Local currency

In economics, a local currency is a currency that can be spent in a particular geographical locality at participating organisations. A regional currency is a form of local currency encompassing a larger geographical area. A local currency acts as a complementary currency to a national currency, rather than replacing it, and aims to encourage spending within a local community, especially with locally-owned businesses. The currency may not be backed by a national government or be legal tender. About 300 complementary currencies, including local currencies, are listed in the Complementary Currency Resource Center worldwide database.

Some definitions:

The Wörgl experiment illustrates some of the common characteristics and major benefits of local currencies.

1. Local currencies with negative interest rate or demurrage tend to circulate much more rapidly than national currencies. The same amount of currency in circulation is employed more times and results in far greater overall economic activity. It produces greater benefit per unit. The higher velocity of money is a result of the negative interest rate which encourages people to spend the money more quickly.

2. Local currencies enable the community to more fully utilize its existing productive resources, especially unemployed labor, which has a catalytic effect on the rest of the local economy. They are based on the premise that the community is not fully utilizing its productive capacities, because of a lack of local purchasing power. The alternative currency is utilized to increase demand, resulting in a greater exploitation of productive resources. So long as the local economy is functioning at less than full capacity, the introduction of local currency need not be inflationary, even when it results in a significant increase in total money supply and total economic activity.

3. Since local currencies are only accepted within the community, their usage encourages the purchase of locally produced and locally-available goods and services. Thus, for any level of economic activity, more of the benefit accrues to the local community and less drains out to other parts of the country or the world. For instance, construction work undertaken with local currencies employs local labor and utilizes as far as possible local materials. The enhanced local effect becomes an incentive for the local population to accept and utilize the scrips.

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