Virtual Money, Real Recession
Local currency thrives in hard times.
Local currencies aren't a new phenomenon, but, in desperate economic times, they often find an audience. During the Great Depression, many communities relied on their own bills. We're not in that situation now -- the US dollar is still a global benchmark -- but there are a few dozen active local currencies in this country. Two neighborhoods in Milwaukee are the newest ones to consider it: Residents of Riverwest and East Side are scheduled to meet today to discuss printing their own money.
The goal behind local currencies is not to replace the US dollar, but to complement it. They're meant to encourage local spending in neighborhood stores and businesses, rather than big-box retailers and chains.
Sura Faraj, a community organizer helping to spearhead the Milwaukee plan, told the Chicago Tribune: "They can't spend it at the Wal-Mart (WMT) or the Home Depot (HD), but they can spend it at their local hardware store or their local grocery store."
Faraj should know that the shelf life for most currency schemes is only a few years before collapsing, according to Ed Collom, a sociology professor at the University of Southern Maine. The ones that have prospered are in places that already have liberal, middle-class communities, instead of beaten-down Rust Belt cities whose core industries have been hurt by globalization, and would conceivably benefit from local business growth.
The Ithaca Hours made their debut in 1991; it is the oldest and largest active local currency. The Hour, according to its website, is money "based on sharing, not scarcity. You make money just by joining. Then you have hundreds of prospective places to spend it, and hundreds of prospective customers who want to do business with you."
A business that agrees to take Hours pays $10 to join a directory and will receive 2 Hours in return (worth $20). Hundreds of businesses in Ithaca participate -- they can decide when and how many Hours they will accept -- from carpenters to lawyers to restaurants. Businesses or individuals can trade in their Hours for greenbacks at local banks, but at a small discount, thus encouraging residents to spend them in the local economy. This is the basis for all local currencies.
In Berkshire, for the last 2 years, people can walk into a half-dozen banks and exchange federal money for BerkShares: 11 for $10. Consumers benefit from using them by gaining a 10% shopping discount. The assumption is that merchants will absorb the 10% discount, then use those BerkShares to pay their own bills.
All of this is legal, as long as communities don't produce coins, or print bills that resemble greenbacks. The BerkShares don't have dead presidents on them: Instead, Herman Melville graces the twenties; Normal Rockwell, the fifties.
The reason the federal government tolerates local currencies is because they are known to be ineffectual. They don't compete with the Federal Reserve. Only money put into existence by the Fed is recognized as legal tender, and only that can be used to pay taxes.
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