One of the major problems with money is that it is used to motivate unethical, dangerous, or damaging actions. Our current global culture uses money with very little thought to the overall impact this powerful motive force has on the planet itself.
We purchase products or services, and the money we spend, some number of transactions later, is motivating things we abhor.
We pay our electric bills, and our power company buys coal, which motivates the destruction of mountains and natural areas. The consumption of the coal pollutes the atmosphere, and is forcing unpredictable changes on the climate.
We buy products for our homes at "big box" stores, and they in turn purchase products made of lumber shipped from Brazil, cut down by impoverished people in the Amazon and destroying this natural wilderness, along with its wonders including its ability to capture carbon dioxide.
No matter what transaction we select, within some number of changes of hands, the money ends up motivating such destructive behavior.
This problem is systemic. Spending money within our global economy makes us culpable for all the damage our economic engine does to the world, its animals, and its people.
The solutions are few. The most obvious, and perhaps the most likely, is forming a world government that has the authority to enact strict protective laws, and that in turn provide the means to enforce these laws globally.
Luckily for Earth, there are limits to our economic system's and our own abilities to destroy, or at least the rate at which we can do so is limited. We are limited by the number of people who are participating in this global economic system, as well as by the amount of energy we can bring to bear against the world. These energy limits stem primarily from our rapid depletion of the fossil fuels, and most importantly, from our arriving at the point of global peak oil production, which spells the end of growth for the economic system as a whole.
The end of growth of this fossil energy flow heralds an end to our current destructive global economic model, but this end may takes months, years, or even decades; meaning months, years, or decades of continued destruction, pollution, climatic forcing, and the misery of millions or billions of humans who no longer have the ability to participate in this self-imploding system.
Rather than waiting around to see how this potentially very slow and painful end unfolds, it makes sense for those of us with some glimmer of insight to take steps now to begin inventing, and launching, new economic models, and especially ones that inherently restore Earth, rather than damaging and destroying it.
One area of promise is in the universe of local currencies. A local currency is a form of money that includes a much, much smaller number of participants; perhaps a city, or a town, or a county, or a small region. A local currency exists side-by-side with the national currency. Merchants chose whether to accept the local currency for payment; if so, how much, as either a numerical amount, or a percentage; and (again) if so, in exchange for which products.
Many varieties of local currencies have been tried, or are now in use. In the USA, the Ithaca Hours and BerkShares are the most well known, and have received the most publicity. Some local currencies have a fixed exchange rate with the national currency, and can be easily exchanged. Other possibilities include local currencies with floating exchange rates, or with few mechanisms for exchanging them back to national currency. Some even lose value intentionally, at a very precise rate, through demurrage design rules.
In developing new local economic systems to take up the hole left by the collapsing global economic system, it is important to consider exactly how a local currency would fare under a number of difficult situations, two of them being: a general lack of national currency within a community; and during a high or hyper inflation episode of the national and/or global currency.
High Unemployment Rate, Lack of Jobs
The first issue is the one we face now, where high unemployment rates are rapidly pulling cash out of a given community's businesses and households, leaving very little for local spending. This in turn fuels a vicious cycle where businesses make less sales, leading to layoffs, and where those unemployed individuals have even less money to spend. In Michigan, suffering the highest unemployment rate in the USA, both Detroit and Flint provide unfortunate but illustrative examples.
In Detroit, the number of unemployed exceeds 20%. In a city of one million, this equates to at least two hundred thousand people who are ready and willing to work, but there is no money in the area to create the desired jobs. Instead, the money is being slowly and steadily drained from the community.
How could a local currency for the Detroit area help put people to work?
The printing of a local currency is the easiest of the challenges. Distribution of the cash would be done through the employers. Employers would need to create jobs that would match the skills and abilities of the unemployed individuals. Jobs could be in public works, planting trees, building parks, writing books, tutoring in schools, or any number of things. Local currency could even be given away to help the most needy people meet their needs. Thus, getting the local currency in the hands of the people who need it is somewhat straight forward.
The big challenge is to have products and services that people could purchase with those funds. At the moment in the USA, food stamps help provide food for the poorest of the poor, but let us imagine a situation where the food stamps were no longer available, or did not provide an adequate amount of food. An essential trait of the local currency is that it could be used to buy, directly or indirectly, food. And, an effective local currency system would be able ensure that all employed with local currencies were able to keep themselves fed.
Home gardens would provide one easy means of providing food that could be purchased with local currency. In addition, grocery stores could accept local currency, and use that to pay their employees. The employees could in turn use that local money to buy groceries, or could spend their local money to purchase services from those participating in the local currency system. This pattern of paying the employees with local currencies could be implemented by many businesses, thus providing an outlet for their incoming local dollars.
Considering food once again, there is only so much labor expense at grocery stores, and it is conceivable that more local currency would be coming in than could be spent. In this case, it would be important to have a banking institution where the merchant could exchange the excess local currency for the national currency. The national currency would be provided to the bank by other participants who exchanged the national currency for local currency, in order to pay their own employees and other local currency bills.
This would be the biggest challenge point: how to decrease the ratio within the community of national currency to local currency in the expenses of businesses. The core to this challenge would be recognizing that it is caused only by the importation of products and services.
The products and services that may be imported into a community are a long list indeed. Energy (electricity and fuels); food (groceries and restaurants); specialists (those not participating in the local currency system); various goods from the basic to the complex (cotton to computers); entertainment and communication (internet, TV, phone); security, health care, sanitation and education; and undoubtedly a number of others.
One way to minimize community imports is to modify the wants of those participating in the local currency system. If the participants chose to cancel their cable TV, and instead spend the same money to pay for live local entertainment, then the amount of national currency needed within the community is diminished.
Each area of commerce is subject to the same strategy. Buying all of the locally-grown food will quickly increase the desire of the community to grow even more food locally, and will decrease the need to purchase imported (into the community) food. Entertainment imports could again be reduced by having well-supplied local libraries with many branches, libraries that were well-stocked with movies, TV shows, magazines, books, and newspapers, and with extended hours to best serve the community; these libraries would lessen the desire to purchase with national dollars these imported products. Frequent community yard sales, a willingness to reuse items (including those that are second hand, used, and from thrift stores), and frequent examples of clever reuse of items would reduce the necessity to import goods. Reducing fuel consumption might mean temporary increases of imports in order to improve the energy efficiency of homes and businesses, with an end result of less electricity and fuel imports. A well-organized transportation system, encouraging human powered transportation (walking, biking, etc.), full utilization of public transportation, car shares, car pools and etc. would decrease demand for imported transportation fuel.
A goal of a local-currency-oriented community would be to minimize its consumption of imported products, reducing their use in every conceivable way. The less national money leaving the community to purchase the imports, the less money necessary coming IN to the community. This implies that even if the level of exports of the community remained the same, bringing in the same amount of national currency, the amount of national currency leaving the community would be systematically be brought down to match.
A careful study of a community would need to look very closely at how the money was coming in to the community, and how it was leaving, and then work to diminish the one, while maintaining the other, while overlaying the local currency to provide for the money needs of all. (Note: A good place for more reading on this may be Michael Shuman's work on local economies.)
High or Hyper Inflation
A high inflation or hyperinflation event would be a critical test of a local currency. Given the state of the global economy, and the massive efforts trying to restore the global spending level and balance, the possibility of high inflation or hyperinflation has been mentioned more than once in popular media. Examples of hyperinflation are plentiful, with the most acute case currently being in Zimbabwe, where the people no longer have any currency to use for purchases. The public there has been reduced to panning all day for gold dust in order to be able to purchase a single day's worth of food.
During a hyperinflation, those on fixed incomes rapidly lose their ability to provide for their own essential needs; pension payments, social security payments, welfare payments, and even salaries are often unable to keep up with the rate of inflation. Here, a stable local currency would be extremely useful, as that community would strives to quickly transition to an entirely local, self-sufficient economy.
The difficulties here are many.
First, in most current examples of local currencies, only a small fraction of spending in any local is done with same. This implies that the value of physical bills in circulation needed to maintain a functioning economy would be much greater than the value on reserve. There may be work-arounds for this if the speed of the money is fast enough, and if there is demurrage or other built-in traits that keep the money moving quickly. Another solution occurs if there are ways to create "book money" based on the local currency; this might be the only way to provide sufficient money supply to keep spending at the level to keep everyone fed and safe.
A second, more challenging issue is that of essential products which are only available for import, or those unable to be produced in sufficient quantity or quality within that community; possible examples include food, heating fuel, electricity, clean water, and security. In Zimbabwe, the people are forced to pan all day for gold in order to purchase one thing and one thing only, food. Those that can not pan, do not eat, and this is the state of things there now. Any local currency will fail without the ability of the community to provide sufficient food for its members.
Clearly, one key to a functioning local currency is the ability of the community to produce and store sufficient quantities and quality of food, or to produce an essential export, such as heating fuel or electricity, that can be exported to other communities that have surplus food. One electricity solution would be for the community, while it has the ability, to install electricity or energy-generating infrastructure such as wind turbines or PV solar panels. As mentioned earlier, decreasing the community's dependence on imports would make the community more able to weather a collapse of the national currency.
A third issue experienced by many using the local currency would be the issue of hoarding of the currency itself. If there were those who began to try to save the currency, large quantities of it, then the quantity of money would shrink, and the unemployment crisis would quickly return. This could be the biggest threat to a functioning system, for once the system was up and running, replacing the national currency, it would need to be very closely monitored to ensure that it could be continued indefinitely.
Those communities that focused, ahead of time, on increasing their use of local currency, and minimizing their importation of essential products, would likely be in a far better position to weather a hyperinflation.
The global economic system is failing, and due to the inevitable decline in energy flows, it may fail completely. At present, the extremely high unemployment rate is destroying families and communities. The well-reasoned implementation of a local currency within such a community could help it to provide full employment for its members, help insulate it from instability of the national currency, and move the community towards self-sufficiency and sustainability.