‘Local Liquidity: From Ineffective Demand to Community Currencies’

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molly scott cato 3Dr Molly Scott Cato opens her Green House paper, which may be downloaded here, by asking how our ongoing financial and economic crisis is to be understood and resolved.

The mainstream view is that we need economic growth – and austerity – because of the vast government deficit and stagnant economy.

Others say that we must invest and borrow more now in order to resume growth. Both sides are assuming ‘growthism’ as an unquestioned dogma.

She continues:

“The aim of the Green House Post-Growth project is to challenge the common-sense that assumes that it is ‘bad news’ when the economy doesn’t grow and to analyse what it is about the structure of our economic system that means growth must always be prioritised. We need to set out an attractive, attainable vision of what one country would look like, once we deliberately gave up growth-mania – and of how to get there. And we need to find ways of communicating this to people that make sense, and that motivate change”.

Attempts to restart economic growth have been unsuccessful; local economies are suffering from the large-scale withdrawal of liquidity that the public spending cuts represent. Local currencies across the world offer a different type of liquidity, “but one that has suffered from lack of credibility and from an absence of political support”.

Scott Cato recommends local authorities to generate truly ‘effective demand’ in their communities

This can be done by introducing local currencies into their fiscal administration on a staged basis, beginning with local services, as partial payment of local tax, and eventually for the payment of staff – note the voluntary example of the mayor of Bristol.

Her verdict on ‘queasing’:

“The government’s creation of money through its quantitative easing programme has only created ‘ineffective demand’ because it has been sucked into banking debts; by contrast money spent into the local economy as a local currency could help to revive local economies and build resilient communities and thus constitute genuinely effective demand”.

Community currencies exist in Brazil, USA, Argentina, Japan, Switzerland, Germany, France, Austria, the Netherlands and the UK

Across the world, community currencies exist in countries with widely contrasting economies and levels of wealth ‘as conventionally measured’. Citizens are taking control of the medium of exchange and issuing their own money in Brazil, USA, Argentina, Japan, Switzerland, Germany, France, the Netherlands and the UK. Scott Cato notes:

“Local currencies have provided a way for people to work and make a contribution to their local community even when conventional jobs paid in the national currency are not available. In this way many social needs have been met that would otherwise have been left unresolved”.

She looks at community currencies used in the past and those currently used in other countries. Two examples are summarised here:

“The Chiemgauer was launched in the Salzburg town of Chiemgau in 2003 and is accepted by around 150 shops and service providers including the optician and pizzeria. Chiemgauers to the value of €60,000 were spent in the first year of the scheme, which was started by a local economics teacher. To add credibility the currency is effectively backed one-for-one by euros, since the money is bought directly in exchange for the European currency, which is deposited in a local bank before Chiemgauers are issued. They can be exchanged back but for a 5% fee”.

The Chimegauer has an initial validity of three months, after which its value can only be extended by purchasing a stamp costing 2% of its value. Since it earns no interest there is no incentive to hoard or invest, meaning that the currency will instead be spent, increasing economic activity.

“The Chiemgauer is now very widely used. It has 600 shops participating in the scheme, 1800 consumer members and 200 charitable associations who receive donations every time the local currency is purchased. Around 430,000 Chiemgauers are in circulation, generating a transaction volume value of more than €4m”.

She notes that Japanese local currencies are also time limited:

“(They) tend to be designed as coupons which are received in return for voluntary work and can then be spent in local shops. They have a long history and are widespread. The first Japanese currencies were organised as ‘voluntary labour banks’ similar to time dollars. In 2001 these were joined by ‘eco-money’ designed by former MITI employee Toshiharu Kato.

A few points from Dr Scott Cato’s conclusion

“From a green perspective, the building of a sustainable society requires a transition towards a system of self-reliant local economies, where the majority of our needs are met from genuinely local production.

“Green economists see the lengthy supply chains of the global economy as wasteful of energy, as well as leaving us vulnerable in the face of rising fuel prices and more unpredictable weather resulting from climate change.

“Rather than increasing growth for the sake of it, local currencies can shift economic activity out of the globalised economy and into the local economies on which we will all come to rely.

“In a globalised economy local authorities often feel powerless to act to support the economies which support their citizenry, but they are not. Local authorities across the world have the power to support local currencies and enable them to underpin struggling local economies of both production and distribution”.

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A resource centre of papers on complementary currencies from around the world is available here: http://complementarycurrency.org/materials.php

 

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