hazel sheffield is a British multimedia journalist living in London. Most recently, she has been documenting alternative economies in the U.K. with a grant from the Friends Provident Foundation at farnearer.org.
Published September 23, 2019
Currency is a curious commodity. That Federal Reserve note in your pocket, better known as a dollar bill, might seem simply to be a medium of exchange for goods and services. But it is also a way to offer support to certain ideas, such as buying organic or fair trade, and to build collective faith in something that doesn’t exist, such as crowdfunding someone’s dream project. Collectively we can use this “spending power” to stop dollars flowing to multinational companies in faraway places and to pledge it instead to local businesses. Some advocates of spending locally have gone one step further to stop capital flight and turned to community currencies, which can only be spent within a certain geographical area, to keep dollars flowing within a community.
To be sure, the history of community currencies is punctuated by failures. Yet the architects of these alternative systems are still convinced their time is coming.
Not So Funny Money
The first community currency in the U.S. started with a samosa. It was 1991, and Paul Glover, a community activist and former professor at Temple University, had come up with an idea for a currency that would support local businesses in Ithaca, New York, during a recession — an idea based on plans for an alternative to the greenback during the Great Depression. He convinced Catherine Martinez, who ran a stall at the farmers market, to let him buy her pastry using “Ithaca Hours,” instead of dollars. For a time, Martinez could spend these Ithaca Hours in an expanding number of participating local businesses, including two local movie theatres, where the cleaner, Greg Spence Wolf, even agreed to have his salary paid in the currency. “History is made by public action like this,” Glover said. But public action didn’t sustain itself. When Glover moved to greener pastures — he was the Green Party’s candidate for governor of Pennsylvania in 2014 — Ithaca Hours fell out of use.
It’s not the first community currency to wither away. In British Columbia in the ’80s, for example, Michael Linton invented a local exchange system, or LETs. It was called green dollars and used as an adjunct to the Canadian dollar, mostly by a local dentist. Then the dentist moved away and LETs dwindled. In Yamato City, Japan, in 2002, 10,000 LOVES, a local value exchange system, were distributed to 90,000 people who were interested in earning the currency by volunteering and bringing their own bags to the supermarket. But not enough shops participated, and people had nowhere to spend their currency. LOVES failed.
Despite the many failures, advocates of community currencies believe they are needed. Scott Morris is the founder of Ithacash, a digital currency that briefly replaced Ithaca Hours between 2014 and 2016, before it migrated to software that was swiftly discontinued. “They fill a void,” says Morris, who now spends his time working for Qoin, a foundation for community currencies. First, Morris says, they redress the balance within extractive economies, where wealth always leaks upward and never comes back down. They can also enhance democracy at a time when people feel disenfranchised, he adds, by giving them the power to financially support businesses and people within their community.
So why do they flop? Some don’t survive the loss of activist leadership. Others fail to scale for a different reason. “People don’t understand money,” Molly Scott Cato, who represents the U.K. Green Party in the European Parliament, told me in 2016. In 2009, Scott Cato was one of the founders of the Stroud Pound in Gloucestershire, England, a community currency based on the Chiemgauer, which has been circulating in Bavaria, Germany, since 2003. By 2011, only 4,000 Stroud Pounds had been issued. Within five years, the currency had largely gone out of use.
Scott Cato believed the Stroud economy wasn’t big enough to support a community currency. She pointed to other examples in the U.K., such as the Bristol Pound, which have achieved some stability. The Bristol Pound, founded in 2012, can be used to pay for tickets on the bus or the train, to pay council tax or to buy coffee and bread. One local councilor has his whole salary paid in Bristol Pounds. Yet, despite 5 billion of Bristol Pounds in spending since 2012, academics have concluded that it had not driven localization because the availability of British pound sterling made it too easy to switch out of Bristol Pounds.
The founders of the Bristol Pound disagree, pointing to the thousands of transactions made annually in Bristol Pounds. But the existence of a stable, ubiquitous currency — the pound sterling — made it harder for people to see a community currency as a viable or necessary alternative. Scott Cato found the same was true of the Stroud Pound: “Businesses couldn’t believe in it; there was a lot of suspicion.” People in Stroud, Scott Cato said, thought it was somehow uncapitalist to trade in an alternative currency. They had an attachment to the pound sterling as an expression of national identity.
The Liquidity Trap
For community currencies to be more sustainable, they need a mechanism to grow their money supply independent from mainstream banks, or to create their own forms of exchange. Conventional banks create money by taking deposits, setting aside reserves and making loans with the rest of the capital.
In order to have true value as an alternative, community currencies must provide people with an alternative source of liquidity, reducing their dependence on official money and bank borrowing.
Community currencies — particularly convertible currencies, which are sold for fiat money and can be redeemed back into the coin of the realm — do not have a similar means of creating additional value, according to Thomas Greco, an economist/activist specializing in community currencies. Greco compares these community currencies to gift vouchers for Target, the department store, saying they amount to prepayments for goods and services. In order to have true value as an alternative, community currencies must provide people with an alternative source of liquidity, reducing their dependence on official money and bank borrowing. Indeed, liquidity is the whole point of a community currency.
Systems that create their own value can naturally emerge when communities have no alternative. In Greece, an economic crisis in 2015 prompted the creation of a barter system called TradeNow, which allowed citizens to barter in goods such as glasses, digital pianos and electric razors for services when strict capital controls prevented the withdrawal of cash from bank accounts. In Venezuela in 2019, soaring inflation and a shortage of banknotes resulted in a flourishing barter economy, where fishermen would swap mullets and snappers for packages of rice, flour and cooking oil.
In these exchanges, the person selling the fish can only realize its value by accepting goods or services from the person buying the fish, rather than by accepting money, which acts as an intermediary. This mutual exchange has evolved into another kind of currency, known as a mutual credit network.
Sardex, from Sardinia in Italy, is one such regional mutual credit network. It allows thousands of small and medium-sized enterprises, from farmers to electricians, to work together without traditional credit, which was hard to come by after the financial crisis of 2008. The founders imagined a society where a photographer might not have enough in euros to have his studio painted, while a painter might not have work. The photographer can pay the painter in Sardex, which the painter can pay forward to a farmer to buy some peaches or a mechanic to fix his motorcycle. All the transactions are recorded digitally and taxed according to local rates.
Sardex is limited to Sardinia. But the principles of a mutual credit network have been used to support different types of communities. The Open Credit Network is a credit network targeted at small businesses in the U.K. that has evolved to have a broad definition of community. Dil Green, a cofounder and cooperative member of the Open Credit Network, says their definition of “local” could be a global network of indie game designers or a group of businesses in a small town.
Both groups are united by the scarcity of bank credit. “You don’t have to have conspiracy thinking to understand that small businesses are going to have a tough time as banking becomes more centralized” Green says. The Open Credit Network is a way for small businesses to provide credit to one another. The first few transactions have taken place on the network, including a regular transaction between a coworking space and a business consultant who offers his consultancy in return for desk space. “What mutual credit does is operationalize local trust,” Green says. “But you need existing local networks to be strong and trusting.”
All currencies depend on trust. Sometimes it takes a financial crisis for people to stop trusting in mainstream currency enough to put their faith in an alternative. Other times it might take no more than the purchase of a samosa.