economics transition towns wealth

Alternative currencies, and beyond

This is the week of the alternative currency, with the Stroud Pound launching at the weekend, and the Brixton Pound out today.

I’ve always liked banknotes, and subversion for that matter, so the idea of launching your own currency appeals to me. It was the first experiments in currency that drew my attention properly to the Transition Town movement, who are behind both this week’s efforts. I’m reading about money at the moment, trying to get my head around how it all works, but I have an inkling that these new currencies don’t quite go far enough just yet.

How does an alternative currency work? At its most basic level, it keeps money within the local economy by creating notes that can only be redeemed locally. Like a voucher that’ll get you 20p off your next purchase of Weetabix, it is a form of money with a specific purpose. So far, all the transition currencies have attempted to persuade local traders to use the currency, and then encouraged local shoppers to shop in those locally owned shops. Tesco, Boots, Blockbuster Video, and other major chains aren’t invited, because any money spent there immediately leaves the community, and vanishes into the big corporate coffers in London.

It is too early to tell really, whether the latest round of currency initiatives are working or not. Places like Totnes and Lewes have received plenty of publicity for theirs, but they may be serving the tourists more than the locals. It’s hard to know at this stage, and a currency needs to reach a certain size before it starts to work. Shops giving change in local money is one thing, but until they can pay staff, bills and suppliers, the currency hasn’t worked through the chain. It needs a broad base to have a real impact, otherwise those that receive the currency find there aren’t enough options to spend it, and they will simply exchange it for ‘real money’ at the first opportunity. This is fine for ‘complementary currencies’, but they could do more.

The transition currencies have so far been ‘alternatives’ rather than ‘new’ forms of money. With each one equivalent to a normal British pound, they function more like local loyalty schemes, and no new funds are created by them. It is possible to create new wealth through a currency, what is known as ‘credit money’ – bear with me, as this is where it gets complicated! Credit money is created when a company, government, or organisation issues currency against their future profits, a diversified form of loan. This generates cash in the short term, which can be invested and then paid back when the currency is redeemed, or circulated as ‘promissory notes’.

As a simple example, I read of a cafe that needed to move to a bigger premises, but couldn’t get a loan to do so. To raise the funds, they sold sandwich vouchers to their regular customers – buy a voucher now for 90p, and redeem them at £1 when you buy sandwiches in the new shop. By selling several thousand vouchers, they raised enough money to move. The customers got a discount on their future sandwiches, but what they were basically buying was a slice of the cafe’s loan, to be redeemed at a later date.

During recessions, cities have been known to pay their bills in public transport tokens, which then circulated as currency. In one famous example, a factory caught in cash-flow problems after a flood paid its staff in its own currency. Because the local town knew that the problem was temporary, and that the factory would be profitable again and be able to pay off the debt, the shops all accepted the currency and it saw the area through the aftermath of the disaster.

To come back to a transition context, what if a town could use the credit money principle to fund the transition to low-carbon? Imagine the transition town group working with the council. The council would print the currency, and pay its own bills and staff with it – perhaps paying 10% local currency and 90% sterling to start with so that nobody panics! That ten percent would be ‘new money’, a loan given to the council by the people of the town, which they would use to fund investment in efficiency measures, renewable energy, public transport, building cycle paths, and so on. Just as the first banknotes were redeemable in gold at the Bank of England, this currency would be redeemed by the council as payment for council tax. As the efficiency measures kicked in, the council’s costs would fall and they would easily be able to pay back anyone that wanted to redeem their notes. However, as they would also be accepted in local shops, at the cinema, on buses, and most places you could want to go, you probably wouldn’t want to trade them in.

It’s an exciting time in the world of new economics. It’s great to see some innovation and local initiative, and alternative currencies gaining greater understanding. I’m also excited about where they could go next, because in some ways we’re only just opening the door to a whole range of new forms of money.


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