RSSResidents from the Milwaukee neighborhoods of Riverwest and East Side are scheduled to meet Wednesday to discuss printing their own money. The idea is that the local cash could be used at neighborhood stores and businesses, thus encouraging local spending. The result, supporters hope, would be a bustling local economy, even as the rest of the nation deals with a recession.
“You have all these people who have local currency, and they’re going to spend it at local stores,” said Sura Faraj, a community organizer who is helping spearhead the plan. “They can’t spend it at the Wal-Mart or the Home Depot, but they can spend it at their local hardware store or their local grocery store.”
Incentives could be used to entice consumers into using the new money. For example, perhaps they could trade $100 U.S. for $110 local, essentially netting them a 10 percent discount at participating stores.
It’s not a new concept—experts estimate there are at least 2,000 local currencies all over the world—but it is a practice that tends to burgeon during economic downturns. During the Great Depression, scores of communities relied on their own currencies.
Funny Money Based On Worthless Paper No Better
J.J. Jackson | December 5, 2008
I have not always been a proponent of alternative currency to the U.S. Dollar being circulated and being used in the United States for transactions. Although to date I have not found a truly viable alternate currency (aside from true precious metals like gold, silver, etc.), I have become more and more enamoured by the theory over the past ten years though because the United States has not managed its own money very well. I think that there is a market for alternative currencies but what some Milwaukee neighborhoods are trying to establish seems to be no better than our current system:
But what these communities are planning on doing is flawed on so many levels. First of all, they are trying to establish a local currency to benefit their local communities. But in doing so, they are locking people who use it in to shopping in only local stores. This means less competition which means less downward pressure on prices. Not good for anyone with a simple understanding of economics.
Another major problem is that their currency, if $100 US would buy $110 “local”, is worth less than U.S. currency right off the bat. This means, once again, that prices inflate because ultimately, at some point, the supplier is getting goods and services from people outside of the “local” currency area. I.e. their $110 “local” only has the buying power of $100 US.
Thirdly, since the “local” currency is tied to the dollar, it’s value is based on the dollar. In order to be viable, the “local” currency must have an intrinsic value of its own and be backed by the “local” government. However, in this case it is still being backed by the United States Government by default.
You just cannot arbitrarily set an exchange rate either. Like trading your U.S. Dollars for a big screen television, trading U.S. Dollars for “local” dollars must be based on supply and demand. If people see a value in this new, local currency they will desire it and the exchange rate will go up and it will succeed. If people do not see a value in this new, local currency they will not desire it and the exchange rate will go down and it will fail. This is the same way currency exchange rates are set on the world stage (unless you have an authoritarian government like China that fixes their rates). So this is another strike against this system.
Really, all I see here is a scheme and sadly there is someone that is ultimately floating it because they see a way to better themselves while not solving any real problems. Its like a shell game. You put a ball under one of three shells and then mix them up. But no matter which shell you put the ball under you still only have one ball. All that changes is where it is.
Contributor's website: http://www.libertyreborn.com
Filed Under Economy / Economics, The Economy
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