If we wish to live more ecologically, it would make sense to adopt monetary systems that make it easier to do so.
— Richard Douthwaite, Author of The Ecology of Money
What is local money?
Local money (also known as local currencies or complementary currencies) is an approach to trading using voluntary vouchers (like “green dollars”) or tokens (print or electronic) instead of legal tender (such as New Zealand Dollars).
Why do communities adopt local money?
Local money:
- connects people to each other, building community resilience
- increase the visibility of skills and surplus goods that are overlooked within the formal economy
- enables cooperative and reciprocal trade when legal tender is scarce
- makes it easier for people to ask for and to give help
- often provides an incentive for more frequent trading (discouraging money-hoarding)
- have a counter-cyclical impact, meaning they are used more in times of recession as a counter-balance to financial hardship
- helps keep wealth circulating and growing within the local community
Local money circulates freely among both members and non-members, but it only retains its value near to the community that issued it in the first place. This helps sustain the local economy, reduces transportation footprints, and increases community resilience. If your community is interested in promoting 'buy local first', then local money may be the right tool.
How does local money work?
Local money or voucher currencies have two major requirements: a way for them to be issued into circulation, and a way for them to be redeemed. This in turn requires, on one hand, an issuing organisation, such as a not-for-profit society or a business, and, on the other hand, something of value that “backs” the currency, assuring those who use it that it can eventally be redeemed for something worthwhile. Here are some common combinations.
- A LETS [internal link] may issue vouchers to members with positive balances, adding a new layer of flexibility to the LETS and including non-members who are willing to accept the print vouchers.
- A trusted business may issue vouchers based on the promise to redeem them for future goods and services, perhaps as a way to finance a business expansion.
- A not-for-profit society (or a not-for-profit trust) might issue vouchers in exchange for New Zealand Dollars (NZD), keeping the NZD in the bank to redeem vouchers later.
- A group of businesses and organisations might cooperatively issue vouchers, backed by a diverse bundle of locally-produced goods, as a challenging but especially robust way to add liquidity to a local economy during a financial crisis.
While local money is
traditionally associated with vouchers, increasingly communities also
rely at least in part on online credits that can be traded through
smart phones. Some local currencies also use a system known as
“demurrage” where the value of the currency decreases over time,
encouraging fast trading.
Tax responsibilities
Those using local
money are advised to pay taxes as they would for cash sales.
Where can I go to learn more?
- Print resources available from the LE shop, such as Peter North's Local Money, Deirdre Kent's Healthy Money, Healthy Planet, or G.Hallsmith & B.Lietaer's Creating Wealth: Growing Local Economies with Local Currencies
- Dave Block's 1998 article 'Local Money Strengthens Community' for a good overview of how and why local currencies can work, including a few diverse examples and some advice for keeping them going
- Check out Peter Luiten's article on a multi-business voucher approach to local money
- Contact the LE team for more support
We create our exchange systems, and then they create the world we live in.
— Bernard Lietaer, Research Fellow at the Centre for Sustainability Resources (California, USA); Author of Money and Sustainability and other titles
The principal advantages of community currencies are:
- Protection against global economic instability
- Stemming ‘leakage’ of community wealth to outsiders/offshore
- Support for local small/medium businesses
- Business opportunities in import substitution
- Less fuel needed for imported product
- Increased employment opportunitie
- Less conventional money required for desirable projects
- Enhanced sense of community
- Branding opportunity for the distric
- Tourist attraction, especially for early adopters
— Helen Dew, Living Economies Trustee, in the May/June 2007 issue of Organic NZ.