Community currencies did not always have suchaltruistic missions. Modern forms find theirroots in scrip, issued for local use to “encourage”purchases at company stores. Coal companies andothers used the practice of paying workers in scripto force their employees to purchase food, tools,and other necessities at egregious prices. Only theissuing company accepted the scrip, and it wasoften used as a way to issue quasi-payday loans.These practices are rightly villainized for keeping workers immobile and company dependent.Employee savings were normally accepted onlywithin the confines of the company system, andemployees had limited ability to transfer theirsavings into currency accepted outside thecompany’s territory.Not all examples of early localized currenciesare quite so dreary. The issuance of scrip roseduring the great depression, as local governmentssearched for methods of filling budget gapsand groups of unemployed workers looked fora simpler method of bartering. And localbusinesses used scrip to thwart the encroachmentof national chains.
Is It Legal?
Community currencies are ordinarily legal, andthe rules governing them are not too ambiguous.If you are thinking about starting your owncommunity currency, there are a few things tokeep in mind. Your currency must be worth morethan one dollar. It cannot look like U.S. Mintcurrency. And it should not attempt to competewith the U.S. dollar for national dominance—a“current money”. The liberty dollar system wasshut down by the federal government. Backed byprecious metals, it appeared to violate the statuteagainst creating current money. It was accused of attempting to compete with the U.S. dollar andhad a similar appearance. So, your new currencyshould be worth more than a dollar and beentirely dissimilar to, and non-competitive with,the U.S. dollar.The bad news: your new currency does notenjoy many of the rights and legal protectionsthat the U.S. dollar does. Community currencieslack legal tender status—the right to be acceptedanywhere at any time in the U.S. Communitycurrencies also lack the counterfeiting safeguardsof the U.S. dollar, although they are covered bythe typical fraud regulations.
Modern Community Currencies andTheir Failure
Unfortunately, many of these currencies failor go dormant. In fact, only about 20 percentof community currencies started in the U.S.survive. The main reason? They act like fads.Many of the currencies that appeared in the ‘90s,especially in the U.S., were not created out of economic necessity. Instead, they were designedto help create enthusiasm and assist communitybusinesses and farmers by encouraging purchasesin the local economy. Once the initial excitementof the currency wears off, they tend to go outof fashion.To work, community currencies must havea base of acceptance from both consumers andbusinesses. Without businesses to accept thecurrency, consumers will be less willing to use it,and vice versa. There also needs to be a perceivedlongevity in the system. If consumers do notfeel the currency has staying power, they shunit. As John Maynard Keynes pointed out, “theimportance of money essentially flows from itsbeing a link between the present and the future.”Without assurances they will be able to spendthe money later, consumers become less and lesswilling to use the currency.Some last. But it takes buy-in from a numberof parties, and a structure that incentivizes use of the currency by both consumers and businesses.Businesses want to see more consumers, andconsumers never take issue with a discount. Oneexample is Berkshares, founded in the Berkshiresof Western Massachusetts. Berkshares have thebacking of community banks, acceptance fromnumerous local businesses, and provide theconsumer with a 5 percent discount (the consumerreceives 5 percent more Berkshares than dollarswhen exchanged at a local bank).
More than a Fad?
There is a significant difference betweencurrencies that come about because of unemployment and economic disenfranchisement,such as depression era scrip, and those designedto spur local commerce, like the Berkshare.Community currencies that come about toalleviate a local social issue often have issuesthemselves. They tend to be underfunded andstruggle to find the necessary resources and
“Some last. But it takes buy-in froma number of parties” “In fact, only about 20 percent of community currencies started in theU.S. survive. The main reason? Theyact like fads.”