Community Currency (what does everyone think)

[BayCityProgressive]

http://en.wikipedia.org/wiki/Community_currency

I have read a little about communitu currency and I can see a lot of potential here. Couldn't this really help in economically depressed areas here in the US?

[AndyTiedye]

1. Smells a Bit Much Like Being Paid In "Scrip" Good Only @ the Company Store

It doesn't have to be that way, but one would need to be careful
to keep it from turning into something like that.

Who issues the "community currency" and to whom?
Who decides how much of it there should be?

What do you do if you're being paid in local currency and
you really need something, like medicine, that must be
paid for in hard currency because it cannot be produced locally
and the pharmacist must pay for it in hard currency himself.

[BayCityProgressive]

2. well

from my understanding it is used as a form of trade as an alternative to regular money. For example, a local construction worker doesn't have health insurace...he fixes a dentists roof and the dentist then gives him a discount or gives him care for free. whatever arangement they work out. Basically have a community magazine or website listing professions and what they are willing to barter.

[Selatius]

4. You're basically talking about social contracts at this point

I personally call them "social contracts" because I haven't seen anybody else call it anything specific.

If a mechanic repairs the machines of a farmer who needs them to grow food, the farmer could repay the debt in the form of food for as long as the mechanic's "contract" with the farmer is still in effect.

This happened quite often in many parts of Spain during the Spanish Revolution. The libertarian socialists experimented with these concepts heavily before finally being crushed by communist and fascist forces.

In some places money fell out of use completely as some local economies were run on these social contracts between people. It could happen on larger scales between syndicates of workers. For example, Syndicate Mechanic negotiates a deal with Syndicate Farmer where the machines are kept operational in exchange for a supply of food for as long as the contract remains in effect.

Both parties benefit from the arrangement. Now imagine several dozen syndicates having the power to form relationships with each other in a fair sized community. You just created an economy that comes closer to economic democracy than the one you currently exist in.

Such a notion, though, challenges directly the current order of things, and those who benefit from the current order would resist violently to such a reorganization of economic power.

[Dead_Parrot]

3. They have limitations...

There's a local scheme I tangled with for a while, but at the end of the day you'll eventually have to buy something in 'real' dollars, and waving around a fist-full of onmi-groats just won't impress.

More useful is a market place where you can barter, rather than sticking to greenbacks: a nominal price may be specified, but most transactions are of the "I'll trade you this leg of mutton for that used ironing board" type.

[German-Lefty]

10. Barter sucks

The whole point of money is to avoid having to create closed circles of barter. Sure 3 guys can work out a deal where they all do something for each other. With N people all having to know about each other you wind up with N^2 wasted time organizing a deal. Actually the possible deals probably grows something like O(2^N), which is insanely expensive.

Money is great. Even when the government screws it up, people developed their own money grain, gold, or packs of cigarettes. Germany has been there. When there isn't a reliable currency the market breaks down, separation of labor breaks down, and things get way less efficient. People grow their own food and form little coops. It's all great hippie fun, good for the environment, and whatever. It's bad for your standard of living.

[Igel]

5. Instrodi is the S. American branch;

for the actual Netherlands branch, http://www.strohalm.net/en/site.php It seems.

I'm also unclear on what an 'economically cool' area is.

"Local currencies also tend to operate in relatively small geographic regions and encourage recycling, reducing the amount of carbon emmission from the transportation and manufacture of goods."
I'm not sure 'recycling' is the right word. Perhaps "conservation"?

Not trust-engendering. I don't trust this article. It's not worked out, and doesn't give enough info for chewing on. Neither do the links, as far as I can tell.

http://en.wikipedia.org/wiki/Complementary_currency seems to be a more coherent entry. Even then, some of the links seem to refer to things that don't follow the core meaning of the term.

[Sammy Pepys]

6. I can't see how it would help depressed areas.

If you have a specific local currency for an area/region, you add another tick in the cost of doing business with people that don't use that currency, and expanding beyond ones own region is a big part of growing an economy.

Any business you did with someone outside of your region (let's call the money Ducats and the region Ducatville) would properly require ducats being converted back into dollars. Ducatville, being an economically depressed region, probably doesn't have much of an infrastructure or much in the way of industry. They're going to need to deal with dollar-denominated regions and probably be at a disadvantage.

If a local currency was backed by gold, you might have something there...but how much gold can an economically depressed region get a hold of to back it?

[depakid]

7. Here's a snippet about Burlington Bread

"That's the local currency that a few people developed in Burlington six or seven years ago—one of several thousand such currencies that have sprung up around the world. But like most of the American experiments, Burlington Bread has never broken out of the backrub and vegan-restaurant ghetto; it's basically a medium of exchange between earnest masseuses. Now, though, locals led by University of Vermont economics professor Bob Costanza are trying to make something more of it. Costanza, one of the founders of ecological economics, has proposed having the city issue Bread.

If they could use the currency to pay some municipal expenses, and in turn accept it for taxes and fees, then it would stand a chance of gaining a real foothold. In time, say Costanza's colleagues, 20 percent of Burlington's economy might use Bread instead of greenbacks—which, because it would give people money that only had value in the metro area, would automatically make local goods more competitive. Move that produce number from 8 percent to, say, 28 percent. Suddenly the town is a lot better situated for the post-oil world. And suddenly the town is not just a collection of unrelated individuals living in a vast planetary economy, but a real community in a real place filled with people who depend on one another in real ways.

Right now organizers are trying to persuade some of the city's many vendors to accept Bread in payment for their services—that's the test the city's mayor, Peter Clavelle, will use to decide if the project goes ahead or not. "It's a classic chicken-and-egg problem," says Ed Antczak of the city's Community and Economic Development Office. "The onus is on the local-currency people to prove over the next twelve months that there are vendors willing to take it from the city. It's like, 'Bring me the broomstick of the Witch of the West.' Because otherwise it's a little out there for the city to get involved."

http://www.orionsociety.org/pages/om/05-6om/McKibben.html

[nick303]

8. Sounds good and fuzzy..

but doesn't hold up well when viewed under the lens of math and economics.

[depakid]

15. Care to eloborate?

Seems to me that Dr. Robert Costanza who was cited above is an eminent and extremely well published economist.

[dcfirefighter]

9. 'Scrip' Is great

It just needs to be fungible.
If there is a universal, even a locally universal, use for the scrip, it will be accepted universally (or at least locally universally).
The locally universal use for a given community that comes to mind is the payment of debts to that community: payment of local taxes. If everyone has to pay taxes, everyone will have a use for that scrip.

The major benefit of scrip is that it is created without debt; there is no loan associated with it. All the world's currencies are created by banking. A person makes a bank deposit and the bank loans his money out at interest: what was once in the hand of the depositor is now in two places, the depositor's account and the borower's hand. Banks have a reserve requirement, they must keep ~10% of deposits on hand as cash. The other 90% gets loaned out, and usually re-deposited, and re-lent. Such a system causes cash to be multiplied by 1/10%, or 10x. This bank created money is lent, at interest, allowing these banks to profit from the creation of money. It also causes a problem because the interest to pay the loan on this newly created money has not been created, which causes a situation of monetary musical chairs.

Furthermore, even the cash (but oddly not the coin) is created by private Banks.

Coin is minted, at a cost several cents on the face dollar, and put into circulation.

A system WOULD work for the US, with smaller analogs for local areas, where the (hopefully representative) government spends currency into circulation, with the promise to accept it as payment for debts to the government (taxes). This would be a better system than we have in place now. Inflation & deflation could be controlled by limiting the quantity printed & spent each year. However, we'd still have the problem of fractional reserve banking. If all demand deposits were required to have full cash backing, i.e. if banks acted as vaults rather than brokers, such a system of spending into circulation would do three wonderful things: 1) it would generate ~$300B in federal revenue (which used to be our annual deficit) each year; 2) it would pay off the federal debt; and 3) it would eliminate a government-granted privilege to banks, and thus relatively benefit people vs. corporations. As for the debt: when fractional-reserve banking is abolished, 90% of our money supply will dissappear. This money would have to be replaced, so that commerce could be carried on. The replacement money would be ~$8Trillion in newly printed cash.

Such a system would not be entirely without costs. Bank deposits could not be used for lending - lending would have to occur solely with investment accounts. While this would dry up one source of lending, the elimination of ~$400B of federal borrowing tends to even this account. Also, without being able to lend deposits, banks would cease paying interest on bank deposits; in fact, they'd probably charge a user fee for securing your deposit. This would lead many people to shift a portion of their deposits to investments - i.e. more money would be invested in relatively 'safe' lending investments like bonds and mortgages.

A local version of such a system could occur if a town-sized entity issued scrip and accepted it as payment for taxes. I would suggest that initially, such issues were limited in quantity, such that most taxes had to be paid in national currency. As the scrip gained acceptance, more and more could be issued, until an exchange rate could be established. At this point, the scrip issues should be managed to maintain a 1:1 exchange ratio with the national currency.

[German-Lefty]

11. Interesting, but I don't see the point

If it's used for tax evasion, maybe could help out a poor community.

If the goal is to help a local community by setting up a trade barrier with the outside world, I think it'll hurt more than it'll help.

A small community does pay for its currency. First it has to buy the stuff from the outside; then it has to buy more as inflation eats it up. I could see a community creating a locked currency and investing the major currency in bonds. Doing so would basically cancel out the money the big country gets from the fiat currency in this area. Every year the government prints more money, some of which your town buys. It's a small tax, which you could avoid with such a plan. It seems like a zero sum game though. The gain for the community would be felt in the national debt. So it'd be simpler just to have the national government give them some money.

Maybe you could setup the currency to have it's own monetary policy tunned to the needs of the small community. Doing so would seem to prevent a locked exchange rate with other currencies.

[Warpy]

12. It's just a way of widening a local barter system

When I lived on Cape Cod in the winter years ago, the whole place shifted to barter. With the tourists gone, few people had money coming in. If you needed something, you just told a neighbor. Word would get around, and somebody would come up with it. At some point, you'd have to repay the effort in time or material things.

This is just a way of codifying barter's worth, which is how money got started in the first place.

The funny thing is that when people agree to exchange time or things, they each feel like they've come out ahead. When they do it for money, both feel a little cheated. It's an odd phenomenon.

[German-Lefty]

13. I think I figured out how it might work!!!!!!

This is interesting. Classical econ would say if Cape Cod had an outflow of money, that prices would drop so that eventually you'd have a new steady state where far less was imported because there's hardly and money for it, more is exported because prices/wages dropped in the area, and more would be produced locally because only the cheap goods/services of Cape Cod could be afforded by the locals. Exports=Imports.

"In the long run we're all dead." - Keynes

Since Keynes we know that wages and even more so it seems prices don't move fast enough. So you get the unemployment of people and capital. Perhaps a local currency can be used to allow the local prices to stay nominally at the same level nominally, by making sure the same amount of money stays nominally.

Thought Experiment: So let's say Cape Cod has 100M$ in money supply (I guess you'd include demand deposits). And economic catastrophe happens and it has no way of bringing in money. So they switch in the money for the new currency the Cape Cod Cod CCC. The community takes the dollars and invests them (or pays back debt). Now what kind of a deal could you make to where people would be willing to buy the Cod. Here's an idea discount it some. The town buys 20 year USD bonds and promises the CCC can be traded back for USD in 20 years with the interest minus what was lost on the discount. Let's say the money in USD bonds pay out 5% so the money grows 2.65, over the 20 years. You might give people half now and half later. So you can trade 1 USD in for 1.6 CCC now. In 20 years each 1 CCC will give you back 1.6 USD. The local law says that 1 CCC must be accepted everywhere the same as a 1 USD. If they can convince people to trade in 60% of their cash, even if all the rest of the dollars leave the community they'll still have the same 100M CCC circulating in the community so prices/wages for local goods could stay the same, without causing unemployment or a return to barter.

I'm not sure I've convinced myself, but it seems like it'd work. The free market exchange rate of USD to CCC would reflect the economic viability of the community and their trade surplus/deficit.


The funny thing is that when people agree to exchange time or things, they each feel like they've come out ahead. When they do it for money, both feel a little cheated. It's an odd phenomenon.
That's because the prices are either too high (they should drop as the money supply drops=deflation), or just completely out of whack because nobody knows where they should be. They'd be willing to accept less money for their time, if they knew they could buy the next guy's time for less money. They don't know that for sure. So there's a bunch of bargaining and uncertainty. Both sides feel they might be getting cheated. They don't know.

[dcfirefighter]

14. How about if the Cape Codders

Were in this position:
The world, national, and local economies tank, and virtually no one outside of Cape Cod visits and spends money there, nor do they purchase goods & services from Cape Cod (I think this is the same as your hypothetical situation). The Cape Codders have USD100M on hand, as you mentioned. As part of the economic problems, the USDollar has lost much of it's value, and buys very little in the world market. The Codders also have plenty of idle labor, and some idle built capital - idle boatyards, fishing boats, canneries, sailmakers, ropewalks, hotels, bed & breakfastes, machine shops, etc.

One possible scenario is that people with whatever foreign currency was strongest would buy up land and capital in Cape Cod, at a sharp discount, and hope for better times - in other words, speculate. This of course would put the price of land and capital out of reach of the Codders. A similar situation could occur with banks repossessing property, and reselling them to those wealthiest enough to weather the economic storm. This last twist could occur even in some theoretical situation that literally cut Cape Cod off from the rest of the world.

Another possible scenario is that the economic catastrophe is truly global, and there's no one to come in and buy up things on the cheap. In this case, we merely have to find a way to make the latent demand of the Codders realizable, as they certainly want things, but have no valuable money with which to buy them. They could use what Dollars they have, but as the dollar tanks, and prices rise, they'd wind up bleeding their dollars externally, on products that aren't available locally, and have little left for internal commerce.

A rent-based money system could prevent or correct both of these problems. To allow the residents to meet demand, they could be issued scrip: say 1000 CCCs each. Of course, merely issuing them, gives them no value, and no one would have an incentive to accept them. To make them valuable, the Codders could assess taxes (or if you prefer, user fees, for the public's recognition of monopolistic rights). An income tax wouldn't create much demand - people would simply barter, or loaf. A sales tax would have similar problems. A tax on buildings, or machines, or such things would also be counter productive - certainly few people would then have a reason to build or manufacture. However, if certain 'valuable' things are taxed, things that aren't the product of industrious behavior, but rather the products of nature and society in general, there is no disincentive to produce. The simplest of these would be a fee for recognizing landed property rights.

This fee eliminates the speculative value of land, correcting the first problem. (Speculation in reproduceable goods is good - it encourages production and shifts risk). This fee, applying to all land in Cape Cod, also creates a demand for CCC's - there is no way to avoid it, at least not in Cape Cod. Rather than pricing people out of land, by eliminating it's speculative value, it makes it more affordable, though people would have no incentive to hold more than they could use productively.

If all 'economic' rents were identified: land titles, fishing licenses, taxi medallions, utility monopolies, patents, Banking privileges, etc. and valuated, the financial flows to these monopolies could be identified and steered to the public good. Many of these privileges could be periodically auctioned, setting the fair market rate. Perhaps, the previous holder would have the right of final refusal, in order to maintain a use for whatever improvements he's made, otherwise, fees would have to be established by assessment.

While this form of 'taxation' or 'rent-sharing' could be done with existing national currency, the Cape Codders have the advantage of controlling their own money supply. Rather than the value of their fixed stock of USDollars dwindling away with inflation, they can maintain an increasing stock - enough to fix the price of a basket of goods or pegged to the value of the national currency. Either way, the Cape Cod local government gets to print new CCCs every year - and just spend it into circulation (or issue it as dividends).

So, under this system, while the rest of the nation struggles under a depression, the Codders have ample currency, ample realizable demand, and ample means of production.

[German-Lefty]

16. Global vs. Local

The world, national, and local economies tank...
In this case I don't think a local currency can help. You can expect the FED/Congress to try to give all kinds of fiscal and monetary stimulus at least if the condition is expected to be temporally. Let's say the OIL runs out. I don't know if it makes more sense building a fleet of sailboats to go fishing off Cape Cod or a bunch of windmills in Dakota. People and capital will move around the country to try to make the best of the situation.

One possible scenario is that people with whatever foreign currency was strongest would buy up land and capital in Cape Cod, at a sharp discount, and hope for better times - in other words, speculate. This of course would put the price of land and capital out of reach of the Codders.
Sure there would be some winners out there and they might be able to buy up property. Most of the property in Cape Cod is probably owned by locals. So when the property values rise, they get most of the benefit. There will be losers: people paying rent. Anyway that scenario doesn't make much sense in a recession unless Cape Cod is somehow special. It makes more sense in local decline. In such times it makes sense to just sell your house to a retiree and move somewhere with better prospects. The retiree's pension gets pumped into the local economy.

Another possible scenario is that the economic catastrophe is truly global, and there's no one to come in and buy up things on the cheap. In this case, we merely have to find a way to make the latent demand of the Codders realizable, as they certainly want things, but have no valuable money with which to buy them. They could use what Dollars they have, but as the dollar tanks, and prices rise, they'd wind up bleeding their dollars externally, on products that aren't available locally, and have little left for internal commerce.
Forget about money in this situation. If there's a fundamental problem in the global economy, the money supply is irrelevant the economy should slow down. Money doesn't/shouldn't have a large market value compared to the rest of the assets. In the US M0=1.4T$ and GDP=12T$ (a dollar is spent ~10 times a year) and capital is many times more than that. Money is just the hydraulic fluid in a giant machine. It's got to be there, but it's only a small bit of the machine.


In the long run Cape Cod's imports should equal exports (ignore investment). The problem with a single currency (or gold) is that if there's a local problem, the imports keep coming in for a while even though exports have stopped. The obvious break on that is the community running out of money (or gold or whatever) to buy imports. If this happens slowly, prices/salaries adjust to where local goods are way more competitive. I could see those prices not adjusting quickly and stably in a local recession, and then the markets not clearing.

I agree property taxes make the most sense for small communities. I like them in general, but all taxes hurt. It's questionable if you should raise taxes in such a recession to make up for lost local income. Instead you might try paying the public servants in CCC.

[dcfirefighter]

17. My take on Local v Global

Global depression, no local currency:
Cape Cod suffers with the rest of them, until the depression ends. Land, Labor, and Capital are idle.

Global depression, local currency based on ground rents:
Cape Cod maintains a strong, but limited economy. Imports would be very expensive, but local goods and services would be freely traded within the community, employing the local populace. Local Land, Labor, and Capital are employed, but suffer due to lack of trade with non-local partners.

Local depression, no local currency:
External wealth traded for local assets. Cape Codders become renters, and what little local productivity there is leaves to pad the accounts of external investors. Land is purchased for speculation, Capital and Labor are idle.

Local depression, local currency based on ground rents:
Local goods & services are relatively inexpensive within the community, people are employed providing these goods and services to each other. Imports are still relatively expensive, but all local productivity is enjoyed locally. Any external investors would have to bring real capital and pay ground rents in local currency - requiring an exchange of national currency for local currency, infusing national currency into the local economy such that imports could be afforded. Land, Labor, and Capital are employed and generally locally owned, and benefit from trade with external partners. Depressed local prices are quickly taken advantage of by external partners, leading to high employment of land, labor, and capital.

I'm no advocate of gold as currency, and I think it's important to note that the local currency I recommend is used to pay local ground rents (land value tax or property tax with exempt improvements). The local community then benefits multi-fold: when money is created to maintain stable prices, the community gets to spend the money, and the new money gets spent locally; Also, requiring public collection of ground-rents encourages highest & best use of land, and gives a ready demand for the local currency.

As for all taxes being harmful, clearly, I disagree. Taxes against Land are not passed on in consumer prices - there is no deadweight loss - there is no disincentive to produce. The only incentive is to use such limited (and common?) resources efficiently. The majority of production in the developed world is labor-efficient and land-inefficient. Such taxes against land would provide a financial incentive to become land-efficient, which would have the net effect of freeing up more land, actually decreasing the acquisition price on land for new firms. If revenue from such taxes were used to decrease taxation on labor & capital, production would shift to become relatively more land-efficient, while employing more labor & capital - which allows those factors to enjoy better wages and interest.