Local Currencies: An Overview

WorldingChanging.com - Cathy Tuttle - Even prior to the economic breakdowns we are now experiencing, economists who study globalization found that only about 20 percent of the money we spend in chain stores stays local, while the other 80 percent quickly zips back into the global market of manufacturers, distributors, transporters and investors. Spending your money in a locally owned business has the inverse effect, with 80 percent of money you shell out bouncing around for a while in local wages and suppliers.

Local currency systems keep money circulating locally even longer. That’s a good thing for building local skills, products, and resilience into floundering communities (one notable success is the Brazilian Bancos des Palmas). Keeping things local also has a profound effect on lowering the amount of embedded energy and carbon in the things we buy.

The global economic breakdowns make thinking about local economic systems an attractive alternative. Throughout human history people have found that being “cash poor” doesn’t mean economies stop. People always have skills and goods that other people value. The question is finding the best models to effect fair exchanges and keep accurate records.

At the third annual Transition Town Conference in London in May, I learned about three models currently being implemented: Time Banks, Local Exchange Trading Systems (LETS), and local currencies.

LETS and Time Banks are voluntary, opt-in systems that are rapidly gaining popularity. Several software packages exist to keep track of member hours and taxable income for LETS and Time Banks (it is hard to get away from the government, even in alternative economic systems).

Time Banks value people’s hours equally. An hour of legal advice is paid at the same rate as an hour of massage or an hour of childcare (I’ll take the massage, please!) That exchange usually means that people whose professional training usually translates to an increased time value -- lawyers, for example -- tend to be less than enthusiastic about Time Banks. Transition Town Norwich has been one of the more advanced Time Banks with Norwich Lokes. (Read about another time bank, the Oregon-based OurNexChange, in the Worldchanging archives.)

LETS, in contrast, assign value to goods and services in a way that's more like traditional commercial markets. Professional skills are usually pegged to real-world costs, and unlike Time Banks, LETS aim to involve local businesses as partners. Existing LETS tend to be good at the service exchange, with most local currency being pegged to the currency of the dominant culture.

In order to convince people to buy into almost every local currency system, money is sold at a five to 10 percent discount: I can buy $100 worth of BerkShares in Massachusetts for $95 US or 100 Totnes Pounds for £90 pounds sterling. As a result, consumers have been relatively easy to sell on the concept: In the small town of Lewes (pop. 16,000), thousands of pounds are in circulation; in the Berkshires, millions of dollars.

LETS' success in involving local businesses, however, has varied wildly. In an ideal local currency system, all of the local businesses in the community agree to accept the local form of payment, and in turn pay their employees and local suppliers in local currency. In an ideal local currency system, the small business owner also uses her local currency to pay other merchants – to buy clothes or go out to dinner or pay to repair her bicycle. And of course she’ll give me my change in local notes too.

Local currency developers in the small UK Transition Towns of Totnes and Lewes have spent untold hours convincing local merchants to use this new form of cash. Small business owners just don’t want one more thing to keep track of in their till and are worried that their customers, suppliers, and employees won’t accept non-standard banknotes. Local businesses communities have, however, been strong partners in some alternative currency systems, including the Totnes and Lewes Town Pounds. The Lewes Town Pound in particular has been such a success that it is being issued for a second time on July 3, 2009 in denominations of L£1, L£5, L£10 and L£21 notes. (The L£21 notes will highlight the fact that 5 percent of the currency goes into a Live Lewes Fund for local development projects.) The new Lewes notes will be sold in several places (not banks) including the Lewes Town Hall and farmer’s market. Scores of merchants have signed up to accept Lewes Town Pounds and many of them offer discounts to customers who use the new local currency. A survey of Lewes pound users found more than half of them consciously increased their local spending.

Overhead can also be a challenge. It turns out local currency systems incur their greatest cost not in distribution, publicity or record-keeping (many of these jobs are done by volunteers), but in printing costs for producing individually-numbered securely marked bills on high quality paper. Nations print bills in such huge numbers that individual bill printing costs become negligible. Lewes Town Pound developers have addressed the problem in party by turning individually numbered bills into an advantage, using bills as raffle tickets for merchants participating in the system.

At this time, many local currencies have value for collectors. Totnes Pound notes sell on eBay for up to 20 times their face value. Of course novelty value will disappear once more systems develop and more bills are printed. Then the real value of local currency for local economies will find its real worth, community by community.

Money is nothing more or less than a social construct, an agreement between groups of people that the little pieces of paper we wave around have value. What happens when we challenge and deconstruct this model? How do we buy things? Economists and social thinkers have been playing with this idea for a long time. Some notable examples of money going “off the grid” in the historic past include Robert Owen’s Labour Exchange System of the 1830s, the development of Credit Unions in the 1930s, and Argentina’s development of credit notes during its hyperinflation in the 1990s.

The alternative economic models used in Transition Towns were described by Peter North who teaches geography at Liverpool University and authored the Transition Guide to Money (Green Books 2009), Josh Ryan-Collins, an author and researcher at the New Economics Foundation, and Oliver Dudok van Heel, a tutor in Sustainable Business at Cambridge who helped to launch the Lewes Town Pound.