DIY Cash: Communities Beat Recession, Benefit from Local Currency

Posted on Saturday, June 13th, 2009 at 4:48 am by dpacheco

When the economic crisis hit the fan, few places were resilient enough to carry on when credit got squeezed and currency dried up. Some of those places that weathered the storm better than others used an old invention that keeps money within the community, values people’s time, and helps build a sense of cooperation among individuals and businesses. The invention? Local currency, a true “financial innovation.”

This article from peopleseconomics.com explains how local currency works, and even how to start thinking about creating local currency for your own town.

Total dependence on one currency is like total dependence on one crop, or, for that matter, a single energy source: there’s always the risk that crop failure or a cutoff in supply will topple the whole system. This is the scenario we’re seeing now—credit has dried up and unemployment is soaring. In small pockets throughout the world, in rural areas and inner cities, and spots as far-flung as Bavaria and Thailand to Massachusetts and Michigan, people are responding by launching their own currencies. Such monetary renegades are not simply thumbing their noses at the dollar (or the yen, or the euro, or the baht…) They are making a carefully considered choice to promote the well-being of their communities.

“From the beginning we had two objectives—to promote the region and promote local charities,” says Christian Gelleri. In 2003, Gelleri and a group of his students at a Waldorf School developed the Chiemgauer currency in the Lake Chiemsee region of Bavaria, Germany. Since then, some 3 million Chiemgauer notes (equivalent in value to the euro) have been placed in circulation. The currency, accepted by 600 businesses in the region, typically is spent and spent again 18 times a year’three times more than the Euro. This means that the currency is encouraging trade and cooperation in the region, which keeps the shops and restaurants and artisans active. Think of this faster rate of use (what economists term “velocity”) as a kind of reinvestment in the community.

Local currencies can help a community counter some of the problems with conventional money. For example, bank-issued currency tends to flow toward the money centers for investment. If you shop at a chain store, the profit gets whisked out of town and into the corporate coffers and then, often, to the speculative market. A local currency stays in the community, encouraging local business and trade, adding value to local products and services, and supporting the local infrastructure.

Reliance on national currency means being at the mercy of the national credit situation. As we’ve recently seen, credit constriction can paralyze local economies. Despite the availability of goods and the need for business, when there’s no money, consumers don’t buy. Stores don’t sell. Start-ups can’t get a toe-hold. An alternative currency gives people another way to buy, sell, lend, and borrow. If the community creates its own currency, local business can go on even if the supply of national currency dries up.

At the most basic level, currency functions as a means of exchange (I give you a dollar and you give me an ice cream cone), a unit of value (a dollar, pound, etc.) and a store of value (you can hold onto a dollar as it maintains its worth). It’s also a source of information about relative value, and about what is needed to keep trade flowing, for instance, by adjusting the supply of money or the exchange rate so that those in other markets can afford your goods.

[...]

Maybe we’re asking national currencies to do too many things. As Thomas H. Greco, Jr. points out in his new book, The End of Money and the Future of Civilization, some functions are inherently contradictory: If money is for trading, you want to use it; if money is to store value, you want to save it. Greco and others such as David Boyle say that people could be better served by separating out the functions of money—and using different currencies, depending on whether you are, say, meeting friends at a local café or saving for college.

Back on Main Street in Great Barrington, Matthew Rubiner, of Rubiner’s Cheesemonger & Grocers, says the issue of local currency has shifted quickly from the theoretical to the here and now. “When BerkShares started we talked about what would happen if the economy falls apart and we were really forced to look local.” The economic downturn, he says, has “brought the question into bolder relief.”

Read the whole article here.

Image: Wikimedia Commons / Cschwerin

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