Local currency

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In economics, a local currency, in its common usage, is a currency not backed by a national government (and not necessarily legal tender), and intended to trade only in a small area. These currencies are also referred to as community currency. They encompass a wide range of forms, both physically and financially, and often are associated with a particular economic discourse.

1 History of Local Currencies
2 Modern Local Currencies
3 Historical Local Currencies
4 See also
5 External links

[edit] History of Local Currencies

Free banking provides the economic prototype of local currencies. In the modern era, the most recognizable local currencies were company scrip issued in certain industries to pay workers, and tokens issued by some businesses to encourage consumer loyalty. In the nineteenth and early twentieth century, the failures of national banks during crises often created acute demands for cash, which were met by businesses creating emergency currencies. These scrips were usually issued with the intention of redemption in national currency at some later date.

A few such currencies, however, developed into monetary systems in their own right. The idea of using free banking to produce an alternative, community-level currency dates back at least as far as the German Credit Unions in the 1800s. But the oldest local currencies known to be in continuous use are the WIR in Switzerland, and the Labor Banks in Japan.

Complementary currency is a hypernym to local currency but the terms are often used as synonyms. As the term is now widely used (and used in this article), it does not refer to currency which is nationally backed but happens to only be used in a local area.

Advocates such as Jane Jacobs argue that this enables an economically cool yet depressed region to pull itself up, by giving the people living there a medium of exchange that they can use to exchange services and locally-produced goods (In a broader sense, this is the original purpose of all money.) 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. As a result they are part of the economic strategy of many green and sustainable living groups such as the UK Green Party.

Local currencies can also come into being when there is economic turmoil involving the national currency. An example of this is the Argentine economic crisis of 2002 in which small-denomination interest-free provincial bond IOUs issued by local governments quickly took on some of the characteristics of local currencies successfully.

Opponents of this concept argue that local currency creates a barrier which can interfere with economies of scale and comparative advantage, and that in some cases they can serve, like traditional national currencies, as a means of tax evasion.

Use of local currencies to boost local economies is strongly advocated by Netherlands based Instrodi Institute.