Sunday, August 12, 2018

Considering A Local Currency

                                                                                                written 4 Aug 2018
                                                                                               published 11 August 2018

            Money's function is facilitating commercial exchange within the community.  The abundance or scarcity of dollars, due to national or global events, can radically disrupt that function in our local economy.  Globalized finance has released an ocean of money, racing around the globe seeking the best fractional return on investment.  Money washes into a local or national economy, disrupting the previous economic stability, only to rush out again chasing new opportunities, leaving economic wreckage behind, as in the 1997 Asian financial crisis.
            No matter how money comes into our community, the longer it stays local, the more robust our economy.  It is well documented that shopping locally stimulates the local economy by slowing the "wealth leakage" rate.  A 2003 study by The Institute for Local Self-Reliance found that 55% of money spent at a local independent store immediately leaves, and the remaining 45% stays as secondary spending to support the local economy.  At a big box store, 86% leaves immediately, something to watch now that CostCo is open.  100% of online shopping leaves.  
            Some countries have made efforts to insulate their economy from such wealth leakage.  In 1936, responding to the Depression, Swiss businesses started the WIR Bank, as a credit alternative to the Swiss Franc.  This currency was not valid outside the country, so the wealth value in the system stayed in the national economy.  The intention was to increase sales and profits of the participating businesses through interest free credit, encouraging members to buy and sell within the group as much as possible.  Starting with 16 members, they had grown to 62,000 participating businesses by 2005. 
            Individual communities have established alternative currencies as well.  The oldest active system in the US is "Ithaca Hours", in Ithaca, New York, established in 1991, currently involving over 500 businesses.  Within the last 20 years, as the Transition movement has grown, more communities have begun to create alternative currencies to reduce wealth leakage, stimulate local shopping, and provide resilience to financial turbulence.  While many have failed, Wikipedia shows 20 local currencies still active in the US.  
            An alternative currency, Ukiah Hours, was proposed here around 2001, but seems to have died as a result of burnout of the core group.  When I lived in Port Townsend, Washington, the local currency effort was a time barter system, where members traded time at equal value.  Transactions were recorded digitally, and there was no physical currency.  The membership never got above 150, as most of the services offered for trade were peripheral to the core economic needs of the community.  While the Port Townsend Transition movement is still very active, the alternative currency effort seems to have died.  
            To be useful, an alternative currency should facilitate acquiring the basic needs of life in a community: water, food, power, and sanitation.  Imagine the City of Ukiah and the Ukiah Co-Op teaming up to establish a local currency which would be honored by these two initial participants.  The City provides water, sewer, trash disposal, and electricity, and the Co-Op provides food.  The unit of exchange could be pegged to a specific quantity of goods, say kilowatts and carrots, as a hedge against inflation.  Call it a Kilowatt-Carrot, or KC for short.  People could buy into the KC system, or, with recipient's approval, the City and the Co-Op could spend KC's into the economy as a credit for specific goods.  
            Even this little closed system would be viable, as it serves real needs. Local businesses would be encouraged to participate in this enforced local shopping, since the KC have zero wealth leakage.  Businesses could pay City taxes with KC's, and employees might take partial payment with KC's.  As with the Swiss WIR Bank, as more businesses participated in the KC system, they would have incentive to buy local themselves.  As more businesses participate, people living outside Ukiah would have reason to join as well, even if they don't get the primary City services.
            Obviously, there are a lot of details to cover before such a system could function, but the opportunity is there, and the fundamental need for economic resilience is going to get more important as the global debt bubble heads toward its logical conclusion.