local currency in berkshire county, mass.

[jk]

from an article in the ny times [subscription required]

Now people can pay for groceries, an oil change, even dental work with currency bearing the likenesses of local heroes like Herman Melville and Norman Rockwell.
Be forewarned, though: these bills do not travel well. Try paying a tab in Boston with a Norman and you could wind up in the Charles.
The central purpose behind BerkShares is to strengthen the local economy, perhaps even inoculate it against the whims of globalization, by encouraging people to support local businesses. Amazon does not accept BerkShares, for example, but the Bookloft on Route 7 does.
Five months into the experiment, some people embrace it, some endure it, some ignore it altogether. At the very least, BerkShares have reminded everyone just how complex this thing called community is....



In addition to Melville on the twenties and Rockwell on the fifties, there was a Mohican on the ones; Robyn Van En, champion of community-supported agriculture projects, on the fives; and W. E. B. DuBois, a founder of the civil rights movement, on the tens...



Now people are walking into banks and exchanging federal currency for a different kind: 11 BerkShares for $10. The idea is that merchants will absorb the 10 percent discount, then use those same BerkShares to pay their own bills.

[grapejelly]

Re: local currency in berkshire county, mass.

When I was a kid we would go to a fair once a year and when we paid our entrace fee, we bought tickets, or scrip, with cash. Inside the fair, they only accepted the scrip.

The local currency experiments are the same. Scrip backed by FRNs.

Any alternative to FRNs is interesting but most of local currencies are attempts to keep circulating media within a local trade area.

The more interesting experimental currencies are money issued by businesses or organizations and backed by those issuers. That is, redeemable in the issuer's goods and services.

Ithaca Hours are in among this more interesting variant.

These are I think classed as social currency.

Everyone can be an issuer or redeemer of social currency. A clearing mechanism exists, and you can have a debit or a credit balance at any one time and it is up to community members to decide how much credit to extend to you if you have a debit balance.

I believer that when FRNs and other irredeemable currencies bite the dust, what will replace them is something like this:

Walmart issues a gift card and that is Walmart money.

If you have a Walmart gift card, you can go and buy stuff at Walmart.

If Walmart paid their suppliers and employees in gift cards which I will call WalmartPoints, those suppliers and employees could buy things at Walmart or trade the WalmartPoints for goods and services from other people or other companies.

The rule is that Walmart must have the goods or services to provide to all gift card owners that it issues WalmartPoints to, at all times.

In other words, the gift cards, the WalmartPoinst, must be 100% redeemable.

Let’s say you are a tire store. You can issue TirePoints good on tires that you have in stock. You must have the tires in stock or reasonably close to your physical possession so that all TirePoints you issue are backed by tires.

You could pay your suppliers and your employees in TirePoints they could buy your tires with that money, or they could trade the TirePoints to others who might want to buy tires. Again, you must offer 100% redeemable TirePoints. You can’t default if too many people show up with certificates and you have run out of tires. This has to be 100% redeemable and not “fractional reserve.” Or it will be considered criminal fraud.

Let’s turn to public entities to see how privately issued, 100% redeemable private money works.

If you are the City of Fairfax, you can assess the citizens taxes of $1 million for the upcoming year. And then you can pay our employees and suppliers with tax certificates up to the $1 million.

These City of Fairfax tax certificates are good for paying any tax or fee to the City of Fairfax.

Those vendors and suppliers and employees of the City of Fairfax can use the certificates they’ve gotten paid just like money to pay their own taxes and fees due to the City of Fairfax. Or they can trade them to other people for goods and services.

So long as you, the City of Fairfax, have levied $1 million in taxes on the citizens, this $1 million in tax certificates is 100% redeemable.

100% redeemable money is not debt money? It’s honest money. And anyone can issue such money. (It has nothing to do with any gold standard either.)

What needs to be in place is a common clearing mechanism. Privately issued money can be electronic, using encryption techniques, and can be cleared by exchanges run by private brokerage companies.

EBay could issue eBayPoints to its merchants. Each merchant can then spend eBayPoints and receive eBayPoints for what that merchant sells or buys. EbayPoints are fully redeemable into anything eBay sells. And eBayPoints can be exchanged for WalMartPoints, TirePoints or City of Fairfax tax certificates. All in real time and all online.

This uses privately issued money in some unit of account (eBayPoints etc.) and as a medium of exchange. Money is not a store of value and this type of private money should have demurrage associated with it. Demurrage compensates the issuer for storage of the goods or services by depreciating the issued money according to some depreciation schedule.