Local Currency

What Is An Alternative (Local) Currency?

An alternative (or local) currency is any kind of currency used as an alternative to the dominant national currency for the purchase of goods or services. This can include gift cards, tokens, barters, credits, or actual paper money that represents the dominant national currency in another form. It can occur on the scale of a single person, organization, company, municipality, state, or on a national level.

How Does It Work?

A local currency needs participation on three levels: consumers, businesses, and banks. Consumers need to be willing to spend the currency, businesses need to be willing to accept the currency, and banks need to be willing to be the places of initial currency exchange and deposits.

An exchange rate needs to be established that would encourage use of the currency and keep it in circulation. The Berkshares currency system of western Massachusetts uses a 19/20 exchange rate. This means that for $19 USD, $20 in Berkshares can be received when exchanged at a participating business (bank or merchant). This builds in a 5% discount when the money is spent. (For example, a $50 dinner at a locally-owned participating restaurant would really be $47.50 USD when $50 local dollars are used.)

The 5% discount isn't forfeited by the business as long as they spend the money instead of exchanging it back into U.S. dollars. The local currency could be spent by businesses buying goods and services from other local businesses, handed out as change, given to customers who need more local currency in exchange for U.S. dollars, paid out to employees agreeable to such an arrangement, deposited at participating banks willing to allow merchant accounts that use the local money as the currency of record, or.. and this is where local government could get involved as a fourth type of participant.. pay local their property taxes with the local currency. What business wouldn't want a 5% discount on their taxes? Municipalities probably can't afford the 5% reduction in business tax revenues, but that shortfall could be made up by raising taxes proportionately, thereby keeping taxes even for local businesses and raising taxes only on the national chains.

A local currency also brings money to the area as tourists often take some home as a souvenir from their visit to the area. The amount is likely negligible compared to the total that would need to be in circulation, but the surplus generated by such transactions would help cover the costs of printing, distribution, merchant set-up, etc.

What Are The Benefits?

When you buy a gift card from a store, that company now has your money locked up until it is actually spent. You didn't buy anything, you just exchanged U.S. dollars for the equal number of dollars that can only be used in that store. A local currency does the same thing in that when you exchange U.S. currency for some, you can now only spend it with businesses that are participating locally-owned merchants. This effectively "locks up" your money in the local economy (although it's not really locked in because you can change it back.. good luck selling a gift card back to a chain store).

The biggest short-term benefit would consist of local businesses seeing an influx of customers who support the use of the local currency, but more importantly (and which would be mostly unseen), these local businesses would need bank accounts at the participating local banks and/or credit unions, and the increase in customers at these local banking institutions would be the first big step in taking control of the local economy away from Wall Street and the 1%.

While locally-owned businesses would be the primary merchants to get involved, another benefit would be the effect on the national/multi-national chain stores, restaurants, etc. Trying to drive these companies out of business would need to be a longer term goal since they are unfortunately so greatly tied into our economy in that they provide millions of jobs and provide goods and services to millions of people who currently have no practical alternative. But one way to shape how they fit into the local economy would be to set conditions for their involvement, should any be interested in trying to bring back the customers that start switching to local merchants because of the 5% discount or out of support for local businesses as word gets out. Terms and conditions that support local crafters of clothing, furniture, produce, or anything made or grown nearby that would be displayed in these stores in exchange for allowing that store to accept local currency (and probably only for these goods and not for anything in the store), could be determined and put into practice whenever it was deemed beneficial for the local economy and continued local job growth.

For example, if all of the WalMarts closed tomorrow, in the short term that would do more harm than good since finding an alternate use for all that retail space and replacing all of the goods they offer without their massive distribution system would be impossible. But if all of the Subways closed tomorrow and were each replaced by sub shops that bought all of their ingredients and supplies from local merchants instead of Sysco, that kind of change would have immediate results with shop owners keeping all of the profits and reinvesting them in the local economy instead of paying massive franchise fees.

Is An Alternative Currency Legal?

It is completely legal for another currency, issued by an individual, corporation, organization, or local, state, or national government, to be issued as an alternative to the dominant national (or multinational) currency system, as long as the alternative currency doesn't involve the coining of metals (18 U.S.C. § 486) or doesn't appear to be affiliated with the dominant national currency system (18 U.S.C. § 514).

Examples of individuals or corporations issuing an alternative currency would be gift cards that can be purchased and used only at single shop or in a chain of stores. The "purchase" of the gift card is really a one-way exchange of currency. Some companies offer their own actual currency instead of gift cards, such as Disney Dollars that can be purchased in order to use them in gift shops around Disney World.

Boston already has it's own version of an alternative currency with a single purpose and which also involves a one-way exchange, meaning you use it for this single purpose or forfeit it (much like a gift card). We all know this, or T riders do anyway, as a Charlie Card.

An example of an alternative currency that got in trouble for violating both of the laws mentioned above was the Liberty Dollar. Coins were minted out of gold and silver, and the Justice Department also stated that the Liberty Dollar was confusingly similar to actual U.S. currency, meaning it appeared to violate laws forbidding counterfeiting even though it didn't explicitly attempt to do this.

18 U.S.C. § 486:

Whoever, except as authorized by law, makes or utters or passes, or attempts to utter or pass, any coins of gold or silver or other metal, or alloys of metals, intended for use as current money, whether in the resemblance of coins of the United States or of foreign countries, or of original design, shall be fined under this title or imprisoned not more than five years, or both.

18 U.S.C. § 514:

(a) Whoever, with the intent to defraud:

(1) draws, prints, processes, produces, publishes, or otherwise makes, or attempts or causes the same, within the United States;

(2) passes, utters, presents, offers, brokers, issues, sells, or attempts or causes the same, or with like intent possesses, within the United States; or

(3) utilizes interstate or foreign commerce, including the use of the mails or wire, radio, or other electronic communication, to transmit, transport, ship, move, transfer, or attempts or causes the same, to, from, or through the United States,

any false or fictitious instrument, document, or other item appearing, representing, purporting, or contriving through scheme or artifice, to be an actual security or other financial instrument issued under the authority of the United States, a foreign government, a State or other political subdivision of the United States, or an organization, shall be guilty of a class B felony.

(b) For purposes of this section, any term used in this section that is defined in section 513 (c) has the same meaning given such term in section 513 (c).

(c) The United States Secret Service, in addition to any other agency having such authority, shall have authority to investigate offenses under this section.

How Can This Get Started?

There are many questions to be answered, issues to be resolved, and decisions to be made. What would be the extent of where a local currency could be used? Boston proper? The Boston Metropolitan region (such as out to 128)? What would be the rules for what merchants could participate? What exchange rate would be used? What banks and credit unions would be eligible/asked to participate? How would the general public be informed and educated? How would the currency be printed? What methods for preventing and detecting counterfeits would be enacted?

A working group needs to be formed to answer these questions, the answers would then become the founding principles of the non-profit organization that needs to be founded to oversee the printing and issuing of a local currency.