Local Currency Systems Overview
Andrew Crowder
Currency Type 1: Schwundgeld (depreciative money): 44 systems in Germany
Example: The Chiemgauer http://www.bundesbank.de/download/volkswirtschaft/dkp/2006/200643dkp_en....

-Located in Prien am Chiemsee, Bavaria, Germany
-Number of members: 13,000
-Number of businesses: 630
-Amount of Chiemgauer in circulation: 180,000 (85,000 electronic)
Chiemgauer, considered to be equivalent to the euro, circulates as follows within Prien and neighboring towns:
-Non-profits purchase 100 Chiemgauer at 97 euro and resell them at 100 euro, therefore earning 3 euro to be spent for their own activities.
-Shoppers exchange 100 euro into 100 Chiemgauer at a non-profit they support, allowing it to have extra cash income without donating. They then spend Chiemgauer at local businesses at face value, therefore helping both local non-profits and businesses without any further cost.
-Businesses accept 100 Chiemgauer at face value and spend them for their own purchases or exchange 100 Chiemgauer into 95 euro, losing 5% for commission but earning more by attracting Chiemgauer members to their products and/or services. Of this, 2 euro goes for administrative costs, and 3 euro replaces the original discount to the non-profit.
-To maintain them in circulation, every three months you have to put on the banknotes a “scrip” corresponding to 2% of the banknote value.

The concept of demurrage is based on the idea that in the conventional monetary system, ‘imperishable’ money has a structural superiority over ‘perishable’ goods of the same value, which lose it over time due to rust, spoilage, etc. This encourages savings over spending, which in turn removes money from the economic process needed to drive demand. Thus the profits of interest for investors are borne as costs by the producers, who have to borrow from the bank to continue production. Another effect of this savings gap is that supra-regional corporations can stimulate an outflow of overall capital from a localized area.

Demurrage eliminates the material superiority of money over perishable goods by attaching an artificial depreciation, discouraging money hoarding and stimulating rapid disbursement of money back into the system. When Chiemgauer are eventually exchanged back into euro by businesses, the sum of the demurrage is split between non-profits and administrative fees 60/40.

Currency Type 2: Artificially Valued Currency

Example: Berkshares (http://www.berkshares.org/localcurrency.htm)

This system works on a similar concept of artificial valuation to the Chiemgauer, but the valuation is extended to consumers as well as non-profits and there is no demurrage over time.

The BerkShares website lists over 300 businesses in Berkshire County that accept the currency. In 19 months 1.5 million BerkShares had been issued from eleven branch offices of five local banks.

Instead of losing value over time, Berkshares are issued at 100 for every 90 federal dollars, and then are valued in the local economy as equal to those federal dollars. When redeemed for federal dollars at the bank, however, they are converted back at the 90% exchange rate.

This helps the local system grow by encouraging community members to exchange federal dollars for the 10% discount and discouraging businesses and community members from redeeming them at a loss of 10%.

As long as capital is kept in the system, the money supply and purchasing power of residents within the community grows.

This system also benefits non-profit organizations and local initiatives by allowing them to purchase Berkshares at the 10% discount and then sell them at full price to consumers. Since consumers can also get Berkshares from participating Barkshares exchange banks (local participating banks) at the discounted exchange rate, this transaction represents a 10% donation to that non-profit.

The project seeks to assure that a high percentage of each dollar spent will remain circulating in the community. This increase in community capital creates a positive environment for new entrepreneurial ventures. It is hoped that new businesses sprouting from the resulting local generation of wealth will replace imported goods with locally produced items, which are more environmentally sustainable in that they do not need to be shipped over vast distances by the use of fossil fuels.

Currency Type 3: The Hours System

The Hours system uses an hour’s work as the central unit of value. These systems typically use the average hourly wage in federal currency as a basis for the value of one hour.

Example: Ithaca Hours, the first of its kind located in Ithaca, NY. Over 900 participants publicly accept Ithaca HOURS for goods and services. (http://www.ithacahours.org/index.php)

-When the currency was formulated in 1991, the average hourly wage in Tompkins County was $10. So it was decided that one HOUR would represent $10. All portions of an hour are worth equivalent subdivisions of $10. E.g., 1/8 HOUR = $1.25

-The name HOUR is meant to remind you that in addition to being a medium of exchange for commodities, currency represents someone's labor, the time taken to provide a skill or perform a service. Your time is worth something to someone else. NOTE: members dealing with Hours are free to charge or offer whatever they would like, but the representation of $10 for one hour is meant as a reminder that one hour of work should be fairly compensated based not on its value to the consumer, but on the effort of the worker.

-Because of overhead and specialized skills, however, many people may require more than one Hour for one hour of service.

-Businesses also may require only partial acceptance of Hours for goods and services rendered, due to taxation or transactions outside of the community.

-The issuing body (The Circulation Committee of Ithaca HOURS, Inc.) slowly but steadily increases the money supply and therefore the overall purchasing power of the community by giving 2 hours at signup, or double the registration fee of $10, and then issuing renewal bonuses to participating businesses that have held constant membership in the directory 8 months. This occurs every 8 months for each business. Federal Dollars can also be exchanged for Hours at the designated location at the rate of $10 to 1 Hour

-Because the money supply is artificially increased, the Circulation Committee must also carefully monitor the money supply and curb incentives as necessary.

-Additionally, the issuing body is able to make loans of up to 50 Hours, or $500, at no interest. This helps stimulate local small businesses that cannot get such small ‘microloans’ from banks and are saddled by interest from conventional loans. Approval of loan applications is decided monthly at Barter Potlucks, the Town Hall style meeting of all participating members.

Currency Type 4: Time Banking

Unlike the Hours system, Time Banking does not simply issue a currency with an average hour of work as the central unit of measure. Instead, the system literally uses hours of work as currency.

Multiple Time Banks exist across the United States and in the UK (http://www.timebanks.org/, http://www.timebanks.co.uk/)

In such a system, one hour of one person's time is equal to one hour of another's. Time Dollars are earned for providing services and spent receiving services.

Because the value of each ‘Time Dollar’ is fixed at one hour and has no related value in the federal monetary system, it resists inflation and accrues no interest.

Such a system therefore requires no money supply to start up, only a community with goods and services to offer.

Time Banking is primarily used to provide incentives and rewards for work such as mentoring children, caring for the elderly, being neighborly--work usually done on a volunteer basis--which a pure market system devalues. Essentially, the "time" one spends providing these types of community services earns "time" that one can spend to receive services.

This sort of currency cannot replace traditional fiat money, but it does strengthen community involvement in projects normally devalued by a conventional monetary system by officially recognizing hours worked and ensuring compensation for this community service in more service, thus reciprocating community involvement and encouraging further service.

Currency System 5: Open Money Local Exchange Trading Systems (LETS)

A LETSystem is a trading network supported by its own internal currency. It is self-regulating and allows its users to manage and issue their own 'money supply' within the boundaries of the network. All transaction in this system are negotiable between the two parties.

LETSystem recording services keep track of transactions and issue statements of LETSystem trading. Information and instructions detailing the use of such a system can be found here: http://www.gmlets.u-net.com/home.html#home

LETS systems operate in some form or another on nearly every continent, with some using printed directories and more adventurous ones utilizing online databases. The need for data security can make this difficult, but at least half a dozen versions of LETS software exist. One example can be found at http://www.getsglobal.com/. A beta demonstration of another can be found at http://omclient.heroku.com/

Essentially, an open money system boils down the use of money to what it really is: a system of crediting debts for services rendered or received.

In such a system, every member starts at zero and can be credited for service rendered or indebted for service consumed. A negative account balance is not only possible but logical for many residents: it only means that person has consumed more than he/she has contributed.

The LETSystem unit of account is denominated in the national currency. This means that transactions are straightforward, particularly if there are formal accounting requirements as is the case with a business.
The units themselves are information about an individual's position within a trading community. Members who produce more than they consume accumulate a positive account balance, while members who consume more than they produce accumulate a negative account. It is expected that roughly half of all members will have a positive balance and half will have a negative balance. Ideally most accounts should be very near zero, indicating that most members are equally productive and consumptive.
The system relies on a directory of all goods and services for sale as well as a complete directory of all account balances and histories; this transparent listing of all accounts serves as a sort of credit rating that allows traders to decide if they will do business with someone else.
When a transaction is made, a record of it is sent to whoever is in charge of the central database. The value of the good or service is added to the seller’s credit and subtracted from the buyer’s.
No one is obligated to sell goods or provide services to anyone else, and if that person has accumulated an inappropriately negative balance it is reasonable that no one will choose to accept his/her credit until production again rivals consumption.
This system encourages tight community involvement and productivity, as every user’s account activity is visible to all others. It also bases wealth on the supply of goods and services in the community rather than the supply of money in the community, which is essentially infinite.
If the value of community credit is equated with the national currency, it can be used in conjunction with it for purposes of taxation and supra-regional commerce.

Characteristics All Local Currencies Share:
-They promote community involvement by confining transactions to the region where the currency is accepted.
-They facilitate the exchange of goods and services that are not adequately valued by the national currency or the local supply of it.
-They put the community and its members in control of land, natural resources, industry, and the determination of conditions for receiving credit, rather than ceding that authority to centralized banks and businesses with little regard for specific regional needs and conditions.
-They prevent money from leaving the region and filling the coffers of supra-regional businesses and chain stores that tend to take in more from a region than they invest.
-They foster the development and sustainability of small businesses by discouraging larger chains that wish to take money out of the system.
-They eliminate the supply chain associated with supra-regional businesses that bring in goods from faraway places, thus promoting eco-friendly practices and eliminating the need to use fossil fuels for transport. This in turn lowers the overall cost of goods, further increasing the purchasing power of community residents.
-They attempt to eliminate the incentive to hoard money by removing the concept of accruing interest, which removes it from the money overall supply and stunts economic growth in the region.
-They promote self-reliance and self-sustainability within the community by encouraging residents to produce a wider variety of goods and services to be exchanged under the local currency, rather than rely on supra-regional businesses that don’t accept the local currency for certain items.