How Small-Town Banknotes Keep the Global Dollar at Bay

The London Times - James Bone - You can buy a slice of hazelnut ricotta torta and a caffe latte at Rubi’s cafe in this trendy Massachusetts town for $5 (£2.50).

The crisp local banknotes look like politically correct Monopoly money, with portraits of social activists and local figures such as Herman Melville, the novelist, and Norman Rockwell, the painter, on one side and pictures by living local artists on the other.

But Matt Rubiner, the cafe owner, will happily accept them. “The percentage of our customers who use them is somewhere above or below 20 per cent,” he says.

Great Barrington, in the Berkshire hills, a favourite summer getaway for New Yorkers, has started a monetary experiment by launching its own hyper-local currency, called Berkshares. It intends to cultivate the local economy by encouraging people to use a currency that can only be spent in the immediate area, so that the benefit goes to local workers and suppliers. You can get your car repaired, your bicycle fixed, your eyes checked and your cavities filled using Berkshares.

Already, the Devon town of Totnes has taken the similar step of issuing the Totnes Pound.

The concept is being promoted by the E. F. Schumacher Society, a nonprofit organisation named after the late British economist who served for two decades as an adviser to the National Coal Board and became famous for Small is Beautiful, his 1973 book .

“We have respectable participation from Main Street business. We have enthusiastic participation from the banks,” said Susan Witt, the director of the society. “I actually left my dentist because he said I needed $6,000 in dental work and he did not take Berkshares.”

Lewis Solomon, a law professor at George Washington University who wrote Rethinking Our Centralised Monetary System: The Case for a System of Local Currencies, argues that such currencies are one of the few options that localities have to combat the negative effects of globalisation. “There is now so much globalisation that this is a way that enables you to build a local economy,” he says.

But Joel Naroff, of Naroff Economic Advisers, calls it “currency protectionism”. “In small cases and for short periods, it can work. But it cannot work in large cases and for long periods of time,” he said.

Berkshares are pegged one-to-one to the dollar, so that the hazelnut ricotta torta and caffe latte that costs $5 also costs five Berkshares. But there is a built-in incentive. Locals buy Berkshares at the bank for 90 cents each, so that 10 Berkshares cost just nine dollars.

“I bought a pair of shoes that I wear constantly,” Sara Katzoff, artistic director of a local theatre festival, said. “That is my biggest purchase with them – about 100 Berkshares. So I got 10 per cent off. I took that 10 dollars and went to the movies that night.”

The problem comes, however, when someone wants to redeem Berkshares for dollars. The banks pay back only the original 90 cents on the dollars, which means local businessmen who get stuck with them have to take a 10 per cent loss.

Petrol stations refuse to take Berkshares, as do utility companies, insurance firms and mortgage lenders. About 900,000 Berkshares have gone into circulation in this town of 7,400, and about 750,000 have been redeemed for dollars. “To be an effective programme this really needs to be a completed circle. There are not enough vendors that use it,” Mr Rubiner said.