previous - ideas - further

        ID-7       Local currency systems.            January 8th,   1986




        Local currency systems.


        Benefits.

        When a community has its own currency, full employment can be 
        available to anyone who wants to work and has a skill or service, 
        of any nature, that is required by that community.

        It need no longer be the case that there are jobs that need doing 
        and that people who wish to work are kept idle for want of money.

        This is a natural consequence of the necessary recirculation of 
        the local money; in contrast, conventional money will generally 
        drain out of the community to the cheapest available source of 
        labour or goods.

        A community with its own currency has the capacity to adopt and 
        maintain coherent and relevant directions of development with 
        minimal dislocation by external events.


        Technical difficulties.

        Money is only useful if people think it is, so the effectivenss 
        of any currency is determined by the confidence that a seller has 
        that it can, in turn, be spent to acquire valuable goods or 
        services.

        It is conventional to organize some sort of store of value to 
        confirm the ultimate basis of the money.

        The amount of money that is appropriate to manage the affairs of 
        the community depends upon the trading activity level, and this 
        has no particular relationship to the amount of reserve backing 
        that can be generated.

        It makes little sense to initiate new wealth in the community by 
        witholding wealth from circulation, whether as money, as in gold 
        or short term certificates, or as materials or finished goods.

        Such ideas seem as sensible as preserving prices by destroying 
        goods.

        If, however, money is simply issued without real substantive 
        backing, the question arises -- who gets it first, and for what ?

        If everybody gets some for no other reason than equity, it seems 
        to diminish confidence, and many original holders will panic  
        spend to make sure they get something before the collapse they 
        fear inevitable.







        Landsman Community Services Ltd.              ID-7      Page    1


        ID-7       Local currency systems.            January 8th,   1986




        If some authority body, say the local political administration, 
        is the initial holder, there are further serious problems.

        The conventional middle ground suggests some compromise between 
        producer credits and a conservative banking style, raising all 
        the ugly heads of fractional reserve practices.

        The administrative costs of printing notes and establishing and 
        maintaining administration can be as high as 3-4% of the turnover 
        of the currency itself.

        The currency should be sufficiently compatible with existing 
        commercial practices that there is little or no opportunity for 
        confusion at the point of sale, or in accounting in general.

        The principal task will always be that of preserving the value of 
        the currency.

        Every fluctuation in the flow of conventional money into and out 
        of the local economy will have significant effects on the demand 
        for the local currency.

        The capacity of the local fractional reserve system to absorb 
        these variations is entirely critical.

        If a supposedly backed currency shows any sign of inability to 
        meet the demand for redemption, the chances for its survival are 
        slim.

        For reasons that surely include a proper concern for the 
        protection of all participants, the legal regulation surrounding 
        such initiatives is generally substantial to the point of 
        prohibition.

        All currency systems have to take care that their operation is 
        not liable to various forms of mischief, ranging from speculation 
        to fraudulence or outright sabotage.

        Notwithstanding all of the above, it is arguable that the 
        benefits to the community of running some of its money supply 
        can dramatically outweigh the costs and risks required.



        Precedents

        There have been several significant successes in this field in 
        the last two centuries, from the Guernsey experiment to the work 
        of Gesell in Austria and the Social Credit idealists in the 
        Thirties.

        It could even be said that the very existence of national 
        currencies shows the whole thing is at least possible.





        Landsman Community Services Ltd.              ID-7      Page    2