Dealing with Hyper-Inflation: Local Currencies

As good as a real bill system could work in facilitating a barter economy, it could not substitute fully for a money economy. In the end, a currency should be available, but in conditions of hyperinflation, what does that mean?

The answer is local, or private, currency. There is a long history of local currencies being issued and used, and one just made the news in England. In times of hyperinflation, such a local currency could provide a measure of protection from the economic storm.

A local currency is simply a way to guarantee spending in a limited economy, namely, within the group of people who agree to use it. Thus, when a local grocer receives the local money, he can't spend it at Walmart or in some far away city, he's got to spend it at some local store.

For the people who adopt it, it represents a commitment to limit their spending ability, based on their mutual commitment to uplift each other.

One of the main problems of a local currency would be how to value it. Simply pegging it at a one-to-one relationship with the national currency would make for a nice symbolic gesture, but would not protect you against hyper-inflation. In order for it to have a meaningful role overcoming a collapse of the national currency, it would have to take on independent valuation.

In order to take on its own real value, the currency would have to be backed by something, in the way the dollar used to be backed by gold. Obviously, local currencies today can't be backed by gold.

Better is something that is an integral part of the local economy. That way, if someone tried to make a run on the currency, they would be forced to strengthen the local economy. The local economy would strengthen the local currency, and the local currency would help strengthen the local economy.

from http://www.guardian.co.uk/business/2008/aug/17/currencies.britishidentity

The value of sterling may be plummeting as fears grow over the depth of a possible recession. But in the scenic East Sussex town of Lewes - famous for its bonfire night parties and bewildering number of pubs - a handy alternative is about to become available. Next month, in the latest sign that localism is a coming force in British everyday life, Lewes will launch its own currency. In doing so, it joins a growing list of communities around the world attempting to protect regional economies and preserve the distinctive 'feel' of towns and villages.

The Lewes pound will initially be accepted in around 30 locally owned shops and a first run of 10,000-plus notes is expected. It is the largest-scale launch of a local currency in the UK since Lewes had its own pound in the 19th century and, in a coup for the organisers, the town's branch of Barclays bank has agreed to accept it.

Those pushing the Lewes pound, which by law cannot display the Queen's head but is legal tender, stress their humble ambitions for the new currency. 'There will always be a need for a national currency, but it's a question of trying to go back to what can be done locally,' said Oliver Dudok van Heel, one of the scheme's architects. 'This is not us versus the rest of the world,' added Beth Ambrose, a sustainability expert, who denied that the Lewes pound was a declaration of independence. 'All we want to do is strengthen what's good in our community.'

According to one analysis, 80 per cent of the money that goes into a supermarket till leaves the local economy immediately. By backing local stores such trends can be reversed, say the scheme's supporters. 'We had a beautiful, independent toy shop here once,' van Heel said. 'It's now an estate agent.'

Lewes is not alone in its aspirations. In Totnes, Devon, a complementary currency has been running for more than a year. Similar schemes have been launched abroad and it is estimated there are about 9,000 around the world. Across the Atlantic in Berkshire, Massachusetts, some $800,000 worth of local 'Berkshares' are boosting a thriving alternative economy. Switzerland has introduced a localised credit card scheme, while Holland and Germany have had a surge of interest in complementary currencies.

Those backing the new schemes say they are 'big tent' projects which try to involve the whole community. Experts agree that they thrive in places where people have become disillusioned with central government, suggesting they reflect more than merely economic concerns.

'This is political, but with a small p,' said Patrick Cockburn, a Lewes resident who is backing the new currency. 'It seems a Tory sort of idea - empowering individualism - but it's really about boosting the local community.'

In Argentina, demand for local currencies took off after the economy collapsed in the late Nineties. 'These types of currency go right back,' said David Boyle, a fellow at the New Economics Foundation in London. 'There was a flurry of complementary currencies in the Great Depression. But President Roosevelt outlawed them because he was afraid they might undermine the banks.'

For this reason, proponents of the Lewes pound believe now is the right time for its launch. 'With the current credit crunch, there is some disquiet about the global economic system,' van Heel acknowledged. 'Who knows how important this could be? Studies show if there is more than 12 per cent unemployment in a community these systems become very popular.'

If anywhere can make a new currency work, the locals of Lewes claim it is their town, which prides itself on its independent spirit and the absence of the likes of Starbucks. It already has form when it comes to minor uprisings. After Greene King, the brewing and pub chain, stopped selling the locally brewed Harveys beer and ale at the Lewes Arms there was a mass boycott and the drinks were back within months.

Perhaps, then, it is no coincidence that the town's most famous resident is the radical political pamphleteer Thomas Paine, credited with sowing the intellectual seeds of American independence. Etched under a painting of Paine on a wall of one of Lewes's churches is one of his most famous aphorisms: 'We have the power to build the world anew.'

Two centuries on, the inhabitants of Lewes have the chance to show in their own small way that they still agree.