The Value of Local Currency

The value of money originates with its utility in facilitating barter, and has grown to include its convenience in conserving wealth. Guaranteeing the value of currency with valuable resources, such as silver or gold, may also seem fundamental to our idea of the value of money, but in fact precious metals were first employed in the minting of coins because the value of the metal protected against counterfeiting. Advances in printing and minting techniques have proven sufficient to deter forgery, and so most currency today has value simply by the tacit agreement of those using it. This "fiat" currency is far more practical than resource-backed currency because every marketplace can afford it - no stockpile of silver or gold is necessary.

Just as with global money today, community-based currencies can obtain value entirely from the willingness of people to trade with them. However, new local currencies that have no intrinsic value can seem risky, so it's useful for individuals to understand some of the many other advantages of community currencies to promote that willingness.

Local currency, aka scrip, is sometimes introduced in communities when global cash is scarce* because it can only recirculate locally, and this delivers increased business to locally based enterprises and the myriad benefits that proceed from that. By the same measure, non-local merchants are limited in their ability to trade with scrip because it can only be spent locally, and so local money systems begin to create locally controlled marketplaces. Here, partially insulated from global competition, new local enterprises have a chance for a foothold, and so these genuine local marketplaces can see continual growth, building resilient communities.

To compete in the global marketplace, global traders are generally compelled to exploit human and other natural resources, and to abandon communities when those resources are exhausted. However, prosperous communities have the power to protect their local resources from irresponsible exploitation. Thus, using local and global currency together allows local marketplaces to function complementarily with the global marketplace rather than serving as its prey, and so permits communities to achieve sustainable prosperity.

Conferring some of the value of an essential commodity onto local money by discounting the commodity when purchased with local money gives scrip a limited but definite preference over global currency.

A Preferred Local Currency

In a general sense, the value of money proceeds from its scarcity: The less one has, the more valuable it is. Accordingly, when global currency is scarce, community currencies can sometimes appear to fill the gap, rapidly creating local marketplaces. However, global currency is generally preferred in trade because it can be spent more easily on non-local goods and services, so that local-currency systems have always withered as global currency returned. Consequently, keeping community currency systems alive where global currency is available has required that the volume of scrip circulating be kept low to curtail the depreciation of its value, limiting local-money systems in size and strength to second-class marketplaces that are unable to empower their communities to effectively resist the exploitation of the global marketplace.

In fact, because global currency is generally preferred to local money, most community-currency systems today labor under the misconception that local currency is a complex and enigmatic entity requiring sophisticated management techniques. But the reality is that prosperous marketplaces always rapidly emerge whenever money is plentiful - provided that people want the money!

One way to create such a preference for local currency is to establish a significant discount (e.g. 50%) for an essential commodity - such as water or electricity - when purchased with scrip either directly or through taxes. This discounting gives local currency greater value than global currency. This approach also keeps the added value stable regardless of fluctuations in the availability and price of the discounted commodity, and - unlike currencies backed by resources - it requires no reserves to guarantee that worth. Combining the value of an essential commodity with the natural advantages of local money in this manner gives scrip a limited but definite preference over global currency.

If the community does not already control the commodity being discounted, then this discount must be established by law so that suppliers must comply. Suppliers, in turn, may adjust their prices to compensate, however the discount remains significant regardless of how much trade is accomplished using local money. For example, if a provider had charged $1 per unit and now sells half its goods at a 50% discount, then raising the price to $1.33, discounted 50% to 67¢, recovers losses while still giving a 33% savings to local consumers. When all trade in the commodity is accomplished with scrip, then its local-money price returns to $1. However, the global-money price would then be $2, thus the advantage for local currency increases with its increased use, encouraging continual growth of the local-money system. Of course, communities can also permit suppliers to limit the percentage of scrip they accept on purchases, and so assure that suppliers have sufficient global currency to meet their non-local obligations.

These focused discounts give an obvious and substantial advantage to local suppliers of the chosen commodity because local suppliers have fewer limits on their ability to trade with scrip. Thus, this approach tends to favor community control of both essential resources and the local marketplace. The most essential commodity - and most threatened - is clean water, and so a WaterMoney system may be the best strategy where trade in water is a significant economic activity. But in some communities water may be so abundant as to be free, or so scarce as to be entirely imported, and in these marketplaces FoodMoney then seems the most obvious choice. However, to succeed, the strategy must lead the community to sufficient autonomy to resist the exploitation of the global marketplace, which requires that the community substantially control all of its resources. In this regard, a WaterMoney system greatly benefits the local control of food by effectively subsidizing local food production and processing, while FoodMoney may be unattractive to people who prefer non-local foods, and so encourage neither the circulation of the local currency nor control of food resources. Ultimately, the strongest local communities/economies are based on local food because caring for how this commodity is produced is essential to our survival, but most of us have slipped a long way from there and getting started on the road back necessitates working with what we have.

Similarly, trade in water is a major economic activity in many developing economies, but it's become a relatively minor part of most developed economies. We are witnessing a rapid end to that now because of the exploitive nature of the global economy, but recovering sustainable prosperity before we are hostage to the water Enrons requires powerful strategies that will work now in developed economies. Discounting taxes when paid with scrip - TaxMoney - reduces the local tax burden and requires that tax revenue is spent locally, and so this can be such a powerful strategy. The tax discount can be partly recouped through the growth in the local tax base that results, and the remainder can be offset by a general tax-hike that then shifts more of the tax burden to non-local businesses (such as big boxes) because they cannot easily use the scrip, and so further spurs the creation of local enterprises. And taxation is often the way communities take advantage of economy of scale to address essential needs, such as education, transportation, or safety services, so conferring some of the value of such services onto the community's currency necessitates their local control and the rapid creation of true local marketplaces.

Perhaps the second-greatest obstacle to the development of local-currency systems, after the greater utility of global currency, is that in the most developed regions many people do not work near where they live and/or don't produce goods and services for local consumption. These people have no obvious way to participate in a local marketplace, and perhaps little motivation. Consequently, devising means to put local currency in their hands is hampered by the need to avoid flooding the system with excess scrip, since if they can spend it more easily than they can earn it, the scrip then bottlenecks with those who are truly active in the marketplace. SunMoney - based on locally produced energy - addresses this. With this approach, which is perhaps the most powerful for developed economies today because of the rising price of energy, the region's electricity provider is required to accept scrip for a percentage of their product and at a discount. The provider can then use the local currency to purchase energy from individuals and communities - applying the same discount and percentage - and this finances the development of local energy resources. For example, the local money paid to individuals and groups can be spent locally, freeing their global currency to be used to acquire solar collectors or wind-powered generators. Conferring some of the value of energy onto scrip in this manner will build energy autonomy and produce active local marketplaces.

The Bottom Line

Although the key to protecting local resources from irresponsible exploitation is community prosperity, the challenge before us is not merely to enrich local merchants, but to understand that poverty is an inevitable result of competition in our global marketplace, where enriching one community impoverishes another. Thus, the challenge of this new century is to change our global economic system, from one that rewards irresponsibility to one that protects against it, and so generates the sustainable prosperity necessary to feed all of our children.

Using scrip and global currency complementarily promotes prosperity, diversity, and sustainability, but such use has been hampered by the greater utility of global currency. SunMoney can give community currencies the tangible advantage over global currency that's necessary to unleash the creative power of the free marketplace, building autonomous community marketplaces founded on the intrinsic worth of individuals and rooted in community control of vital local resources.

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"Independent wealth is an unsustainable dream - interdependent wealth is the dream of a sustainable world." Kevin Parcell