Consider: Local Currency
The world’s first Bitcoin
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The little known origin story of Considered is that Kevin and I have been friends for a while and we have always wanted to work on something together. Before the pandemic, we started on a series of local guidebooks/travel notebooks - think of a cross between a map (with recommended sites and attractions) and a notebook you could use to keep track of memories made on your trip - but they never got off the ground.
After the world shut down to travel, we started to explore other ideas and became intrigued by “local currencies.” These are “complementary currencies” that are made to live beside the national currency you would normally carry in your wallet. The idea is, a town or region would issue its own currency that could only be used at stores or businesses within the region. As opposed to being spent at Amazon, you could only spend it on Main Street to support and encourage local businesses.
Local currencies have been around since the idea of money was first invented (don’t worry, this won’t be an economic history session!), and they tend to pop up in times of economic uncertainty.
A big part of our ethos at Considered is exploring sustainable ways to support and encourage people and businesses that are building sustainable communities and providing value to customers. In a time where many small businesses are struggling and governments at all levels are looking for ways to inject funds into the local economy, local currencies may just be ripe for a comeback.
Design
Local currencies are nothing new. One of the first recorded uses was when the Hasmoneans of Israel (a.k.a. the Maccabees a.k.a. the Menorah Bois a.k.a. the Latke Lieutenants a.k.a. the Rugelach Rebels) minted the Shekel as a local currency to flip the bird to the Romans in the 30s BCE.
More recently, during the Great Depression, adoption of local currencies accelerated. One of the biggest adopters was in the German town of Schwanenkirchen. The largest employer, a coal mine, was going to be forced to close and the mine owner who had read about local currency in an economics textbook decided to give it a try as a way to avoid having to pay workers in cash. Not quite the noble eco-class warrior you might expect. Workers were paid in the new local currency, called Wara, and the shopkeepers in town accepted it as payment because they had no other business. The suppliers and wholesalers were then forced to accept Wara or have non-payment for their goods. They then would exchange the Wara for coal at the mine and either use the coal or sell it for Reichsmarks (which due to rapid inflation were increasingly worthless).
Across the border, an Austrian town called Worgl saw the “success” of Wara and decided to adopt its own scheme. This one was more benevolent and in line with currencies we have today. Town employees were paid half in the national currency and half in Wara. However, they added in another innovation: the Wara needed to be used in order to retain its value. Practically, that meant that if you had $100, and did not spend it in a month, it would be worth $99. Every time the Wara got used, it got a stamp resetting the clock.
This had a huge impact on the local economy. The average Wara note changed hands more than 400 times in a year!
By 1933, over 400 local currencies had been created in the US alone. Many were not as successful as Wara but some like the Lubeck City Currency and Alberta Prosperity Currency were. Some towns issued a local currency called “Scrip” or wooden nickels. Wooden nickels would go on to have a second life as souvenirs from county fairs and attractions.
As part of the New Deal, Roosevelt was worried that all these currencies would weaken the Federal Reserve and prohibited “emergency currencies,” putting an end to the local currency movement for almost 90 years.
Innovation
In the 2000s some parts of local currency began to make a comeback through new issuances, thanks in part to negative interest rates.
To encourage spending and investment, the governments of countries like Denmark, Japan, Sweden and Switzerland set negative interest rates. What that meant was that money stored in the bank lost value the longer it sat, not getting spent. The desired effect was to increase spending levels and economic activity.
“Deli Dollars” were an innovation that first took hold in the Berkshires in the 1980s, where restaurants would sell discounted gift cards for future use. Think $10 worth of hoagies, grinders, clubs, subs, and melts for only $9! This model was directly recreated in 2020 to help local restaurants all over the world survive the COVID lockdown. It also continues to this day as a way for local producers to fund expansion. Famously, Monforte Dairy in Stratford, Ontario recently used the concept to fund construction of a new creamery. Their “cheese bucks” blurred the line between pre-buying and local currency as they could be used to purchase their cheese and at one time could also be used in their restaurant.
One of the more successful new local currencies is the Tenino Dollar. When the Mayor of Tenino, Washington, Wayne Fournier, wanted to stimulate the local economy he found inspiration in the printing press in the local town museum, which, in 1931 had been used to issue a successful local currency. He fired the printing press back up in March of 2020 and issued $16,000 Tenino dollars to locals in need, that would then be accepted by local business owners and redeemed for USD at city hall. Few of the Tenino Dollars were ever redeemed and they have since become a collectors item.
The largest local currency is called WIR and is accepted by 62,000 businesses in Switzerland. With total assets of 3 billion Swiss francs, it has the time discount features of Wara and a conversion fee to help keep funds in WIR. While not achieving the same velocity as Wara, WIR are circulated twice as often than the equivalent Swiss franc.
Value
To help understand the value of local currency, let’s do a modern day comparison.
In Canada, as a response to COVID, the Canadian Government created a program called the Canadian Emergency Response Benefit (CERB). The total program cost was $71.3 billion dollars. Let’s use the recommended percentage of income a person should spend on rent (30%). As well, average debt levels went down 20% during CERB. So we can roughly assume that 50% or $35 billion of that money went back into the financial system and was not spent at stores or restaurants or used to employ people, etc.
If the government had sent half of CERB in local currency and half in Canadian dollars, it would have had a transformative impact on the local economy. Using the Wara case, if a dollar changed hands 400 times, every $1 that entered the economy would create $400 in economic activity. So, that $35 billion would have created…. $14 trillion in economic activity. For the cost-conscious, we could have achieved the same effect for just more than half the cost.
That could never work, right?! But it has! That is exactly what happened in Worgl. In the 12 months that Worgl was issuing Wara, it was able to pay locals to complete a number of public works projects, including repaving the streets, building a new sewer and water treatment system and building a bridge and a ski jump. Imagine how much more fun your COVID winter would be with a local ski jump.
To summarize the advantages of a local currency:
The time discount on local currencies causes them to get spent more often, increasing overall economic activity.
The increase in local demand allows for more consumption of local resources. If it is easier to spend locally, you will hire locally.
Because they are only accepted locally, they encourage the consumption of locally produced and available goods and services.
Sustainability
If it isn’t clear by now, local currency is clearly something I am personally passionate about. In Toronto, where I live, we have a number of local currencies (from farmer’s market dollars to Toronto Local Currency). I have written to my MP (Chrystia Freeland, the Minister of Finance) a number of times on the subject and all the responses were some version of “she will take it under advisement.”
Many local currencies have failed because of lack of adoption or shifting needs when the economy turns around. The Toronto Dollar is one example; in-use from 1998 to 2018, it was not able to break out beyond one neighbourhood. Now, a new group is starting the Toronto Local Currency (TLC). When I spoke to founder Aziza Mohammed about the initiative, she painted the picture of a straight-forward community support currency. They will accept donations and issue TLC to those in need. The TLC can be spent like cash at retailers who can then redeem it for Canadian dollars.
Popular acceptance of alternative currencies (Bitcoin, etc.) is at an all-time high. Perhaps now is the time to try again. With blockchain technology, all the challenges of purchase, redemption, time discounting, etc. can be replaced with software.
The sustainability impact alone would be massive. Thriving main streets improve walkability and reduce carbon emissions. Local merchants and restaurants need help now more than ever, driving them to possibly accept local currencies. The time to build this is now because if we have the infrastructure in place, we can better respond to future crises with more effective stimulus.
Postscript: Sometimes the line is blurred between store credits and local currency. In Canada, a general retailer called Canadian Tire would issue 1% of your purchase back in Canadian Tire Money. The money was printed on similar paper to regular currency and could be accepted across Canada as cash at coffee shops, convenience stores, etc. if the purchaser was in a pinch. It could also be used on any purchase in a Canadian Tire store.