Local Money - A Response to the Globalisation of Capital

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QUAESTIONES GEOGRAPHICAE 30(4) 2011

LOCAL MONEY A RESPONSE TO THE GLOBALISATIONOF CAPITAL?

michael Pacione

Department of Geography, University of Strathclyde, Glasgow, United Kingdom

Manuscript received October 4, 2011

Revised version October 31, 2011

Pacione M., Local money a response to the globalisation of capital? Quaestiones Geographicae 30(4), BoguckiWydawnictwo Naukowe, Pozna 2011, pp. 919. DOI 10.2478/v10117-011-0033-x, ISBN 978-83-62662-88-3, ISSN0137-477X.

abstract. In response to the global nancial crisis of 2007, a number of central banks used quantitative easing toaddress the collapse of condence and credit. This involved increasing the liquidity of the nancial system bycreating new money. It is suggested that similar strategies of printing money in the form of local currencies maybe of value for local communities confronting the challenges of economic globalisation. This paper identies thelocal impacts of economic globalisation, examines the underlying causes of the global nancial crisis, explainsthe nature of money, and illustrates the goals and different forms of local money. Finally, the potential value oflocal currencies as a response to the globalisation of capital is assessed.

keywords: local money, complementary currencies

Michael Pacione, Department of Geography, University of Strathclyde, Glasgow G1 1XN, United Kingdom; e-mail:[email protected]

1. Introuction

Uneven development is an inherent character-

istic of the globalisation of capitalism which stemsfrom the propensity of capital to ow to locationswhich offer the greatest potential return. The dif-ferential use of space by capital in pursuit of prof-it creates a mosaic of inequality at all geographicscales, from global to local. At any one time cer-tain countries, regions, cities and localities will bein the throes of decline as a result of the retreat ofcapital investment, while others will be experi-encing the impact of capital inows. The effectsof this form of casino capitalism (Strange 1986)

on local economies and communities not viewed

as protable spaces by capital can be traumatic(Pacione 2009). This is an inevitable outcome ofthe global dominance of the capitalist economic

system with its ethic of competitive individual-ism and drive to accumulate. However, when thenormal business of the capitalist economic sys-tem is disrupted by crisis, the uneven economicand social consequences are amplied. The pow-er of money circulating within the global nan-cial system and the consequence of a breakdownin the ow of capital was demonstrated dramati-cally by the global nancial crisis in 2007. Theshockwaves of the crisis of capital that started inthe USA spread around the world to impact on

governments, businesses, and local communities,


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10 MICHAEL PACIONE

accentuating the social and economic challengesconfronting people and places marginal to thecapitalist development process.

In response to the nancial crisis, a number

of central banks, including those in the USA andUK, have employed the nancial mechanism ofquantitative easing to address the collapse of con-dence and credit in the wake of the global nan-cial crisis. This involves increasing the liquidityof the nancial system by creating new money.The central premise of this paper is that similarstrategies of printing money may be of value forlocal communities confronting the challenges ofeconomic globalisation.

The paper is organised into six main parts

apart from the introduction. In part 2 we estab-lish the context for the discussion of local moneyby outlining briey the local impacts of economicglobalisation. Part 3 considers the rise of mega-byte money and examines the underlying causesof the global nancial crisis of 2007. Part 4 ex-plains the nature of money. In part 5 the goalsand benets of local currencies are identied. Inpart 6 the distinction between national and lo-cal currency is discussed before proceeding toan analysis of different forms of local currency.

Finally, in the concluding section the potentialvalue of local currencies as a response to the glo-balisation of capital is assessed.

2. The local impact of economicglobalisation

Globalisation is a highly uneven set of pro-cesses whose impact varies over space, throughtime, and between social groups. The unevenness

of globalisation is apparent at all levels of society.At the world scale it is seen in the disparities be-tween booming and declining regions, and at theurban scale in the social polarisation between af-uent and marginalised citizens.

The uneven penetration of globalisation isa question not simply of which institutions, in-dustries, people and places are affected, but alsoof how they are affected. Local people and placesmay be overwhelmed and exploited by the forc-es of globalisation, or they may seek to resist,

adapt or turn globally induced change into anopportunity. Resistance is a common response in

which global forces are mediated at lower spa-tial scales. During the 1980s, mass protests wereheld in a number of Third World cities in an ef-fort to resist the imposition of economic austerity

measures by the International Monetary Fund (asa response to the burgeoning Third World debtcrisis). Frequently, however, people and organi-sations must acquiesce and adapt to global forces.The proliferation of clothing sweatshops in LosAngeles and New York City during the 1980s, forexample, was an attempt by local manufacturersto maintain their competitiveness in world mar-kets. Fundamentally, the adverse impacts of glo-bal economic forces come to ground at the locallevel and are manifested in geographies of disad-

vantage within cities (Pacione 2004).The problems of poverty and deprivation ex-perienced by people and places marginal to thecapitalist development process have intensiedover recent decades. In the UK, during the 1980spoverty increased faster than in any other mem-ber state of the European Community so that bythe end of the decade one in four of all poor fami-lies in the Community lived in Britain (Pacione1997a). By 2001 the wealthiest 1 per cent of theUK population owned 23 per cent of all wealth

(compared with 21 per cent in 1976), while thepoorest 50 per cent of the population owned 5per cent of the nations wealth (compared with8 per cent in 1976). Similarly, the populationliving in poverty in the USA has also increasedsince the late 1970s, with 13 per cent below theofcial poverty line in 1980 and 15 per cent in1993 (Shaw-Taylor 1998). In the West, most of thedisadvantaged live in cities, large areas of whichhave been economically and socially devastatedby the effects of global economic restructuring,

the deindustrialisation of the economy, and in-effective urban policies. Urban areas and centralcities in particular contain disproportionate ratesof social and economic problems associated withpoverty and deprivation.

It is important to recognise, however, thatglobalisation does not lead automatically to thedisintegration of local life. Individuals can eitherdisembed themselves from a locality by operat-ing within a global milieu or embed themselvesby attachment to a particular place. Neither con-

dition is exclusive. The reexive nature of thegloballocal relationship is evident especially in


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LOCAL MONEY A RESPONSE TO THE GLOBALISATION OF CAPITAL? 11

the world of international nance, where the dis-embedded electronic space of the internationalnancial system actually compels embeddedsocial relations in specic locations (such as the

City of London), to facilitate discussion of new -nancial products and engaging in inter-personalexchanges of information. More generally, in theplace-bound daily lives of most people, particu-larly those outside the mainstream of advancedcapitalism, globalisation may promote a searchfor local identity in a mobilised world (Eade1997). One local response to the globalisation ofcapitalism is the creation and circulation of a lo-cal currency.

3. Megabyte money an the 2007fnancial crisis

Money was invented to replace barter in theexchange of goods and services. For centuries,money has served as a medium of exchange,a common unit of account and a store of value. Inrecent decades it has also become a commodity tobe bought and sold. This new function of moneywas created by the US governments decision in

1971 to take the dollar off the gold standard andallow exchange rates to oat in the internationalmarkets. With the collapse of the Bretton Woodsagreement, which had pegged the value of theUS dollar to gold (and other major currencies tothe dollar at a xed exchange rate), the value ofnational currencies was determined only by in-vestor condence. In 1995 US$1.2 trillion wasexchanged every day in the currency markets,and 95 per cent of all currency transactions in theworld are motivated by speculation.

The advent of money as a commodity hasdecoupled the real economy from the moneyeconomy, the rst and smaller of the two beingwhere products are made, trade is conducted, re-search carried out and services are rendered. Theother, far larger, money economy is concernedwith speculation and the exchange of creditsand debts. For the money markets, the long-termeconomic health of the real economy is inciden-tal to the primary goal of electronic speculators,which is to realise a prot during the working

day. This short-termism can have an adverse ef-fect on the operation of the real economy, with

companies affected by rising interest rates, in-creasing commodity prices and declining exportsdue to a strong domestic currency. In extremecircumstances, companies and their jobs may be

undermined, regardless of performance, becauseof sudden changes in the nancial environmentin which they operate.

The nancial crisis of 2007 was triggered bya liquidity shortfall in the US banking system thatresulted in the collapse of large nancial institu-tions, the bailout of banks by national govern-ments, and downturns in stock markets aroundthe world. In many areas the housing market wasalso affected, leading to evictions and foreclos-ures. The liquidity crisis contributed to business

failures, marked declines in consumer wealth,substantial nancial commitments by govern-ments, and a recession second in depth only to theGreat Depression of the 1930s. While the causesof the crisis are complex, a major factor was inad-equate regulation of nancial institutions drivenby the capitalist imperative of prot maximisa-tion. Imprudent lending practices engaged inby nancial institutions competing for borrow-ers made credit relatively cheap. In the US onemajor consequence was a housing boom fuelled

in large part by a rapid expansion of mortgagelending with inadequate consideration given tothe borrowers ability to repay loans. In addition,the credit boom, fuelled by large ows of glo-bal savings into the US, drove down the returnsavailable on many traditional long-term invest-ments such as Treasury bonds, leading investorsto search for alternatives. To satisfy this demand,the nancial industry designed complex securi-ties that combined many individual loans, andthat involved substantial risks that were ignored

or unforeseen at the time. The credit boom be-gan to unravel in early 2007 when the sub-primemortgage crisis emerged with mortgage delin-quencies and defaults rising and a downturn inhouse prices (Bernanke 2009). Investors respond-ed by withdrawing from a wide range of creditmarkets, and nancial institutions cut back ontheir lending. In autumn 2008 the failure or nearfailure of several major nancial rms causedmany nancial and credit markets to freeze up.Declining stock values, a weakened nancial sys-

tem and major difculties in obtaining credit trig-gered recession.


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5. The goals of a local currency

While the proposal for a local currency marksa signicant departure from the forms of money

circulating in the international nancial system,the concept is far from a novel one in ancientEgypt, for example, barley was used as a me-dium of exchange for domestic transactions andsilver for international trade (Galbraith 1975). As

Jacobs (1984: 158) concluded, modern societieshave been persuaded that the elimination of mul-titudinous currencies in favour of fewer nationalcurrencies represents economic progress andpromotes the stability of economic life, but thisconventional belief is still worth questioning.

The potency of this statement is strengthened bya number of developments in the global politi-cal economy, including the creation of new formsof money following the collapse of the BrettonWoods agreement; the increasing separation ofthe (productive) real economy from the (specu-lative) money economy; and, in particular, thegrowth of an international nancial system com-prising a space of ows with limited attachmentto place. A local currency seeks to short-circuitthe electron ow of megabyte money (Kurtz-

man 1993) within the international nancial sys-tem and to re-embed money in specic locales.In this context, Robertson (1989) envisaged a hi-erarchy of money with a world currency for usein international trade, national currencies for usein national trading, and local currencies for use inlocal trading, together with regional or continen-tal currencies (such as the Euro).

A local currency has the potential to achieveseveral objectives. A principal argument in fa-vour of local currencies is that when localities

are dependent entirely on national currency asa medium of exchange to facilitate local econom-ic activity, any decline in local competitivenesswithin the national or international economy canresult in a shortage of money in local circulationeven for internal economic purposes within thelocality. This leads to the situation experiencedin many formerly ourishing industrial cities inEurope and North America where local unem-ployment rises and local assets remain underu-tilised, while local needs remain unmet. Un-

derlying this anomaly is the shortage of ofcialcurrency circulating locally as a medium to facil-

itate local exchange. This shortfall in the moneysupply is a direct consequence of the short-termprot-maximisation goals of capitalism and theinternational mobility of nance capital. It is

promoted by the existence of a centralised bank-ing system that operates to redistribute invest-ment capital to high-prot low-risk areas, which,in general, means from poorer to richer areas,thereby accentuating regional socio-economicdisparities. A local currency can stem the leakageof money out of the local economy. In addition,use of a local currency retains local control overinvestment decisions which is lost even when lo-cal capital is re-imported via distant nancialinstitutions. A local currency also encourages in-

dividuals and businesses to support each otherrather than buying from outside the community,and can help to meet the credit needs of smallbusinesses, thereby stimulating the local econo-my and diversifying its economic base. Anotherrelated advantage is that a local currency cangenerate local employment by overcoming themismatch between the shortage of money andthe excess of work required to be done in any lo-cal economy. In general, people will be preparedto work in return for a local currency in which

they have condence that is, for a currency thatcan be used to pay for the material necessitiesof life. We shall return to this point later in thediscussion.

A second principal advantage of a local cur-rency lies in its ability to reduce dependency ontransfer payments in the form of central govern-ment welfare benets, economic grants and annu-al council spending budgets. Since the late 1970s,in the UK transfer payments from central to localgovernment have failed to maintain their real val-

ue as a result of growing demand and constraintson resources available. Furthermore, by inculcat-ing a dependency culture, transfer payments dolittle to promote the development of local hu-man capital. Rather than looking to a continuedow of transfer payments to maintain the localeconomy, dependent cities and regions shouldpursue development of import-replacing goodsand services. As indicated above, introduction ofa local currency could play a central role in pro-moting such developments by retaining spend-

ing power within the locality and fostering thegrowth of indigenous enterprise.


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A nal advantage of a local currency is that, incertain forms, it can facilitate a non-inationarymonetary system. Ination is a major problemof centrally-issued currency whereby the opera-

tion of the market mechanism can devalue thecurrency through oversupply. Under such con-ditions the sellers of goods and services seek toprotect their income by raising prices. Lendersincrease their interest rates, thereby raising thecost of credit, which can have an adverse effecton business survival or development. As we shallsee below, some forms of local currency eschewthe use of interest, while others employ the con-cept of negative interest to maintain the moneysupply.

6. Forms of local currency

A review of the historical and contemporaryliterature reveals the existence of a large numberof local currency systems. For analytical purposesthese may be grouped into two major categoriesof private and public schemes.

6.1. Privately issue local currency

Modern attempts by individuals or privateagencies to set up systems to enable exchangeto take place without the use of ofcial currencydate from the seventeenth century when a Quak-er, John Bellers, proposed that unemployedworkers be paid in a local currency of labournotes for goods which they produced with ma-terials supplied by the systems central ofce.The ofce was to recover its notes by selling the

goods either to the workers or to others who hadaccepted notes from the workers (for example inpayment for food or rent). A similar scheme wasintroduced by the philanthropist Robert Owen,who opened his National Equitable Labour Ex-change in London in 1832, and by the French so-cialist Pierre-Joseph Proudhon, who establisheda Peoples Bank in Paris in 1849. However, noneof these schemes survived for more than a fewyears.

Given that one of the chief goals of a local cur-

rency is to offset a shortage of national currency,it is unsurprising that a large number of local

money initiatives arose during the years of theGreat Depression. Typical of these was the Lar-kin Merchandise Bond issued in 1933 by Larkinand Company of Buffalo, New York. The bonds

were used to pay employees of the company andwere accepted in any Larkin retail outlet in theUSA, as well as by many other businesses. Whilethe bonds were in circulation, the original $36,000issue was turned over sufciently to facilitate thesale of $250,000 worth of merchandise. This andother scrip issues gradually declined towards theend of the Depression as ofcial currency becamemore readily available. However, this does notdiminish the proven success of local money instimulating a local economy (Fisher 1933).

The practical benets of a local currency werealso demonstrated in 1931 in the Bavarian vil-lage of Schwanenkirchen when the new owner ofa defunct coal mine re-opened it by paying theminers in local currency (wara) which he had ar-ranged could be spent in village shops. The lo-cal currency eventually found its way back to themine owner through the purchase of coal. Thesignicance of this system is that if reichsmarkshad been used instead of wara, the enterprisewould not have been possible since the national

currency would either have been hoarded for useat a future time or would have been dispersedthroughout the country with a correspondinglylimited impact on the local economy. Fears ofan inationary spiral due to the success of thelocal currency led the German government toproscribe the use of wara. Consequently, the coalmine in Schwanenkirchen closed and the minersreturned to unemployment and the local econo-my to stagnation.

In recent years privately-issued local curren-

cies have been employed in several US commu-nities in order to support local businesses andretain purchasing power in the local economy.Since 1989 several rms in the town of Great Bar-rington, Massachusetts have issued a discountscrip form of local currency as a means of raisingcapital which was unavailable from formal bank-ing sources. A simple example serves to illustratethe principle. When refused a bank loan of $4,500to nance a move to new premises, the owner ofa popular delicatessen printed his own currency

(Deli Dollars) and sold them to customers in orderto raise the capital he needed to stay in business.


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He sold a ten deli dollar note for US$9 redeem-able at his new business for $10 worth of sand-wiches. The owner generated sufcient fundsfrom the sale of 500 notes to nance the reloca-

tion, the debt to be repaid in sandwiches ratherthan federal dollars. In addition to the advantageacruing to the business, individual participantsin the scheme obtain a discount on future pur-chases (provided the business stays aoat andimplements the redemption programme), andthe psychological satisfaction from helping a lo-cal rm. The community at large benets fromthe retention of spending power in the local-ity and reinforcement of community solidarity.Clearly, this principle can be extended. Similar

forms of local currency (for example, related tofood producers) could be distributed by volun-tary groups to needy families, enabling them topurchase foodstuffs free from the stigmatisationattached to formal welfare programmes.

The major problem of discount scrip is thatits success depends on the business enjoying thetrust and condence of its customers. It is not,therefore, normally applicable to start-up ven-tures. The issue of participant condence mayalso affect the transferability of such schemes.

While small-town communities may be willing tosupport the local economy in this way, people inlarger-scale urban areas with less ties to local re-tail outlets and wider opportunities for purchasemay have less incentive to buy locally. Solomon(1996), however, views the use of such local cur-rency initiatives as not simply a technique to at-tract customers to a business but as a means ofeducating consumers about the importance of lo-cal purchasing for the strength of the local econ-omy.

The most successful community-wide localcurrency system in the USA is the Ithaca Hoursscheme based in the town of Ithaca in New YorkState (Jacob 2004). The local currency, the IthacaHour, has a xed exchange value with nationalcurrency of $10 (the average hourly value of wag-es and salaries in the area). By the end of 1995,250 businesses accepted Ithaca Hours, with someeven giving change in federal currency. Thesmooth operation of the scheme is ensured bythe close involvement of the system organisers,

who actively recruit useful goods and services toexpand the range available and liaise with par-

ticipants to ensure they have satisfactory outletsfor accumulated Hours. A key role is played bythe originator of the scheme, who is employedto oversee operations, a task which includes

producing a regular newspaper advertising thegoods and services available within the systemand organising twice-monthly open meetings ofparticipants to review the operation. The mainstructural weakness of the Ithaca scheme is theabsence of a mechanism to prevent ination in theevent of a surplus of Hours in circulation (whichmight arise if growth in the formal economy in-creased the availability of national currency). Inpractice, decisions on how much local currency toput into circulation are made at regular meetings

open to all participants in the scheme. The viewof the organisers is that the threat of ination isminimal since the amount of money provided bythe formal economy will never be sufcient tomeet the needs of all members of the community,meaning that a local currency will always be indemand. The success of the Ithaca Hours systemhas stimulated its reproduction in over twentyother places in the USA (Douthwaite 1996).

A different form of privately-issued local cur-rency is the service credits or time dollars scheme

designed specically for the provision of com-munity care services (rather than for the moregeneral revitalisation of a local economy). Timedollars are earned by providing care services atthe rate of one time dollar per hour, and can onlybe spent in buying care for oneself or for friendsand relatives. The largest operating time dollarsystem is in Miami, but by 1994 there were over150 schemes operating in 30 US states. The timedollar has no monetary equivalent, but is a formof money which enables people to undertake

work they would be unlikely to do for a cash pay-ment. (For example, a retired nancial consultantmight not cut a sick persons lawn for money, butwould do it for time dollars). Unlike national cur-rency, the supply of time dollars is not limited byan external agency, being dependent only on thewillingness of local people to help each other. Inessence, time dollars represent a stimulus to themoral economy that some commentators believeto have been marginalised by the processes ofglobalisation (Cahn & Rowe 1992).

The rise of local money systems is not connedto the western world. In Argentina the uneven


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impacts of economic globalisation and introduc-tion of a government programme of privatisationthat favoured multi-national corporations led in1995 to the creation of a network of mutual as-

sistance among the disadvantaged that aimedto promote the exchange of goods and serviceswithout being restricted by access to money(Pearson 2003: 216). While the system (Red Glo-bal de Trueque) began as one of barter, the in-troduction of a currency transformed it into analternative money system. By 2001 nodos (clubs)had been established in fourteen provinces andmembership had grown to 300,000. The nationalgovernment recognised the scheme ofcially andin 2000 signed an agreement of support to help

promote inter-regional exchange via an electron-ic network. The rapid growth of the system, how-ever, led to growing pains, including a plethoraof local currencies and doubts over their recip-rocal value that led some nodos to refuse to ac-cept the notes of others. By 2004, membership hasfallen to 100,000 using mainly decentralised localsystems (Greco 2001, Cato 2006).

In the UK the development and growth of lo-cal currencies has been related directly to the rap-id expansion of local exchange trading systems

(LETS) since the idea was introduced from Cana-da in 1984 (Linton 1986). The principal economicobjective of a LETS is to facilitate import substi-tution in its locality in order to promote a localeconomy that is less reliant on external sourcesof goods, services and money. In a LETS, moneyis a purely local currency which cannot be tradedoutside the system. It is not commodied as inthe formal economy and its value is based on re-ciprocal trust among members. Additional mon-ey is created not by a central bank, but by the

users (via demand for goods and services) with-out affecting the value of the currency (as thereis no ination, since the money supply is relateddirectly to trading activity). Since no interest ischarged on debts or paid on credit balances,non-productive nance capital is absent from theLETS system. Neither is prot accumulation animportant objective since trade can be engagedin by those in decit. In essence, and in markedcontrast to the formal monetary economy, LETScurrency is employed primarily for its use value

(as a medium of exchange), not for its exchangevalue (as a commodity). As Seyfang (1994: 20)

states, LETS currency is not capitalist money.For Dauncey (1988: 51) LETS currency representsa new kind of money (...) which is immune frominternational recession, debt charges, supply

problems, theft, scarcity and currency uctua-tions. There are now over 400 functioning LETSin the UK and, for several observers, the potentialof the concept as a source of credit for disadvan-taged communities and a mechanism for reduc-ing leakage of resources from a local economydemands further investigation (Pacione 1997b;Thorne 1996; Williams 1996).

6.2. Publicly issue local currency

A key factor underlying the soundness andacceptability of a local currency is condence inits redeemability, which implies condence inthe power, productive capacity and honesty ofthe issuing body. While such levels of condencecan be generated by private companies (such asLarkin and Company in the USA and Herr He-beckers mining company in Schwanenkirchen,Germany), currency issued by a public authority,such as a municipal government, is also likely to

attract a high level of credibility, particularly if itcan be used to pay fees and taxes, and if it is ac-cepted at par with ofcial money.

As we have seen, the original intention of De-pression scrip was to provide a temporary sup-plement to a scarce supply of ofcial currency.However, the permanent use of a local curren-cy can offer the advantage of insulating a localeconomy, at least partially, from the vagaries anddistorting effects of the international nancialsystem. The idea of a local currency alternative

to ofcial currency was rst proposed by SilvioGesell (18621930), a German merchant, theoreti-cal economist and social activist, who also intro-duced the concept of negative interest designedto increase the supply of money which couldfunction as a medium of exchange rather than asmerely a store of value (Gesell 1958). Gesells ide-as were put into practice in 1932 in the Austriantown of Wrgl in response to serious local tax ar-rears due to high levels of unemployment. Thelocal currency was used to pay half the wages of

council staff and because business people knewit could be used to pay taxes, it was accepted in


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return for goods. In fact, local traders took no riskin accepting Wrgl scrip since it was backed bya national currency loan left on deposit in the lo-cal savings bank. This allowed any scrip holder

to exchange it at any time for 98% of its face valuein national currency. In order to prevent hoard-ing, the local currency was imbued with a built-in depreciation factor, or negative interest rate.A stamp costing 1% of the face value of eachnote had to be purchased each month in order torevalidate it for use during the following month,meaning that holders were encouraged to spendrather than save the local currency. Any localmoney returned to the bank or paid to the coun-cil was immediately put back into circulation in

the town. The impact of the auxiliary money onthe local economy was striking. In the rst month4,542 schillings of tax arrears were paid, allowinga new public works programme to begin that em-ployed 50 people whose wages were paid whollyin local currency. When other towns expressedinterest in issuing a local currency, the AustrianCentral Bank, fearing it would lose control overthe money supply and hence ination, took legalproceedings against the Wrgl council and haltedthe scheme. Nevertheless, the advantages of the

local currency were apparent and during the ear-ly 1930s more than 300 communities in the USAintroduced similar forms of scrip. Fisher (1933)describes a type of scrip proposed for the city ofReading, Pennsylvania in which the note had 52squares on the reverse, each printed with the dateof consecutive Wednesdays in the year after itsissue. Before the note could be used, the holderhad to afx a special 2-cent stamp in the appro-priate square. At the end of the year the sum of$1.04 would be built up, allowing the note to be

redeemed at par, with 4 cents to cover expenses.In March 1933, however, President Rooseveltbanned further scrip issues on the grounds thatthe US monetary system was moving out of thecontrol of the national government.

The inherent benets of a publicly issued lo-cal currency continue to commend the concept tocommunities experiencing a shortage of conven-tional money. In 1985 the Argentinian province ofSalta introduced its own unstamped scrip. Publicemployees and creditors were offered the choice

of payment in local currency immediately or innational currency later. Since ination was rising

rapidly, many accepted the new notes (secure inthe knowledge that banks would exchange themat par for national currency if necessary). How-ever, to encourage people to circulate the notes

rather than exchange them, the local governmentaccepted the currency in payment of taxes, andorganised a lottery offering prizes to the holdersof notes bearing winning numbers. Shops andbusinesses rapidly accepted the new money, andthe scheme was reproduced by several neigh-bouring provinces (Greco 1994).

For local governments with an insufcientsupply of national currency, the problems arecompounded by the high cost of credit obtainedfrom conventional banks. The islands of Guern-

sey and Jersey have overcome this by issuingtheir own local currency. The Guernsey systemis indicative. The modern currency system origi-nated in the economically-depressed era follow-ing the Napoleonic wars as a means of nancingnecessary repairs to sea defences. Since interestpayments on the public debt absorbed 80% ofannual taxation income, the island governmentissued States notes to circulate in parallel withofcial currency ( sterling). This provided aninterest-free loan to nance the capital works

programme. Today, the island government pro-vides local banks with States notes in exchangefor a similar sterling amount which is lodged ina deposit account in the States name. The islandgovernment receives interest-free credit plus in-terest accruing to the sum on deposit in the bankwhich is used to fund public works. The localcurrency is secure since each note is backed one-to-one by its British equivalent (Grubiak & Gru-biak 1960).

In Germany, since 2006 regional currencies

have been issued in 16 regions as a cash alterna-tive to the euro. These are conceived almost ex-clusively as schwundgeld (depreciating currency)that loses value on a predetermined timescale,with the intention of encouraging the moneyowners to spend quickly in order to boost theregional economy (Rsl 2006). At the city-regionscale, Boyle (2002) has proposed a complementa-ry money system for large cities such as Londonthat would cover expenditure items such as trans-port and local economic exchanges within the ur-

ban region. The Oyster transport card introducedin London in 2003 is a current example that can


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also be used to purchase low-value non-transportitems. By mid-2010, 34 million Oyster cards hadbeen issued. Some forms of local money can havespecic environmental goals. The Nu Spaarpas

project in Rotterdam aimed to promote sustain-able consumption by providing incentives (greenpoints) for those who separated household wastefor recycling, used public transport, or shoppedlocally. By the end of the two-year pilot in 2003,10,000 households and 100 shops were partici-pating and 1.5 million points had been issued(van Sambeek & Kampers 2004). The advantagesof a complementary currency are also recognisedincreasingly in the private sector where non-banks are playing increasingly signicant roles

in the nancial world (Mouatt 2010). Severalmajor retailers (such as Marks and Spencer) havediversied into nancial services (Welch & Wor-thington 2007) as well as employing alternativecurrencies in the form of loyalty cards (such asTesco clubcard, Nectar points, and Airmiles).

The benets of a local currency to cash-strapped local councils appear unequivocal.A local currency reduces dependence on centralgovernment grants and expensive bank borrow-ings, funds necessary public projects, and boosts

the local economy. National government wouldalso benet from increased tax revenues and low-er social security expenditure. As proponents oflocal currencies in Wrgl and in the USA havefound, however, a chief obstacle to implementa-tion of local currency schemes remains centralgovernment resistance to the loss of control overthe money supply. The force of this argumentmay be overstated, however. The amount of lo-cal currency in circulation would be minusculecompared to the national money supply and of

almost no signicance in relation to the volumeof monetary transactions undertaken daily in theinternational nancial system. By contrast, as theexamples above have indicated, the impact ofa local currency on the health of local economiesand communities can be signicant.

7. discussion an conclusion

What then is the potential for local currencies

as a response to the globalisation of capital? Aswe have seen, the growth of local currency sys-

tems is related to the health of the local econo-my. In times of shortage of ofcial currency, analternative form of money represents a means ofmaintaining exchange relationships and prevent-

ing the collapse of a local economy by ensuringthat a greater proportion of local income andsavings circulate within the locality to generatelocal work, investment and local economic de-velopment. More generally, a local currency canpromote the goals of subsidiarity and local au-tonomy by reducing dependency on a mediumof exchange which must be imported from out-side the region, whether in the form of centralgovernment disbursements or commercial bankloans. The value of a local currency is enhanced

if it is accepted by local authorities in paymentfor rent, taxes and other services. Popular con-dence in the currency may also be heightenedif it is redeemable at par with national currency.However, in order to promote its use as a localmedium of exchange, some form of discountingmechanism or negative interest rate may be ap-propriate. Use of a local currency could be com-plemented by other strategies designed to en-courage satisfaction of local needs by local workusing local resources including, for example, local

purchasing and spending policies. One objectionto the increased local autonomy stemming fromuse of a local form of money is the possibility thatlocal authorities will abuse the power to issuecurrency and seek to spend their way out of -nancial crises. In the case of a currency backed bya national currency, however, over-issue wouldcause the local currency to decline in value rela-tive to the national currency. This would result ina loss of revenue for the local authority obligedto redeem their currency at par. In the Salta prov-

ince of Argentina during 1987 local currency wasbeing traded at a 20% discount against nationalcurrency, but this was rectied by a temporarysuspension in the issue of further local notes.

In practice no local economy can isolate itselffrom the vagaries of the national and internation-al economic system. But it is equally myopic forpolitical and economic decision-makers to ignorethe adverse effects of the global economy on lo-cal places experiencing a net outow of capitalinvestment. A local currency cannot insulate the

local economy from the negative effects of glo-balisation, but it can afford a degree of protec-


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tion against the spatially-insensitive currents ofthe international nancial system. A combinationof alternative nancial institutions such as creditunions and local exchange trading systems, and

a publicly-issued local currency has the poten-tial to re-invigorate localities. As we have seen,in some instances the introduction of a local cur-rency has the capacity to stimulate the social andeconomic regeneration of a community. The suc-cess of schemes such as that introduced in Wrgland, more recently, in Ithaca suggests that the po-tential use of a local currency as a response to theglobalisation of capital is, at minimum, worthy offurther consideration not least in those localitieswhich currently are marginal to the mainstream

of advanced capitalist society.

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Local Money - A Response to the Globalisation of Capital