As Economy Stumbles, Local "Currencies" Gain Traction
By Kathryn Elizabeth Tuggle (Fox Business)
When Judith Lasker joined the Community Exchange program, a local currency organization in Lehigh Valley, Pa., she knew she was helping fellow members of her community. She just didn't realize how much.
Driving an older member of the Community Exchange to a physical therapy appointment one morning, Lasker was touched by her passenger's story of how the exchange had changed her life.
"She said simply that she would have been forced to give up her home if not for the program," Lasker said.
Community Exchange is just one example of local, hours-based "currencies" that are growing in popularity nationwide. Today, there are close to 100 types of local currencies operating in the United States.
While some currencies are true to their name and are backed by federal dollars, others are simply a record of hours worked by contributing “time bank” members. “Whenever you have a shortage of money, people look to invent their own medium of exchange,” said David Boyle, fellow of the New Economics Foundation and Author of "Money Matters."
The earliest local payment system on record began in the1930’s, which isn't surprising; historically, local currencies have been most popular during times of economic crisis, and the U.S. then was in the midst of the Great Depression.
Today, the Community Exchange hours system has 450 members, though similar systems work with just 50 or more members. When one member does something for another, they get credit for the amount of time spent helpng. Each member’s time is worth the same, whether they’re giving tax advice or cooking dinner.
Because there is no set standard for what a local currency should be, many times the grassroots effort to start a program doesn’t gain the momentum it needs. The average success rate for local currency is around 20%, according to a study done by Professor Ed Collom at the University of Southern Maine, which looked at 82 such currencies.
“It’s difficult to keep going, because of the scale on which they are organized,” said Boyle. “You’ve got local people organizing it, and inevitably the workload gets out of hand.” Boyle sid that in order for a local currency to thrive it must be imbedded with another type of endeavor, like a local business or the local government.
The Community Exchange is joined with the Lehigh Valley Hospital, which offers the organization a headquarters for its members database and a place to work, free of charge. Although this offers stability for the Exchange, there is still a danger of members not treating it as a formal system, Collom said. There’s always the risk of it turning into a network of “friendly favors.”
“Once you make friends, it’s like, 'Oh, don’t worry, I don’t need that hour and a half,' he said. “It’s sort of a catch-22, because once the program is successful, the relationships are formed and the program doesn’t need to exist anymore. But until the program gets off the ground, those connections can’t be made.”
Of course, even local currencies with tangible bills aren’t foolproof.
“Counterfeiting is always a possibility,” said Susan Witt, executive director of the E.F. Schumacher Foundation and co-founder of BerkShares, the local currency in the Berkshire region of Massachusetts.
Counterfeiting has never happened before, thanks to security features on the bills, and the relatively small size of the circulation area, Witt said.
“If someone showed up with several fake 50s, it wouldn’t take long to figure out who they were,” Witt said.
Since 2006, BerkShares have been traded through 13 branches of 5 local banks. The exchange rate is 95 cents to every dollar. Accepted at just under 1,000 retailers in the region, $2.5 million of BerkShares have been issued from the bank, and $140,000 are currently in circulation.
Convincing local retailers to use the BerkShare hasn’t been tough, Witt said. Although there is a 5% discount to customers, it’s seen as a way to encourage citizens to shop locally. It also means merchants aren’t paying for processing of credit card fees, bounced checks, or waiting to collect on bills.
For merchants that accept BerkShares, there’s the possibility of having too great of a ratio of Berkshares to dollars. Should a merchant find they have too many to do business properly, they can go to a local bank and trade in their BerkShares for federal dollars.
With BerkShares, as with all local currencies, there are no coins allowed. Although local currencies are legal as long as there is an exchange rate with federal dollars so transactions can be recorded for tax purposes, coins are not allowed because they involve processing precious metals.
The main stumbling blocks for local currencies are maintenance and staff, Collom said. For BerkShares, grants to pay for printing of the currency and bank account setup was provided by a donor-directed fund at the Rudolph Steiner foundation in California.
The interest in local currencies will persist, even as the economy improves, Collom said, because local forms of payment tie into the “buy local” movement that has gained so much traction in recent years. “It all goes back to the idea of neighbors helping neighbors,” Collum said. “Whether they’re changing a lightbulb or helping their local florist stay in business, it's currency that can work.”
With the broader economy stil trying to find its feet, local currencies will continue to grow and flourish, according to Boyle.
“Typically, these things tend to happen in births of innovation and then its quiet again, and I think we are at the beginning of a birth at the moment,” he said.
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