Local and Community Currencies

Local and community currencies, also called regional or complementary currencies, are means of payment issued by a municipality, business network or citizens' group for use within a particular area or community. They circulate alongside the national fiat currency rather than replacing it, and are normally accepted voluntarily by participating shops and individuals. Common goals are to keep spending in the local economy, to help small firms trade when official money is scarce, and to strengthen community ties.

Such currencies are not legal tender, and most are backed one-for-one by deposits of national money or are based on mutual credit between members. They sit in a legal space shaped by banking, electronic money and tax rules, which vary by country. In recent years some have been issued digitally, and a few on blockchains as part of the regenerative finance movement.

Imagine a town that prints vouchers worth one pound each, which local shops, cafés and the market all agree to take. Residents swap some of their normal pounds for vouchers. Because the vouchers cannot be spent at an online giant or a chain store in the next city, the money tends to go round the town several times before it leaks out.

The vouchers are not magic: they still need people willing to accept them, and someone has to look after the pounds held in reserve. But they act as a nudge towards local spending and a badge of community identity.

Private and local money has a long history, but the modern movement is often traced to the Great Depression. In 1932 the Austrian town of Wörgl issued stamp scrip based on the ideas of the economist Silvio Gesell. The notes lost value each month unless a stamp was bought, a form of demurrage meant to discourage hoarding. Local activity reportedly picked up, but the Austrian central bank had the scheme stopped in 1933. In 1934 Swiss businesses founded the WIR cooperative, a mutual credit system that still operates as WIR Bank. Later examples include Ithaca HOURS in New York State from 1991, the Chiemgauer in Bavaria from 2003, BerkShares in Massachusetts from 2006, the Brixton Pound from 2009 and the Bristol Pound from 2012, which closed in 2021. Many emerged after financial crises, when credit was tight, echoing the conditions of the Great Depression. Others grew from environmental and anti-globalisation campaigns that wanted to shorten supply chains. Brazil's Banco Palmas, founded in 2000 in a poor district of Fortaleza, combined a local currency with microcredit and became a model for community development banks in Latin America.

• Backed local currencies. Users buy notes or digital units with national money, which is held in reserve, so the currency can be redeemed, often with a small fee to discourage leakage.
• Mutual credit systems. Members extend credit to one another, recording balances in a shared ledger without any reserve. WIR and the Sardex network in Sardinia are examples, and they resemble an organised barter system. Some newer schemes record these balances on a blockchain, an approach known as blockchain mutual credit.
• Time banks. Members trade hours of service, with one hour of any work counting the same.
• Digital and blockchain currencies. App-based local currencies and blockchain tokens, such as community inclusion currencies used in parts of Kenya, aim to cut printing costs and give a clearer picture of how money flows.

Studies find that well-run local currencies can raise the share of spending that stays in an area and can help small firms during downturns, an idea linked to the multiplier effect. Mutual credit networks such as WIR appear to support trade when bank lending contracts. However, the measured effects are usually modest compared with the size of local economies, and many schemes remain small. Their community and campaigning value is often greater than their monetary impact.

• Low uptake. Shops that accept local money need ways to spend it, such as paying suppliers or local taxes; where these are missing, the currency stalls.
• Running costs. Printing secure notes, running apps and managing reserves cost money that small volunteer groups struggle to cover.
• Regulation. Digital schemes can fall under e-money or payment licensing rules, and tax authorities generally treat transactions as taxable in national currency terms.
• Convenience. National contactless payments are easier for most people, which is one reason several well-known paper schemes have closed.

Debates about local money also feed into wider discussions of monetary diversity and financial inclusion, especially in areas poorly served by banks. Central banks have generally tolerated small local schemes, since they are tiny compared with the national money supply and are usually fully backed, but they watch for schemes that issue unbacked credit at scale or that could confuse consumers about deposit protection.

• WIR Bank