencies.

Some of the purposes for community currencies identified by Community Currencies in Action include:

• Democratizing services and organisations: time credits for volunteering encourage people to actively engage in their community while making services, such as elderly care, more democratic.
• Supporting small and medium enterprises: Community currencies can serve as a means to promote independent shops over large corporations since they circulate locally. They can also help small and medium sized businesses support each other financially by lending and receiving credit or trading goods and services within the currency network. Examples are: Bristol Pound, SoNantes, TradeQoin, Chiemgauer
• Countering inequality and social exclusion: Specially designed currencies can address inequality issues by giving everyone the chance to get involved in their community; for instance by rewarding participation in voluntary programs. (Spice Time Credits, Makkie)
• Addressing environmental impacts: Community currencies can play a role in better valuation of environmental resources and providing an incentive for more sustainable behavior. For example, the Belgian Portemonnee rewards residents for environmentally positive actions such as composting. Reward currencies can also encourage businesses to adopt more environmentally sound practices.
• Maintaining purchasing power and value preservation. Example: Convertible Minute / Minutes Bank

Benefits

The Wörgl experiment illustrates some of the common characteristics and major benefits of local currencies.

Local currencies with negative interest rates, or demurrage currencies, 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, producing a greater rate of 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 use its existing productive resources, especially unemployed labor, inducing a catalytic effect on the rest of the local economy. They are based on the premise that the community is not fully using its productive capacities due to of a lack of local purchasing power. The alternative currency is used 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 uses as far as possible local materials. The enhanced local effect becomes an incentive for the local population to accept and use the scrips.

Some forms of complementary currency can promote fuller use 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 traditional 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

Transition currency, based on local currencies, is used by the Transition Towns movement in the UK. They include the Brixton Pound and Bristol Pound in the UK, BerkShares in the US, and Salt Spring Dollars in Canada. Transition currencies are payment voucher-based systems that are exchangeable with the national currency. The Transition Towns movement, originating in the UK since 2005, has used 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.

Local currencies were used in some municipalities in the Depression, such as Vermilion, Alberta. The issuance of scrip, sometimes in the form of stamped scrip, is an equivalent practice. Between 2002 and 2014, many local-currency experiments adopted this model. Such currencies aim to strengthen the resilience of local economies by encouraging the relocalization of purchasing and food production. The impetus for this change has arisen from a range of community-based initiatives and social movements.

Rewards currency is based on the frequent flyer model. The 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.

Mutual Credit currency is based on the mutual credit system, which is made up of time-based currency, trade exchanges, and LETS (local exchange trading system). Time-based currency, also known as Time Banks, use time as a measure of value. An example is Dane County Time Bank. Trade exchanges use price as a measure of value, such as Bay Bucks in the Bay Area of California. 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.

Software

Several software packages have been written supporting the management of community currencies. In 1998, Richard Kay, a senior lecturer at Birmingham City University, wrote a "Multi-registry System" specification for routing and processing community currency transactions using an approach designed to be decentralized, with no single point of control or failure, using the Domain Name System for server discovery.

List of local currencies