The Allure of Local Currency – Paper, Coin and Digital

By Jeffrey Riecke and Sarah Samuels

Did you know that there are over 100 local currencies in the United States alone? We didn’t either until we came across the Guardian article “Could community currencies produce a more sustainable financial system?,” which identifies how local currencies could help boost SME growth and lead to more economically and environmentally sustainable communities.

Originally published on

Local currencies are fun. They help convey a sense of community. Trying to support sustainable local economies is great, of course, but how impactful are these systems actually?

First, some background on these currencies, using a close-to-home example. Both of us are staunch proponents of supporting local businesses and community development, so we were quite surprised to learn that our very own city of Washington, D.C. has a local currency called Potomacs. Our local currency began in 2009 through the efforts of a community development organization called Ecolocity. The notes depict historical natives of DC, Maryland, and Virginia. The one-note has a picture of singer/songwriter Marvin Gaye, one of DC’s best-known artists. Bestowing local flair to community currencies by incorporating history and culture is common.

If we were so inclined, we could take our dollars to the Greater Washington Exchange and convert them to Potomacs at their designated rate, which is 95 cents on the dollar. One might ask why on earth would any sane individual trade a one dollar bill for 95 cents only to be left with limited options on where to actually spend the money. The short answer is that businesses who accept the Potomac offer a 5 percent discount to customers who purchase goods using the local money. So technically, by opting in, you wouldn’t be losing anything, except convenience.

The concept is that as a customer, you spend your money at local businesses or businesses that are willing to spend their money locally. And as a business, you spend your money at other businesses that are either local or spending locally. Together, local businesses are supported, which is good for communities, and supply chains are shortened, which is good for the environment. Not too complicated.

As for actual impact? First off, that depends on uptake. In the case of the Potomacs, there hasn’t been much. So little so that it’s tough to find any information on them. As of a few years ago there were reportedly only ten businesses that accepted them and about 1,400 notes in circulation.

However, there is substantial evidence that community currency with enough scale can generate enthusiasm for community development. With the Brixton Pound in the U.K., for example, there are over 250 businesses that accept the currency and about B£ 100,000 in circulation. The local mayor’s salary is paid in Brixton Pounds. Research from the New Economics Foundation indicates that money spent with independent businesses circulates within the local economy three times longer than when spent at a chain store. In theory, local currency can also help protect communities from national fiscal fluctuations and offer small businesses a marketing advantage over the Walmarts of the world.

Along with physical notes that reflect their unique cultures, local currencies are also exploring digital finance platforms. One can send Brixton Pounds using mobile text messaging, which operates like SMS mobile money services and has been adopted by about 1,300 people.

How could all this apply to the work we do at the Center for Financial inclusion? Could community currency play a part in getting us closer to a financially inclusive world, or is it just another developed world trend being used to block multinational corporations and promote local coffee shops and boutiques? This remains to be seen.

Since this topic is new to us we decided to ask Beth Rhyne, the Managing Director of CFI how she thought local currency could advance financial inclusion. She too was interested in the topic and not completely aware of the intricacies, but supported this idea in saying, “Local currency is basically a gimmick, but it’s a fun gimmick that reminds people to value their communities more actively. In that sense, it’s a good example of behavioral economics at work.”

From the Information Age…

Then in the 1980s, we entered the information age. In 1981, the IBM XT computer was released to the public. Michael Linton from Vancouver Island, Canada, who formerly worked in the computer field in the 1970s, built an accounting database. In 1982, the Local Exchange Trading System was introduced, and laid the foundation for a Mutual Credit community currency system. Whereas local currency systems developed as a natural response to economic crises in the dominant economy, the LETS developed as an intentional response to a critique of theconventional economy, and was designed to be in contrast to it. In designing the LETS, Linton sought to separate the contradictory role of conventional money as a store of value and a medium of exchange into separate parts. He saw money as “an information system for recording human effort”, and saw no difference between money mediating an exchange, and inches mediating the length of a piece of wood. Using the analogy of a home builder, what if the home builder were to go to the Building Supply Store, only to be told that he could not have any wood because there were not enough inches to measure them with? If the materials and human resources are in place, why do we accept that there is not enough money to move them? Money, then is simply information and need not also represent a store of value at the same time. Thus, as all information could be kept on the computer, it did not have to be printed on paper in the form of a note. If money is simply information, then it need never be scarce. That’s not to say that the supply is unlimited, it certain is limited by various realities. However, it is always there when needed. The responsibility for maintaining the value of the money was given to the person who issued it. Thus, LETS currency is identified as “personal money”

Rather than seeing the LETS as an alternative, Linton saw the LETS as a parallel economy, like a lever for switching the train track of the conventional economy towards a better destination. Understanding that market mechanisms are efficient, and that efficiency is often a good thing, he sought to introduce cooperativism into marketoriented economic activity. As the LETS system was simply recording the transactions and keeping the accounts, and was not actually issuing the currency or controlling it in any way, Linton designed the system to be interestfree. In that way, the member was responsible for their use of the system, and the system simply facilitated that use. The fact that the LETS currency is always sufficient in supply, that it remains within the locality or community into which it is issued, that it is issued by the members themselves and that no-interest is charged on it, it complements perfectly what the conventional economy is lacking. In Toronto, a unique approach to non-profit organization fundraising is paying off big dividends. The Toronto Dollar is a currency that circulate, for its test period, within the St. Lawrence Market. People can increase their contribution to non-profits by exchanging their Canadian Dollars for Toronto Dollars. Businesses in the market accept Toronto Dollars and can cash them in for 90% of their value, effectively giving 10% of their sales to non-profit organizations. Plus, the Toronto Dollar has an expiry date, and thus any other Toronto Dollars that were not spent mean a full contribution to the non-profit organizations.

...To the Global South In 1994, the Tianguis Tlaloc, the first modernstyle community currency system was started in the Mezquital Valley in Mexico’s Oaxaca state. Although it came at the same time as the Zapatista Rebellion in neighbouring Chiapas and had to be continued, the program was restarted in Mexico City in 1995 and has been spreading throughout the country since. The state government of Tlaxcala has become involved to support the program as a poverty alleviation measure. In 1995, a group of Argentinian environmentalists held a backyard garage sale. However, this was no ordinary flea market. Each person brought what they had to sell, and received tickets representing money. They used these tickets to mediate barter exchange, and was a great success. The Global Exchange Network (RGT) blossomed, and has now spread nationwide to become the largest national community currency network in the world, with 500 systems, 500,000 members and several million US dollars in circulation each year. The national government has recently signed an agreement with the Global Exchange Network to facilitate a cooperative relationship.

A number of Argentina’s Provinces also had experience with issuing their own currency. When the national government was unable to transfer funds to the provinces, they had no money to pay their employees with. So, rather than waiting, they issued their own “DebtCancelling Bonds”, government bonds issued in the form of currency units equivalent to the Argentine Peso. Economic research showed that when these currencies circulated, inflation in these provinces actually declined, compared to other areas in Argentina. The Global Exchange Network model is now spreading throughout South and Central America, with systems in Uruguay, Brazil, Chile, Peru, and Colombia, with projects underway in El Salvador and elsewhere, opening the way to becoming the first international interestfree exchange system as a response to the World Trade Organization and the deleterious effects of debtbased global exchange. In 1997, a member of the French LETS returned to his homeland of Senegal to start a community currency system there. Today, the Doole (meaning “strength of unity”) is operating in many of Dakar’s districts, and in other communities in the country. A Cooperative Business where the system’s members can sell their goods, a School and Training Center where new skills can be learned in a guild manner, community projects and a weekly public market are the primary activities of the system. Doole currency, called “Bons”, are denominated in hours of time with a corresponding West African Franc and US Dollar value.