Tag Archives: money

Local Money

Money is the untimely fungible commodity. Within a specific currency two fives and ten can be traded for a twenty regardless of where they come from or who is doing the trading. Even between currencies money is fungible as long as a mutually agreed upon exchange rate is employed. (Money is also a progressive rock piece by Pink Floyd, but that is a matter for discographers, not economists.)

It stands to reason that before money goods with actual intrinsic value were bartered – cows, salt, grain, etc. Bartering is not the same as money however, because money has little to no intrinsic value other than as a medium of exchange.

Paper money sometimes referred to as banknotes, coins (specie,) and recently even electronic money such as bitcoin are traded across communities, countries and the globe. There is a trend to develop local money which can be used to exchange for goods and services with a limited area. The use of local money ensures that it will stay within and therefore benefit the local economy.

Ad hoc money pops up temporarily at certain venues. Attendees to things like multi day music and entertainment festivals use “real” money to buy the event money. This event money is used within the venue for buying goods and services. After the event the vendors exchange the event money back into “real” money.

There is a growing trend for locales to create their own money to support the local economy. In the light of bank failures during the depression years, and especially in rural communities, local banks produced notes to be used locally. The value of the banknotes was guaranteed by the gold reserves held by the issuing bank. More recently (1973) an experiment with local currency began in Exeter, New Hampshire.

This was followed in 2006 by the issuance of Berkshares in Berkshire county Massachuttes. These are traded by over 400 merchants around the region. Currently their value is pegged to US dollars but it has been suggested to peg their value to a basket of local goods, further isolating them from the non-local economy.

Other local currencies include Baybucks (San Francisco), Aloha Hours (Hawaii), and Clearwater Hours (Tampa Bay) among many others. Modern local currencies are popping up outside the US. Barcelona, Spain is the titular capital of the Catolonia region. Their local currency is for commerce, and at least partial payment of wages and salaries of municipal employees. A number of other cites in western Europe are experimenting with local currencies.

Economists are generally much less sanguine about the significance of using local money at least compared to the proponents. One of the stronger arguments against local money is it doesn’t seem to persist, as many roll out and are in use for a few months to years, then fade out of existence. There are albeit small but real costs with creating and maintaining an alternate currency, thus creating a penalty for both buyers and sellers. Costs of goods that benefit from economies of scale can be higher if required to be produced with the local (small) economy.

The strongest argument against local money is that no community has ever tried to completely isolate its commerce from outside money. That kind of isolation would be a return to a sort of archaic tribalism. Evidence for economic value may be lacking but there still remains a human value at least in the eyes of Sociologists . Their position is that local money produces a sense of community and neighborhood ties. Conversely, local currencies seem to do best where these qualities already exist.